-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B5Bn9jcqZTwO6ozJDJfDgnVQPR/KktfNsGHZpYnFJiFEbhsVcqCA8mQMUgOif4GA IYDSA+kI1lCsT9dGuW5nBA== 0001043432-02-000016.txt : 20020415 0001043432-02-000016.hdr.sgml : 20020415 ACCESSION NUMBER: 0001043432-02-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020127 FILED AS OF DATE: 20020318 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN SKIING CO /ME CENTRAL INDEX KEY: 0001043432 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 043373730 STATE OF INCORPORATION: DE FISCAL YEAR END: 0730 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13507 FILM NUMBER: 02577559 BUSINESS ADDRESS: STREET 1: P O BOX 450 STREET 2: SUNDAY RIVER ACCESS RD CITY: BETHEL STATE: ME ZIP: 04217 BUSINESS PHONE: 2078248100 MAIL ADDRESS: STREET 1: P O BOX 450 STREET 2: SUNDAY RIVER ACCESS RD CITY: BETHEL STATE: ME ZIP: 04217 FORMER COMPANY: FORMER CONFORMED NAME: ASC HOLDINGS INC DATE OF NAME CHANGE: 19970805 10-Q 1 fy0210q2qform.txt FORM 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JANUARY 27, 2002 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from____________ to ____________. -------------------------------- Commission File Number 1-13507 -------------------------------- American Skiing Company (Exact name of registrant as specified in its charter) Delaware 04-3373730 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) P.O. Box 450 Bethel, Maine 04217 (Address of principal executive office) (Zip Code) (207) 824-8100 www.peaks.com (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report.) Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares outstanding of each of the issuer's classes of common stock were 14,760,530 shares of Class A common stock, $.01 par value, and 16,957,593 shares of common stock, $.01 par value, as of March 17, 2002. Table of Contents Part I - Financial Information Item 1. Financial Statements Condensed Consolidated Statements of Operations (unaudited) for the 13 weeks ended January 27, 2002 and the 13 weeks ended January 28, 2001................................................3 Condensed Consolidated Statements of Operations (unaudited) for the 26 weeks ended January 27, 2002 and the 26 weeks ended January 28, 2001................................................4 Condensed Consolidated Balance Sheets as of January 27, 2002 (unaudited) and July 29, 2001...................................5 Condensed Consolidated Statement of Cash Flows (unaudited) for the 26 weeks ended January 27, 2002 and the 26 weeks ended January 28, 2001................................................6 Notes to (unaudited) Condensed Consolidated Financial Statements......7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements...........................................14 General..............................................................14 Liquidity and Capital Resources......................................15 Changes in Results of Operations.....................................19 Item 3. Quantitative and Qualitative Disclosures About Market Risk...........24 Item 4. Submission of Matters to a Vote of Security Holders..................24 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K.....................................25 Part I - Financial Information Item 1 Financial Statements Condensed Consolidated Statements of Operations (In thousands, except share and per share amounts) 13 weeks ended 13 weeks ended January 27, 2002 January 28, 2001 (unaudited) Net revenues: Resort $ 108,839 $ 125,539 Real estate 12,315 30,725 ------------------ ------------------- Total net revenues 121,154 156,264 Operating expenses: Resort 72,276 84,291 Real estate 11,953 26,216 Marketing, general and administrative 18,072 17,867 Non-recurring restructuring and asset impairment charges (Note 12) 26,253 - Depreciation and amortization 14,582 19,955 ----------------- ------------------- Total operating expenses 143,136 148,329 ------------------ ------------------- Income (loss) from operations (21,982) 7,935 Interest expense 13,398 14,723 ------------------ ------------------- Loss before benefit from income taxes (35,380) (6,788) Benefit from income taxes (Note 5) - (2,188) ------------------ ------------------- Loss before preferred stock dividends (35,380) (4,600) Accretion of discount and dividends accrued on Mandatorily redeemable preferred stock 8,119 5,805 ------------------ ------------------- Net loss available to common shareholders $ (43,499) $ (10,405) ================== =================== Accumulated deficit, beginning of period $ (291,786) $ (108,939) Net loss available to common shareholders (43,499) (10,405) ------------------ ------------------- Accumulated deficit, end of period $ (335,285) $ (119,344) ================== =================== Basic and diluted loss per common share (Note 3) Net loss available to common shareholders $ (1.37) $ (0.34) ================== =================== Weighted average common shares outstanding - basic and diluted 31,718,123 30,470,486 ================== =================== See accompanying notes to (unaudited) Condensed Consolidated Financial Statements. Condensed Consolidated Statements of Operations (In thousands, except share and per share amounts) 26 weeks ended 26 weeks ended January 27, 2002 January 28, 2001 (unaudited) Net revenues: Resort $ 129,157 $ 146,450 Real estate 15,106 57,941 ------------------ ------------------- Total net revenues 144,263 204,391 Operating expenses: Resort 99,450 114,633 Real estate 16,062 49,794 Marketing, general and administrative 29,463 28,310 Non-recurring restructuring and asset impairment charges (Note 12) 27,879 - Depreciation and amortization 18,838 23,957 ------------------ ------------------- Total operating expenses 191,692 216,694 ------------------ ------------------- Loss from operations (47,429) (12,303) Interest expense 27,156 27,042 ------------------ ------------------- Loss before benefit from income taxes (74,585) (39,345) Benefit from income taxes (Note 5) - (13,746) ------------------ ------------------- Loss before extraordinary item and accounting change (74,585) (25,599) Cumulative effect of accounting change, Net of taxes of $ 0 and $1,538, respectively (Note 2) 18,658 (2,509) ------------------ ------------------- Loss before preferred stock dividends (93,243) (23,090) Accretion of discount and dividends accrued on Mandatorily redeemable preferred stock 15,707 11,491 ------------------ ------------------- Net loss available to common shareholders $ (108,950) (34,581) ================== =================== Accumulated deficit, beginning of period $ (226,335) $ (84,763) Net loss available to common shareholders (108,950) (34,581) ------------------ ------------------- Accumulated deficit, end of period $ (335,285) $ (119,344) ================== =================== Basic and diluted loss per common share (Note 3) Loss from continuing operations $ (2.86) $ (1.22) Extraordinary loss, net of taxes - - Cumulative effect of change in accounting principle, net of taxes (.59) 0.08 ------------------ ------------------- Net loss available to common shareholders $ (3.45) $ (1.14) ================== =================== Weighted average common shares outstanding - basic and diluted 31,541,327 30,469,824 ================== =================== See accompanying notes to (unaudited) Condensed Consolidated Financial Statements. Condensed Consolidated Balance Sheets (In thousands, except share and per share amounts) January 27, 2002 July 29, 2001 (unaudited) Assets Current assets Cash and cash equivalents $ 22,529 $ 11,592 Restricted cash 1,821 1,372 Accounts receivable 11,073 13,825 Inventory 13,560 7,909 Prepaid expenses 7,778 5,286 Assets held for sale (Note 13) 55,026 98,219 Deferred income taxes 2,137 2,137 ---------------- ------------------ Total current assets 113,924 140,340 Property and equipment, net 430,255 440,594 Real estate developed for sale 128,128 137,478 Goodwill (Note 7) 6,887 23,518 Intangible assets (Note 6) 8,629 10,685 Deferred financing costs 14,357 16,707 Other assets 29,670 26,903 ---------------- ------------------ Total assets $ 731,850 $ 796,225 ================ ================== Liabilities, Mandatorily Redeemable Preferred Stock and Shareholders' Equity (Deficit) Current liabilities Current portion of long-term debt (Note 8) $ 259,971 $ 74,776 Current portion of subordinated notes and debentures 148,529 549 Accounts payable and other current liabilities 75,331 64,872 Deposits and deferred revenue 32,968 11,779 ---------------- ------------------ Total current liabilities 516,799 151,976 Long-term debt, excluding current portion (Note 8) - 211,362 Subordinated notes and debentures, excluding current portion (Note 10) - 126,564 Other long-term liabilities 28,240 34,992 Deferred income taxes 2,137 2,137 ---------------- ------------------ Total liabilities 547,176 527,031 Mandatorily Redeemable 10 1/2% Preferred Stock, par value of $1,000 per share; 40,000 shares authorized; 36,626 shares issued and outstanding; including cumulative Dividends; Due November 15, 2002; (redemption value of $57,033 and $54,102, respectively) 57,033 54,102 Mandatorily Redeemable 12% Series C-1 Preferred Stock, par value of $1,000 per share; 40,000 shares authorized, issued and outstanding, including cumulative dividends (redemption value of $42,036) (Note 9) 42,036 - Mandatorily Redeemable 15% Series C-2 Preferred Stock, par value of $1,000 per share; 139,453 shares authorized, issued and outstanding, including cumulative dividends (redemption value of $148,354) (Note 9) 148,354 - Mandatorily Redeemable 8 1/2% Series B Preferred Stock, par value of $1,000 per share; 150,000 shares authorized, issued and outstanding; including cumulative dividends (redemption value of $0 and $178,016, respectively) - 170,266 Shareholders' Equity (Deficit) Common stock, Class A, par value of $.01 per share; 15,000,000 shares authorized; 14,760,530 issued and outstanding 150 148 Common stock, par value of $.01 per share; 100,000,000 shares authorized; 16,957,593 and 15,708,633 issued and outstanding, respectively 167 160 Additional paid-in capital 272,219 270,853 Accumulated deficit (335,285) (226,335) ---------------- ------------------ Total shareholders' equity (deficit) (62,749) 44,826 ---------------- ------------------ Total liabilities, mandatorily redeemable preferred stock and shareholders' equity (deficit) $ 731,850 $ 796,225 ================ ================== See accompanying notes to (unaudited) Condensed Consolidated Financial Statements. Condensed Consolidated Statement of Cash Flows (In thousands) 26 weeks ended 26 weeks ended January 27, 2002 January 28, 2001 (unaudited) Cash flows from operating activities Net loss $ (93,243) $ (23,090) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 18,838 23,957 Amortization of discount on debt 199 706 Deferred income taxes - (12,203) Stock compensation charge 69 246 Cumulative effect of change in accounting principle 18,658 (4,047) Gain from sale of assets (483) (5) Decrease (increase) in assets: Restricted cash (449) (2,173) Accounts receivable 2,752 (6,074) Inventory (5,651) (5,037) Prepaid expenses (2,492) (5,621) Real estate developed for sale 9,350 26,180 Other assets (2,767) (5,215) Increase (decrease) in liabilities: Accounts payable and other current liabilities 10,459 21,945 Deposits and deferred revenue 21,188 29,774 Other long-term liabilities 912 6,989 Other, net 34,057 (2) ---------------- ------------------ Net cash provided by operating activities 11,397 46,330 ---------------- ------------------ Cash flows from investing activities Capital expenditures (5,349) (22,459) Proceeds from sale of assets 9,598 178 Other, net (6) - ---------------- ------------------ Net cash provided by (used in) investing activities 4,243 (22,281) ---------------- ------------------ Cash flows from financing activities Proceeds from Senior Credit Facility 47,018 52,202 Repayment of Senior Credit Facility (66,859) (46,628) Proceeds from long-term debt 27,050 - Proceeds from non-recourse real estate debt 17,619 19,924 Repayment of long-term debt (5,225) (2,419) Repayment of non-recourse real estate debt (25,099) (36,594) Deferred financing costs (206) (296) Proceeds from exercise of stock options 997 - Proceeds from issuance of warrants - 2,000 Other, net 2 11 ---------------- ------------------ Net cash used in financing activities (4,703) (11,800) ---------------- ------------------ Net increase in cash and cash equivalents 10,937 12,249 Cash and cash equivalents, beginning of period 11,592 10,085 ---------------- ------------------ Cash and cash equivalents, end of period $ 22,529 22,334 ================ ================== Supplementary disclosure of non-cash item: Non-cash transfer of real estate developed for sale to fixed assets $ - 26,239 See accompanying notes to (unaudited) Condensed Consolidated Financial Statements. Notes to (unaudited) Condensed Consolidated Financial Statements 1. General. American Skiing Company (the "Parent") is organized as a holding company and operates through various subsidiaries (together with the Parent, the "Company"). The Company operates in two business segments, ski resort operations and real estate development. The Company performs its real estate development through its wholly-owned subsidiary, American Skiing Company Resort Properties, Inc. ("Resort Properties"), and Resort Properties' subsidiaries, including Grand Summit Resort Properties, Inc. ("Grand Summit"). The Company's fiscal year is a fifty-two week or fifty-three week period ending on the last Sunday of July. Fiscal 2002 and fiscal 2001 are fifty-two week reporting periods, with each quarter consisting of 13 weeks. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results for interim periods are not indicative of the results expected for the year due to the seasonal nature of the Company's business. The unaudited condensed consolidated financial statements should be read in conjunction with the following notes and the Company's consolidated financial statements for the fiscal year ended July 29, 2001 included in the Company's annual report on Form 10-K, filed with the Securities and Exchange Commission on November 14, 2001. Certain amounts in the prior year's unaudited condensed consolidated financial statements and the audited financial statements as filed in the Company's Form 10-K have been reclassified to conform to the current period presentation. 2. Accounting Change. In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. This statement applies to goodwill and intangible assets acquired after June 30, 2001, as well as goodwill and intangible assets previously acquired. Under this statement, goodwill as well as certain other intangible assets determined to have an infinite life, will no longer be amortized. Instead, these assets will be reviewed for impairment on a periodic basis. The Company has elected early adoption of the provisions of SFAS No. 142 during the fiscal quarter ended October 28, 2001. As a result of the adoption of SFAS No. 142, the Company recorded an impairment charge of $18.7 million, which has been recorded as a cumulative effect of accounting change in the accompanying consolidated statement of operations. See Notes 6 and 7 for additional disclosure information required by SFAS No. 142. In the first quarter of fiscal 2001, the Company changed its method of accounting for interest rate swaps in accordance with its adoption of SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities, SFAS No. 137 Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 - an Amendment of FASB Statement No. 133 and SFAS No. 138 Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of FASB Statement No. 133 (collectively "SFAS No. 133 as amended"). SFAS No. 133 as amended requires that derivatives be recorded on the balance sheet as an asset or liability at fair value. The Company has entered into three interest rate swap agreements that do not qualify for hedge accounting under SFAS No. 133 as amended. As of July 30, 2000, the Company had $8.6 million recorded in Other Long Term Liabilities in the accompanying Consolidated Balance Sheet and had been recording the net effect of the anticipated $2.1 million in interest savings from these agreements on a straight line basis over the life of the agreements through the income statement. Upon adoption of SFAS No. 133 as amended, the fair value of these swaps was recorded as a $6.5 million asset and an $11.1 million liability, with a corresponding $4.6 million entry to cumulative effect of accounting change in earnings. The $8.6 million recorded in Other Long Term Liabilities was also recognized through a cumulative effect of accounting change in earnings, resulting in a net cumulative effect of accounting change of $4.0 million (before a $1.5 million provision for income taxes). Subsequent changes in the fair values of the swaps are being recorded through the income statement as an adjustment to interest expense. 3. Loss per Common Share. Loss per common share for the 13 weeks, and the 26 weeks ending January 27, 2002 and January 28, 2001, respectively, were determined based on the following data (in thousands): 13 weeks ended 13 weeks ended 26 weeks ended 26 weeks ended January 27, 2002 January 28, 2001 January 27, 2002 January 28, 2001 ------------------------------------------------------------------------- Loss Loss before preferred stock dividends and accretion and extraordinary items $ (35,380) $ (4,600) $ (74,585) $ (25,599) Accretion of discount and dividends accrued on Mandatorily redeemable preferred stock 8,119 5,805 15,707 11,491 ----------------- ----------------- ---------------- ---------------- Loss before extraordinary items (43,499) (10,405) (90,292) (37,090) Extraordinary loss, net of taxes - - - Cumulative effect of accounting changes, net of taxes - - 18,658 (2,509) ----------------- ----------------- ---------------- ---------------- Net loss available to common shareholders $ (43,499) $ (10,405) $ (108,950) $ (34,581) ================= ================= ================ ================ Shares ----------------- ----------------- ---------------- ---------------- Weighted average shares outstanding - basic and diluted 31,718 30,470 31,541 30,470 ================= ================= ================ ================
At January 27, 2002 and January 28, 2001, the Parent had 14,760,530 shares of its class A common stock issued and outstanding, which are convertible into shares of the Parent's common stock. The shares of the Parent's common stock issuable upon conversion of the shares of the Parent's class A common stock have been included in the calculation of the weighted average shares outstanding. At January 27, 2002, the Parent had 36,626 shares of its mandatorily redeemable 10 1/2% convertible preferred stock (the "Series A Preferred Stock") and 40,000 shares of its 12% series C-1 convertible participating preferred stock (the "Series C-1 Preferred Stock") issued and outstanding, both of which are convertible into shares of the Parent's common stock. At January 28, 2001 the Parent had 36,626 shares of Series A Preferred Stock and 150,000 shares of Series B Preferred Stock issued and outstanding, both of which are convertible into shares of the Parent's common stock. For a description of the issuance of the shares of Series C-1 Preferred Stock and the agreement by the holders of shares of Series B Preferred Stock to strip the shares of Series B Preferred Stock of all their rights (including the right to convert such shares into shares of the Parent's common stock) except for the right to elect directors of the Parent, see Note 9 to these unaudited Condensed Consolidated Financial Statements. The shares of common stock into which these preferred securities are convertible have not been included in the diluted share calculation as the impact of their inclusion would be anti-dilutive. The Parent also had 2,732,819 and 2,519,221 exercisable options outstanding to purchase shares of its common stock under the Parent's stock option plan as of January 27, 2002 and January 28, 2001, respectively. These shares are also excluded from the diluted share calculation because in each case the exercise price is greater than the average share price for the periods presented. 4. Segment Information. In accordance with SFAS No. 131, Disclosures about Segments of Enterprise and Related Information, the Company has classified its operations into two business segments, Resorts and Real Estate. The Company has concluded that each of the resorts have similar economic characteristics and meet the aggregation criteria set forth in SFAS No. 131. Revenues at each of the resorts are derived from the same lines of business which include lift ticket sales, food and beverage, retail sales including rental and repair, skier development, lodging and property management, golf, other summer activities and miscellaneous revenue sources. The performance of the resorts is evaluated on the same basis of profit or loss from operations before interest, taxes, depreciation and amortization (EBITDA). Additionally, each of the resorts has historically produced similar EBITDA margins and attracts the same class of customer. Based on the similarities of the operations at each of the resorts, the Company has concluded that the resorts satisfy the aggregation criteria set forth in SFAS No. 131. The Company's Real Estate revenues are derived from the sale and leasing of interests in real estate development projects undertaken by the Company at its resorts and the sale of other real property interests. Revenues and operating profits for each of the two reporting segments are as follows: 13 weeks ended 13 weeks ended 26 weeks ended 26 weeks ended January 27, 2002 January 28, 2001 January 27, 2002 January 28, 2001 ---------------- ----------------- ---------------- ----------------- (in thousands) Revenues: Resorts $ 108,839 $ 125,539 $ 129,157 $ 146,450 Real Estate 12,315 30,725 15,106 57,941 ---------------- ----------------- ---------------- ----------------- Total $ 121,154 $ 156,264 $ 144,263 $ 204,391 ---------------- ----------------- ---------------- ----------------- Loss before benefit from income taxes Resorts $ (31,017) $ (2,851) $ (63,688) $ (32,800) Real Estate (4,363) (3,937) (10,897) (6,545) ---------------- ----------------- ---------------- ----------------- Total $ (35,380) $ (6,788) $ (74,585) $ (39,345) ---------------- ----------------- ---------------- -----------------
5. Critical Accounting Policies. Financial Reporting Release No. 60, which was recently released by the Securities and Exchange Commission, requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. The Company considers certain accounting policies related to long-lived and intangible assets and goodwill, real estate developed for sale, and deferred taxes to be critical policies due to the estimation process involved in each. Valuation of Long Lived and Intangible Assets and Goodwill. The Company assesses the impairment of identifiable intangible assets, long-lived assets and related goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that management considers important, which could trigger an impairment review, include the following: o Significant under performance relative to expected historical or projected future operating results, o Significant changes in the manner of use of the acquired assets or the strategy for the Company's overall business, o Significant negative industry or economic trends. When the Company determines the carrying value of intangible assets, long-lived assets and related goodwill may not be recoverable based upon the existence of one or more of the above indicators of impairment, the Company will measure the impairment based on a projected discount cash flow method, determination of fair value, or other methods as appropriate. Real Estate Developed for Sale. The Company capitalizes as real estate developed for sale the original acquisition cost of land, direct construction, and development costs, property taxes, interest incurred on costs and financing related to real estate under development, and other related costs until the property reaches its intended use. The cost of sales for individual parcels of real estate or quartershare units within a project is determined using the relative sales value method. The Company assesses the impairment of the real estate developed for sale periodically and will measure an impairment based on a comparison of the carrying value of all such real estate developed for sale and the realizable value that can be achieved in the real estate market. Deferred Taxes. The Company recognizes deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. The Company regularly reviews its deferred tax assets for recoverability and establishes a valuation allowance based on historical income, projected future taxable income, and expected timing of the reversal of existing temporary differences. During fiscal year 2001, the Company determined that a valuation allowance should be recorded against its deferred tax assets for net operating loss carryforwards and other tax attributes because it is more likely than not that the benefit of such losses and attributes will not be realized. 6. Acquired Other Intangible Assets. As of January 27, 2002, acquired other intangible assets of the Company, which are entirely attributed to its Resort segment, are broken down by the following asset classes (in thousands): Gross Asset Carrying Accumulated Class Amount Amortization ------------------------- ------------ --------------- Amortized intangible assets Lease agreements $ 1,853 $ (201) ============ =============== Unamortized intangible assets Tradenames $ 6,977 ============ Amortization expense related to acquired other intangible assets was $14,000 and $28,000 for the quarter and six months ended January 27, 2002. 7. Goodwill. The changes in the carrying amount of goodwill for the 26 weeks ended January 27, 2002 are as follows (in thousands): Resort Segment ------------- Carrying value as of July 29, 2001 $ 23,518 Impairment losses (18,658) Reclassification of previously identified other intangible Assets no longer allowed under SFAS No. 141 2,027 ------------- Carrying value as of January 27, 2002 $ 6,887 ============= Goodwill associated with the Resort segment is tested for impairment at the end of each fiscal year, after the final results of the operating ski season are available. For purposes of implementing SFAS No. 142, the Company used independent third party appraisals, which were prepared using an income approach based on expected future cash flows, to establish the fair value of its reporting units as of July 30, 2001, the date of adoption. The carrying amount of the reporting units associated with the Company's 1996 acquisition of SKI, Ltd. and its subsidiaries exceeded their fair values at the date of adoption. As a result, the Company recognized a transitional impairment loss of $18.7 million, which represented a write-down of goodwill that had been allocated to those reporting units. This transitional impairment loss has been recorded as a cumulative effect of accounting change in the Company's accompanying condensed consolidated statement of operations for the 26 weeks ending ended January 27, 2002. 8. Long Term and Short Term Debt. At January 27, 2002, the Company classified all of the long term debt as current in the accompanying consolidated balance sheet. As of that date, the Company was in violation of most of its financial ratios and covenants associated with its senior credit facility, including those in relation with total debt to EBITDA ratio, EBITDA to interest expense ratio, adjusted cash flow to debt service ratio, minimum EBITDA and senior debt to EBITDA ratio, primarily as a result of shortfalls in EBITDA from planned amounts. For the six months ended January 27, 2002 the Company was below planned EBITDA by approximately $5.3 million. Although the Company obtained a waiver for the financial ratios and covenant defaults, long term debt has been reclassified to current because the Company's projections show it will be in default of several senior credit facility covenants as of the end of the next fiscal quarter unless it is successful in completing the sale of Steamboat or another significant transaction and negotiate new ratios and covenants with its lenders. Most of the Company's debt has cross default provisions that will accelerate the maturity of these obligations unless the anticipated default is corrected, the default is waived by the holder of the obligation or the debt is restructured. A copy of the waiver provided by the lenders under the Company's senior credit facility, which sets forth the scope of the waiver and its limitations and conditions, is attached as an exhibit to this report. 9. Recapitalization. On July 15, 2001, the Parent entered into a securities purchase agreement with Oak Hill Capital Partners, L.P. and certain related entities (collectively, "Oak Hill") to assist the Company in meeting its financing needs. Pursuant to the terms of the securities purchase agreement, which closed on August 31, 2001: o The Parent issued, and Oak Hill purchased, $12.5 million aggregate principal amount of junior subordinated notes (the "Junior Subordinated Notes"), which are convertible into shares of the Parent's series D participating preferred stock (the "Series D Preferred Stock"). These Junior Subordinated Notes bear interest at a rate of 11.3025%, which compounds annually and is due and payable at maturity of the Junior Subordinated Notes in July, 2007. The proceeds of the Junior Subordinated Notes were used to fund short term liquidity needs of Resort Properties by way of the purchase of certain real estate assets by the Parent from Resort Properties; o Oak Hill funded $2.5 million of the $3.5 million of availability remaining under Tranche C of the Resort Properties credit facility to facilitate amendments to such credit facility. This was the final advance under Tranche C, as the maximum availability under this facility has now been reduced from $13 million to $12 million; o Oak Hill provided a guarantee of $14 million for the financing of certain equipment related to the Heavenly gondola; o Oak Hill purchased one million shares of the Parent's common stock for an aggregate purchase price of $1 million; o Oak Hill and the Parent canceled an agreement to provide Oak Hill with warrants for 6 million shares of the Parent's common stock or 15% of the common stock of Resort Properties. In consideration of Oak Hill's agreements and commitments in accordance with the terms set forth above, the following has occurred: o The outstanding Series B Preferred Stock that was held by Oak Hill was stripped of all of its rights and preferences with the exception of the right to elect up to four directors; (plus two additional directors under the terms of Oak Hill's existing Stockholders' Agreement with the Company and Leslie B. Otten); o The Parent issued to Oak Hill two new series of Preferred Stock; (i) $40 million of Series C-1 Preferred Stock, and (ii) $139.5 million of Series C-2 Preferred Stock. The initial face value of the Series C-1 Preferred Stock and Series C-2 Preferred Stock correspond to the accrued liquidation preference of the Series B Preferred Stock immediately before being stripped of its right to such accrued liquidation preference. The Series C-1 Preferred Stock and Series C-2 Preferred Stock carry preferred dividends of 12% and 15%, respectively. At the Parent's option, dividends can either be paid in cash or accrued in additional shares. The Series C-1 Preferred Stock is convertible into common stock at a price of $1.25 per share, subject to adjustments. The Series C-2 Preferred Stock is not convertible. Both of Series C-1 Preferred Stock and Series C-2 Preferred Stock will mature in July, 2007; o At Oak Hill's option, and subject to the consent of the other lenders under the Resort Properties credit facility, Tranche C of the Resort Properties credit facility will be exchangeable in whole or in part into indebtedness of the Parent when permitted under the existing debt agreements. During July 2000, Resort Properties issued debt to Oak Hill under Tranche C of the real estate credit facility. Additionally, Oak Hill entered into a securities purchase agreement for the issuance of warrants for 6,000,000 shares of the Parent's common stock with an exercise price of $2.50 per share. Under the terms of the agreement, net share settlement was required. The transaction was accounted for as debt issued with detachable warrants under Accounting Principles Board Opinion (APB) No. 14. APB No. 14 requires the portion of the proceeds of debt securities issued with detachable stock purchase warrants, which is allocable to the warrants should be accounted for as paid-in capital. The allocation was based on the relative fair values of the two securities at the time of issuance. Upon execution of the transaction, the Parent did not issue Oak Hill the warrants. Therefore, the Company recorded a $7.7 million long term liability to represent the Parent's obligation to issue the warrants. As part of the July 15, 2001 security purchase agreement, which closed on August 31, 2001, Oak Hill agreed to cancel its right to receive these warrants, as they had an exercise price of $2.50 and the Parent's common stock was then trading at approximately $1 per share. In the first quarter of fiscal 2002, the Company reclassified the $7.7 million other long term liability to additional paid-in capital as if the warrants were issued, in accordance with EITF 96-13, "contracts that require a net share settlement should be initially measured at fair value and reported in permanent equity. Subsequent changes in fair value should not be recognized." Therefore, any change in the market value of the warrants since Oak Hill received the rights to receive the warrants, was never recognized. The Company has accounted for the termination of the liquidation preference of the Series B Preferred Stock as a capital transaction in conjunction with the accounting for the termination of the warrants described above. Accordingly, the Company reversed the carrying value of the Series B Preferred Stock of $172.1 million as of August 31, 2001 and correspondingly recorded the Series C-1 Preferred Stock and C-2 Preferred Stock at their initial face values of $40.0 million and $139.5 million, respectively. No gain or loss was recognized by the Company related to the recapitalization transactions. The Company also reclassified the $7.3 million of net remaining unamortized issuance costs related to the Series B Preferred Stock to additional paid-in capital. 10. Subordinated Notes. In June of 1996 the Parent issued $120.0 million of 12% senior subordinated notes (the "Notes"). The Notes are general unsecured obligations of the Parent, subordinated in right of payment to all existing and future senior debt of the Company, including all borrowings of the Company under its senior credit facility. The Notes are fully and unconditionally guaranteed by all subsidiaries of the Parent, with the exception of Ski Insurance, Killington West, Ltd., Uplands Water Company and Walton Pond Apartments, Inc. The above listed subsidiaries that are not guarantors are individually and collectively immaterial to the Company's balance sheet and results of operations. The guarantor subsidiaries are wholly owned subsidiaries of the Parent and its subsidiaries and the guarantees are full, unconditional, and joint and several. Some of the guarantor subsidiaries are restricted in their ability to declare dividends or advance funds to the Parent. As of January 27, 2002 the accreted value of the Notes net of issuance costs was $118 million. This balance has been classified as current in the accompanying consolidated balance sheet. Even though the Company obtained a waiver for the covenant defaults under its senior credit facility for the quarter ended January 27, 2002, the Company classified all long term debt to current because present projections estimate the Company will be in default of several senior credit facility covenants as of the end of its next fiscal quarter unless it is successful in completing the sale of Steamboat or another significant transaction and negotiating new covenants with its lenders. The Notes have a cross-default provision that will accelerate the maturity of these Notes unless the default is corrected or the default is waived by a majority of the holders of the Notes. Because of these uncertainties the Company has classified the Notes and all other long term debt as current. 11. Dividend Restrictions. Borrowers under the Resort Properties credit facility, which include American Skiing Company Resort Properties, Inc. ("Resort Properties"), and Resort Properties' subsidiaries, including Grand Summit Resort Properties, Inc. ("Grand Summit") are restricted from declaring dividends or advancing funds to the Parent by any other method, unless specifically approved by these lenders. The Parent's senior credit facility contains restrictions on the payment of dividends by the Parent on its common stock. Those restrictions prohibit the payment of dividends in excess of 50% of the Company's consolidated net income after July 31, 1997, and further prohibit the payment of dividends under any circumstances when the effect of such payment would be to cause the Company's debt to EBITDA ratio (as defined within the credit agreement) to exceed 4.0 to 1. On an annual basis, the Company has not had net income subsequent to July 31, 1997. Under the indenture governing the Notes, the Parent is prohibited from paying cash dividends or making other distributions to its shareholders, except under certain circumstances (which are not currently applicable and are not anticipated to be applicable in the foreseeable future). 12. Non-recurring Restructuring and Asset Impairment Charges. For the 13 weeks and 26 weeks ended January 27, 2002, the Company incurred $0.8 million and $2.4 million, respectively, in charges related to the implementation of its previously announced strategic restructuring plan. These costs consisted mainly of legal, consulting and financing costs incurred in connection with its Resort and Real Estate credit facility amendments and the capital infusion from Oak Hill (See Note 9). There were no employee termination costs included in the $0.8 or $2.4 million charge, as the Company had completed the staff reduction phase of its strategic restructuring plan prior to the end of fiscal 2001. All of the amounts recognized for the 13 weeks and 26 weeks ended January 27, 2002 were paid or accrued for services previously rendered in connection with this strategic restructuring plan. The Company has not established any reserves for anticipated future restructuring charges and did not have such a reserve established at the end of fiscal 2001. The Company will continue to recognize expenses associated with its strategic restructuring plan as they are incurred. In accordance with SFAS No. 121, the carrying value of the net assets for both Steamboat and Sugarbush that are subject to their respective sales were reclassified as assets held for sale on the accompanying condensed consolidated balance sheet as of July 29, 2001. The assets held for sale have been reduced to their estimated fair value based on the estimated selling price less costs to sell, resulting in a combined pre-tax loss of $67.1 million, which is included in the non-recurring merger, restructuring and asset impairment line in the consolidated statement of operations for the year ended July 29, 2001. The Company took an additional write down on Steamboat for the 13 and 26 weeks ended January 27, 2002 of $25.5 million based on modifications from preliminary estimates to the final purchase and sale agreement. 13. Assets held for Sale. The Company has previously communicated its intent to sell the Steamboat ski resort in Colorado to reduce the debt of the Company as part of its strategic plan. During October of 2001, the Company executed a non-binding letter of intent to sell Steamboat. In accordance with SFAS No. 121, Accounting for the Impairment of Long-lived Assets and for Long-Lived Assets to be Disposed Of, the Company reduced the carrying value of the net assets of the resort to the fair market value of the resort. The result was the recognition of a $50 million allowance to reduce the carrying value of the assets to fair market value. The loss was recorded in cost of operations at July 29, 2001. Additionally, the carrying value of the net assets was reclassified as assets held for sale. On January 24, 2002 the Company signed a purchase and sale agreement for the Steamboat ski resort. The proceeds from the sale of the resort are now estimated to be $25.5 million less than originally expected due in part to the delay of the sale. Therefore, the Company has recorded an additional allowance to reduce the carrying value of the net assets to the revised fair value. The additional allowance of $25.5 million has been recorded in the non-recurring restructuring and asset impairment charges line in the accompanying condensed consolidated statement of operations for the 26 weeks ended January 27, 2002. The components of the net assets held for sale as of January 27, 2002 are as follows (in thousands): -------------------------------------------------- Net Assets as of January 27, 2002 Total -------------------------------------------------- Accounts receivable $ 1,726 Inventory 1,690 Prepaid expenses 203 Property & equipment, net 80,409 Real estate developed for sale 6,500 Goodwill 59,872 Other assets 27 Accounts payable and accrued liabilities (8,605) Deposits and deferred revenues (7,452) LTD retired at closing (3,505) Other Liabilities retired at closing (339) ------------ Assets held for sale 130,526 Allowance for loss on sale (75,500) ------------ Net assets held for sale $ 55,026 -------------------------------------------------- Summary operating results of Steamboat for the 26 weeks ended January 27, 2002 and January 28, 2001, which have historically been included in the Company's resort segment in its results of operations, are as follows (in thousands): - ---------------------------------------------------------------------- 26 weeks ended January 27, 2002 January 28, 2001 ------------------------------------------------- Total revenues $ 22,748 $ 23,307 Total expenses (1) 37,618 26,486 ------------- ------------- Total income (loss) from operations $ (14,870) $ (3,179) - -------------------------------------------------------------------- (1) Included in the total expenses for the 26 weeks ended January 27, 2002 is an asset impairment charge of $25.5 million. There was also no depreciation included in total expenses for the 26 weeks ended January 27, 2002. Total depreciation included in the 26 weeks ended January 28, 2001 was $4.1 million. Annual operating results for Steamboat which have historically been included in the Company's resort segment results of operations, are as follows (in thousands): - -------------------------------------------------------------------- Fiscal Years Ended 2001 2000 - -------------------------------------------------------------------- Total revenues $ 56,035 $ 50,618 Total expenses (1) 102,171 43,904 ------------- ------------- Total income (loss) from operations $(46,136) $ 6,714 - -------------------------------------------------------------------- (1) Included in the total expenses for the year ended July 27, 2001 is an asset impairment charge of $50.0 million. Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements This document contains both historical and forward-looking statements. All statements other than statements of historical facts are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements are not based on historical facts, but rather reflect American Skiing Company's current expectations concerning future results and events. Similarly, statements that describe the Company's objectives, plans or goals are or may be forward looking statements. Such forward-looking statements involve a number of risks and uncertainties. American Skiing Company has tried wherever possible to identify such statements by using words such as "anticipate," "assume," "believe," "expect," "intend," "plan," and words and terms similar in substance in connection with any discussion of operating or financial performance. In addition to factors discussed above, other factors that could cause actual results, performances or achievements to differ materially from those projected include, but are not limited to, the following: failure to fully implement the restructuring plan outlined in Company press releases and documents on file with the Securities and Exchange Commission; the Company's substantial leverage; restrictions on the Company's ability to access additional sources of capital; a decrease in visitation at the Company's resorts as a result of the events of September 11th, and related events thereafter; changes in regional and national business and economic conditions affecting both American Skiing Company's resort operating and real estate segments; failure to renew or refinance existing financial liabilities and obligations or attain new outside financing; and other factors listed from time-to-time in American Skiing Company's documents filed by the Company with the Securities Exchange Commission. The forward looking statements included in this document are made only as of the date of this document and under section 27A of the Securities Act and section 21E of the Exchange Act, American Skiing Company does not have or undertake any obligation to publicly update any forward-looking statements to reflect subsequent events or circumstances. General The following is our discussion and analysis of the financial condition and results of operations for the quarter ended January 27, 2002. As you read the material below, we urge you to carefully consider our fiscal 2001 Annual report on Form 10-K filed on November 14, 2001 and our unaudited condensed consolidated financial statements and related notes contained elsewhere in this report. Restructuring Plan. During the 13 weeks ended January 27, 2002, we pursued the implementation of the restructuring plan announced on May 30, 2001, the details of which are set forth in our quarterly report on Form 10-Q for the quarter ended October 28, 2001. We completed the $14 million long-term financing facility of equipment relating to the Heavenly gondola on December 6, 2001. Oak Hill provided a guarantee to the lenders of this loan. However the ultimate success of this comprehensive strategic plan is dependent on the execution of the remaining plan elements, in particular the sale of Steamboat or another resort to significantly reduce leverage and improve our ability to meet our obligations under our credit facilities. We have been confronted with successive delays in the completion of the sale of Steamboat initially resulting from the tragic events of September 11th, and then due to problems encountered by the buyer in its financing of the purchase price for Steamboat. We nonetheless are targeting the completion of the sale of Steamboat within the next thirty days, even though such sale remains subject to a number of contingencies that may not be satisfied, including the release of certain liens of the transferred assets. Due to these delays we evaluated other alternatives, including the sale of certain other resorts, and the effect the completion of one or more of these alternatives would have on our leverage. The failure to consummate a transaction that will enable us to significantly reduce our leverage may have significant adverse effects on our future liquidity, operating performance and results. For a more detailed discussion, see "Resort Liquidity" below. Liquidity and Capital Resources Short Term. Our primary short term liquidity needs involve funding seasonal working capital requirements, marketing and selling our real estate development projects, funding our fiscal 2002 capital improvement program, meeting the amortization and interest payments on our debt, redeeming our Series A Preferred Stock on November 15, 2002 and exercising a $5 million lease/option payment for certain of our ski terrain at The Canyons resort. We use different sources to fund the cash requirements of our ski-related and real estate development activities. Other than the proceeds from the recapitalization described above, our primary source of liquidity for ski-related working capital and ski-related capital improvements are cash flows from operations of our non-real estate subsidiaries and borrowings under our senior credit facility. Other than the proceeds from the recapitalization described above, real estate development and real estate working capital is funded primarily through construction financing facilities established for major real estate development projects, a real estate credit facility, and net proceeds from the sale of real estate developed for sale after required construction loan repayments. These real estate facilities are without recourse to us and our resort operating subsidiaries (although defaults under these facilities could result in cross-defaults under our major credit facilities) and are collateralized by significant real estate assets of Resort Properties, and its subsidiaries, including the assets and stock of Grand Summit, our primary hotel development subsidiary. As of January 27, 2002, the book value of the total assets that collateralized these facilities and which are included in the accompanying unaudited condensed consolidated balance sheet was approximately $202.3 million. Resort Liquidity. We maintain a $156.1 million senior credit facility with Fleet National Bank, as agent, and certain other lenders. This facility consists of a $94.6 million revolving portion and a $61.5 million term portion. The revolving portion of the senior credit facility matures on May 30, 2004 and the term portion matures on May 31, 2006. On January 14, 2002, we created a $7.2 million sub-tranche under the existing revolving portion of the facility for the purpose of funding the January 15, 2002 interest payment on our Senior Subordinated Notes. As described below, we permanently reduced the term portion by $2.2 million and the availability of the revolving portion of the facility by $5.4 million in conjunction with the sale of Sugarbush on September 28, 2002. As of March 15, 2002, the outstanding amount of the term loan was $61.5 million and we had drawn or committed for letters of credit approximately $24.1 million of the total $41.2 million available under the revolving portion of our senior credit facility. Total availability under the revolver will decrease to $16.2 million on March 31, 2002, and will increase to $46.2 million on April 29, 2002, with monthly increases after April 29, 2002 until July 29, 2002. Prior to August 1, 2002 we will need to renegotiate the maximum availablility under the revolving portion of the senior credit facility which is currently deemed to be $0 as of such date, since we did not consummate the optional prepayment on or prior to December 27, 2001. We currently anticipate renegotiating these terms in conjuction with our sale of a significant asset. The term portion of the senior credit facility amortizes in five annual installments of $650,000 payable on May 31 of each year, with the remaining portion of the principal due in two substantially equal installments on May 31, 2005 and May 31, 2006. In addition, the senior credit facility requires mandatory prepayment of the term portion and a reduction in the availability under the revolving portion of an amount equal to 50% of the consolidated excess cash flows (as defined in accordance with the senior credit facility) during any period in which the excess cash flow leverage ratio exceeds 3.50 to 1. The interest rate on all term and revolving credit amounts outstanding (excluding the $5.2 million and $7.2 million sub-tranches) is equal to the Fleet National Bank Base Rate plus 3.0%, until such time that we make the optional prepayment. Should we make the $90 million optional prepayment, the interest rates will be reset to a new pricing grid under which the rates for both the term and revolving facilities will vary, based on our leverage ratios, from a minimum of the Fleet National Bank Base Rate plus 1.25% or LIBOR plus 2.50% to a maximum of the Fleet National Bank Base Rate plus 2.25% or LIBOR plus 3.75%. Should we fail to make the optional prepayment, the interest rates on both the revolving and term facilities will increase incrementally to the Fleet National Bank Base Rate plus 4.25%. The $5.2 million sub-tranche bears interest at a fixed rate of 12% and the $7.2 million sub-tranche bears interest at a fixed rate of 17.5%. The senior credit facility includes a provision for a deferred interest spread, pursuant to which interest shall accrue (effective on May 1, 2001) at a rate of 2% per annum on all amounts outstanding under the facility. We failed to make an optional prepayment on December 24, 2001 and the deferred interest spread will continue to accrue and we will be obligated to pay the deferred interest spread that has accrued as of August 1, 2002. We are in the process of negotiating with the lenders of the senior credit facility to waive this obligation in conjunction with a significant permanent reduction in the facility, which would be generated by the sale of a significant asset. As of January 27, 2002, we have accrued $2.0 million of deferred interest spread under this provision. The maximum availability of the revolving portion of the senior credit facility varies between $16.2 million and $94.6 million following a schedule we negotiated with our lenders and adjusted for the sale of Sugarbush. The revolving portion of the facility is also subject to an annual 30-day clean-down requirement, which period must include April 30 of each year, during which the sum of the outstanding principal balance and letter of credit exposure shall not exceed $16.2 million. The senior credit facility contains affirmative, negative and financial covenants customary for this type of credit facility, which includes maintaining certain financial ratios. The senior credit facility is secured by substantially all of our assets and subsidiaries except those of our real estate development subsidiaries. The senior credit facility also places an annual maximum level of non-real estate capital. For fiscal 2001, we satisfied the maximum capital expenditure requirement, as our resort capital expenditures were $8.8 million for the year (excluding the Heavenly gondola for which there was a separate approval under the credit agreement). The Heavenly gondola became operational, and began transporting skiers in December 2000. As of January 27, 2002 we have expended $24.9 million on the construction of the Heavenly gondola. The senior credit facility restricts our ability to pay dividends on our common stock. We are prohibited from paying dividends in excess of 50% of the consolidated net income of the non-real estate development subsidiaries after April 25, 1999, and further prohibited from paying dividends under any circumstances when the effect of such payment would cause the debt to EBITDA ratio of the non-real estate development subsidiaries to exceed 4.0 to 1. Based upon these and other restrictions, we do not expect to be able to pay cash dividends on our common stock, Series A preferred Stock, Series C-1 Preferred Stock and Series C-2 Preferred Stock during fiscal 2002 or fiscal 2003. During the second quarter of fiscal 2002, we paid $3.1 million in fees for failure to make a $90 million optional prepayment under the current senior credit facility agreement. We are also obligated to pay up to an additional $2.5 million in amendment fees on a periodic basis through July 31, 2002 under the senior credit facility agreement. All of these contingent fees have been recorded on our balance sheet as deferred financing costs and will be amortized against income over the remaining life of the facility. If Steamboat or a similarly sized resort is sold, the Company expects to negotiate a waiver with the lenders of the senior credit facility for all or a portion of these deferred fees. On September 28, 2001, we closed on the sale of our Sugarbush ski resort in Warren, VT to Summit Ventures NE, Inc. The net proceeds from this sale of approximately $7.3 million, after certain working capital adjustments, were used to reduce the revolving portion of our senior credit facility by $5.2 million, of which $3.3 million was a permanent reduction, and to permanently reduce the term portion by $2.2 million. In conjunction with this transaction, we also entered into a third amendment to our senior credit facility, dated as of September 10, 2001. This amendment, among other things, provides the consent of the lenders to sell the Sugarbush resort and it further reduces the maximum revolver availability amounts established in the second amendment to the facility by $1.9 million, excluding the permanent reduction based on the proceeds of the sale. As of the end of the second quarter of fiscal 2002 we were not in compliance with most of our financial covenants under the senior credit facility. On March 18, 2002 we obtained a waiver from our resort lenders that waived all pending defaults of the financial covenants included in our senior credit facility as of the end of the second quarter of fiscal 2002. We are pursuing the sale of Steamboat, the proceeds from which are expected to substantially reduce our leverage. A transaction may be completed within the next thirty days. Should we complete the Steamboat sale, we presently anticipate that we will need to negotiate revised covenants and terms to our existing credit facility in conjunction with the transaction. In the event that we are unable to complete the Steamboat sale or consummate a transaction of a similar size by the end of the third quarter of fiscal 2002, we presently anticipate that we will not be able to meet the financial covenants of the senior credit facility as of the end of the third quarter of fiscal 2002, at which time we would no longer be in compliance under these covenants and such failure will constitute an event of default thereunder. As a result, all amounts outstanding under our senior credit facility, together with accrued and unpaid interest, could be declared due and payable at any time, upon a decision by the lenders holding a majority of the aggregate principal amount outstanding and available under the senior credit facility. We would then be required to renegotiate those covenants or obtain a default waiver from our senior lenders. If we are unable to obtain acceptable amendments to or restructure our senior credit facility, we will be required to pursue one or more alternative strategies, such as selling assets, refinancing or restructuring our indebtedness, selling additional debt or equity securities, and/or any other alternatives available to us under applicable law while we implement plans and actions to satisfy our financial obligations. However, we cannot assure you that any alternative strategies would be available or feasible at the time or prove adequate. Also, some alternative strategies would require the consent of our lenders before we engage in them. If we were not able to successfully execute one or more of these alternative strategies and manage to repay the amounts outstanding under our senior credit facility, when due and payable, our lenders would have the right to proceed against the collateral granted to them to secure such indebtedness. Also, the acceleration of the indebtedness under our senior credit facility would constitute an event of default under the indenture governing our Senior Subordinated Notes. The principal and accrued but unpaid interest on these notes could then be declared due and payable at any time. On December 6, 2001, we closed on a $14 million secured loan with Fleet National Bank and Black Diamond Capital. This five-year facility, which is secured by certain equipment related to the Heavenly gondola, bears interest at a fixed rate of 10 1/2% per annum and is guaranteed by Oak Hill. Principal and interest will be repaid on a monthly amortization schedule through its maturity in December 2006. Our high leverage significantly affects our liquidity. As a result of our leveraged position, we have significant cash requirements to service interest and principal payments on our debt. Consequently, cash availability for working capital needs, capital expenditures and acquisitions is significantly limited, outside of any availability under the senior credit facility. Furthermore, our senior credit facility and the indenture governing our Senior Subordinated Notes each contain significant restrictions on our ability to obtain additional sources of capital and may affect our liquidity. These restrictions include restrictions on the sale of assets, restrictions on the incurring of additional indebtedness and restrictions on the issuance of preferred stock. As mentioned below, we currently do not anticipate that American Skiing Company Resort Properties will be able to meet all of its loan amortization obligations if we are unable to consummate the sale of Steamboat on or before March 31, 2002. We anticipate that it will also be in default of several covenants related to its Resort Properties real estate credit facility and that its subsidiary, Grand Summit Resort Properties, Inc., will not be able to meet certain of its future loan amortization obligations. In the event of a payment default under or principal acceleration of either the real estate term facility or the construction loan facility, a cross-default will occur under the Indenture governing our Senior Subordinated Notes. Such a cross-default, unless waived by a majority of the holders of the Senior Subordinated Notes, will also constitute a default under our resort senior credit facility. If a cross-default were to occur and we were unable to obtain acceptable amendments to our credit facilities, we would be required to pursue one or more alternative strategies, such as attempting to renegotiate the terms of these facilities, selling assets, refinancing or restructuring our indebtedness, selling additional debt or equity securities, and/or any other alternatives available to us under the applicable law while we implement plans and actions to satisfy our financial obligations. However, we cannot assure you that any alternative strategies will be available or feasible at the time or prove adequate. Also, some alternative strategies will require the consent of our lenders before we engage in those strategies. Our inability to successfully execute one or more of these alternative strategies would likely have a material adverse effect on our business and our company. Real Estate Liquidity. To fund working capital and fund its fiscal 2002 real estate development plan, Resort Properties relies on the net proceeds from the sale of real estate developed for sale after required construction loan repayments, a $73 million real estate credit facility and construction loans through special purpose subsidiaries. We have revised our real estate business plan and started discussions with our real estate lenders regarding near-term liquidity issues. We have experienced a significant reduction in sales activity from the previous year and as compared to our business plan for the current year as a result of the events of September 11th and the related economic slowdown. The reduction in sales activity has been significant enough that we believe we will not be able to meet the scheduled amortization requirements for our construction loan or real estate term facility in the very near future. If we are unable to make the required debt amortization and interest payments we will be in default of these loans. The purpose of the discussions with the real estate lenders is to develop a plan to amend the current facilities in such a way to avoid an event of default. Potential solutions could include rate reductions, deferred amortization of these facilities, or a consensual transfer of control by Resort Properties of all or a portion of assets that are pledged as collateral to these facilities. Real Estate Credit Facility: The Resort Properties real estate credit facility is comprised of three tranches, each with separate interest rates and maturity dates as follows: o Tranche A is a revolving facility which, as of December 11, 2001, has a current maximum principal amount of $22 million and bears interest at a variable rate equal to the Fleet National Bank Base Rate plus 2.0% (payable monthly in arrears). Mandatory principal payments on Tranche A of $3.75 million and $2.5 million each were payable on December 31, 2001 and January 31, 2002, respectively. So long as no event of default exists under the facility, the Company has the option of extending the December 31, 2001 amortization payment to March 30, 2002. We made the January 31, 2002 payment and extended the December 31, 2001 payment to March 30, 2002. We currently do not anticipate being able to make the March 31, 2002 payment unless the Steamboat transaction is completed prior to that date. Additional mandatory principal reductions will be required in certain prescribed percentages ranging from 50% to 75% of net proceeds from any future sales of undeveloped parcels. The remaining principal amount outstanding under Tranche A will be payable in full on June 30, 2003. o Tranche B is a term loan facility that has a maximum principal amount of $25 million, bears interest at a fixed rate of 18% per annum, (10% per annum is payable monthly in arrears and the remaining 8% per annum accrues, is added to the principal balance of Tranche B and bears interest at 18% per annum, compounded annually). Mandatory principal payments on Tranche B of $10 million are due on each of December 31, 2003 and June 30, 2004. The remaining $5 million in principal and all accrued and unpaid interest on Tranche B are due in full on December 31, 2004. o Tranche C is a term loan facility that has a maximum principal amount of $12 million, bears interest at an effective rate of 25% per annum and matures on December 31, 2005. Interest accrues, is added to the principal balance of Tranche C and is compounded semi-annually. As of March 8, 2002, the principal balances outstanding, including accrued and unpaid interest, under Tranches A, B and C of the second amended real estate facility were $18.8 million, $28.2 million, and $14.6 million, respectively. Security interests in, and mortgages on, substantially all of Resort Properties' assets, which primarily consist of undeveloped real property and the stock of its real estate development subsidiaries (including Grand Summit) collateralize the real estate credit facility. As of January 27, 2002, the book value of the total assets that collateralized the real estate facilities, and are included in the accompanying consolidated balance sheet, was approximately $202.3 million. Construction Loan Facility: We conduct substantially all of our real estate development through single purpose subsidiaries, each of which is a wholly owned subsidiary of Resort Properties. Grand Summit owns our existing Grand Summit Hotel projects, which are primarily financed through a $110 million construction loan facility among Grand Summit and various lenders, including TFC Textron Financial, the syndication and administrative agent. Due to construction delays and cost increases at the Steamboat Grand Hotel project, Grand Summit entered into a $10 million subordinated loan tranche with TFC Textron Financial on July 25, 2000. We have used this facility solely for the purpose of funding the completion of the Steamboat Grand Hotel. We have also issued a $3.8 million note to the general contractor for the Steamboat Grand Hotel project, for the remaining balance due under this project. Discussions have begun with the holder of the note to extend the maturity date. The balance of the note as of January 27, 2002 was $2.6 million. That note matures on March 31, 2002, and we do not anticipate being able to retire this note at maturity. As of February 24, 2002, the amount outstanding under the construction loan facility was $41.6 million and there was no availability remaining under this facility. The principal is payable incrementally as quartershare sales are closed based on a predetermined per unit amount, which approximates between 65% and 80% of the net proceeds of each closing. Mortgages against the project sites (including the completed Grand Summit Hotels at Killington, Mt. Snow, Sunday River, Attitash Bear Peak, The Canyons, and Steamboat) collateralize the facility, which is subject to covenants, representations and warranties that are customary for this type of construction facility. The facility is non-recourse to us and our resort operating subsidiaries (although it is collateralized by substantial assets of Grand Summit, having a total book value of $150.2 million as of October 28, 2001, which in turn comprise substantial assets of our business). In August 2001, we entered into amendments to our Textron construction loan and subordinated loan tranche facilities, which, among other things, reduced the effective interest rates and extended the maturity dates of these facilities. The maturity date for funds advanced under the Steamboat portion of the senior Textron facility is March 31, 2003 and the maturity date for funds advanced under the Canyons portion of the senior Textron facility is September 28, 2002. The interest rate on funds advanced under the Steamboat portion of the senior Textron facility is Prime plus 3.5% and the interest rate floor on Steamboat advances is 9.0%. The interest rate on funds advanced under The Canyons portion of the senior Textron facility is at Prime plus 2.5%, with a floor of 9.0% for advances made by Textron and 9.5% for advances made by other lenders in the syndicate. We are required to reduce the outstanding principal balance of the Textron construction facility to $50 million by March 31, 2002 and to $25 million by September 30, 2002. As of February 24, 2002 the outstanding principal balance under the construction loan was $41.6 million. However, we do not anticipate that we will be able to meet the September 30, 2002 amortization level with proceeds from anticipated quartershare unit sales over the next six months. We are closely monitoring macro and resort-specific factors affecting the sale of our current real estate inventory. Although we have been experiencing an improvement in sales activities, we have not achieved planned sales levels during the current ski season. As a result, we have opened discussions with Textron on restructuring the terms of the facility and expect those negotiations to be completed in the next 30 to 60 days, but can give no assurances that they will be completed on terms favorable to the company or will not result in loss of control of all or a portion of the collateral assets. The amended subordinated loan tranche facility bears interest at a fixed rate of 20% per annum, payable monthly in arrears, provided that only 50% of the amount of this interest shall be due and payable in cash and the other 50% of such interest shall, if no events of default exist under the subordinated loan tranche facility or the construction loan Textron facility, automatically be deferred until the final payment date. As of February 24, 2002, the amount outstanding under the subordinated loan tranche facility was $5.7 million and there was no remaining availability since the penthouses had been completed in January of 2002. Preferred Stock Requirement: We have 36,626 shares of Series A Preferred Stock outstanding, with an accreted value of $57 million as of January 27, 2002. The Series A Preferred Stock is exchangeable at the option of the holder into our common stock at a conversion price of $17.10 for each common share. On November 15, 2002, we will be required to redeem the Series A Preferred Stock at a redemption price of approximately $62 million, to the extent that we have funds legally available for such redemption. We do not expect to redeem the Series A Preferred Stock prior to its mandatory redemption date, and we can give no assurance that the necessary liquidity will be available to effect such redemption on a timely basis. We currently plan to commence discussions with the Series A Preferred Stock holders regarding the timing and manner of the redemption of the Series A Preferred Stock and/or possible alteration of the terms thereof when we have completed the remaining elements of the current restructuring plan. In the event that the Series A Preferred Stock is not redeemed on its mandatory redemption date, the Certificate of Designation for the Series A Preferred Stock provides that the holders shall be entitled to elect two additional members of our board of directors. Long Term. Our primary long term liquidity needs are to fund skiing-related capital improvements at certain of our resorts, development of our slope side real estate and the mandatory redemption of our mandatorily redeemable 10 1/2% preferred stock on November 15, 2002. With respect to capital needs, we have invested over $185 million in skiing related facilities since the beginning of fiscal 1998. As a result, and in keeping with restrictions imposed under the senior credit facility, we expect our resort capital programs for the next several fiscal years will be more limited in size. Our fiscal 2002 resort capital program is estimated at approximately $13 million (of which $5.4 million had been expended as of January 27, 2002). For our 2002 and 2003 fiscal years, we anticipate our annual maintenance capital needs to be approximately $10 to $12 million. There is a considerable degree of flexibility in the timing and, to a lesser degree, scope of our growth capital program. Although specific capital expenditures can be deferred for extended periods, continued growth of skier visits, revenues and profitability will require continued capital investment in on-mountain improvements. Following the sale of the Steamboat we anticipate that annual maintenance capital for fiscal 2003 will be reduced to the $8 to $10 million range. Our practice is to finance on-mountain capital improvements through resort cash flow, capital leases and our senior credit facility. The size and scope of the capital improvement program will generally be determined annually depending upon the strategic importance and expected financial return of certain projects, future availability of cash flow from each season's resort operations and future borrowing availability and covenant restrictions under the senior credit facility. The senior credit facility places a maximum level of non-real estate capital expenditures for fiscal 2002 and beyond at the lesser of $13.8 million, or the total of the non-real estate development subsidiaries' consolidated EBITDA for the four fiscal quarters ended in April of the previous fiscal year less consolidated debt service for the same period. Our real estate development is undertaken through our real estate development subsidiary, American Skiing Company Resort Properties. Recourse on debt incurred to finance this real estate development is limited to American Skiing Company Resort Properties and its subsidiaries, which include Grand Summit Resort Properties. This debt is usually collateralized by the projects that it finances, which, in some cases, constitute a significant portion of our assets. As of January 27, 2002, the total assets collateralizing the real estate facilities, and included in the accompanying consolidated balance sheet, totaled approximately $202.3 million. American Skiing Company Resort Properties' seven existing development projects are currently being funded by the real estate term facility and the construction loan facility. We expect to undertake future real estate development projects through special purpose subsidiaries with financing provided principally on a non-recourse basis to us and our resort operating subsidiaries. Although this financing is expected to be non-recourse to us and our resort subsidiaries, it will likely be collateralized by the real estate projects being financed, which may constitute significant assets to us. Required equity contributions for these projects must be generated before they can be undertaken, and the projects are subject to mandatory pre-sale requirements under the real estate term facility. Potential sources of equity contributions include sales proceeds from existing real estate projects and assets, (to the extent not applied to the repayment of indebtedness) and the possible sale of equity or debt interests in American Skiing Company Resort Properties or its real estate development subsidiaries. Financing commitments for future real estate development do not currently exist, and we can offer no assurance that they will be available on satisfactory terms. We will be required to establish both equity sources and construction facilities or other financing arrangements for our projects before undertaking them. Changes in Results from Operations For the 13 weeks ended January 27, 2002 compared to the 13 weeks ended January 28, 2001 Resort Operations: Sale of Sugarbush: We completed the sale of Sugarbush resort on September 28, 2001. As such Sugarbush's results of operations are not included in our accompanying statement of operations for the 13 weeks ended January 27, 2002. The results of operations for the 13 weeks ended January 28, 2001, however, include results of operations of the Sugarbush resort. For comparability purposes, the results of operations at Sugarbush are excluded from both current and prior year results in the following discussion of the results of resort operations. The following table reconciles the results from resort operations as reported for the 13 weeks ended January 27, 2002 and January 28, 2001, to the amounts used in the following discussion on results from resort operations (in thousands): Resort Results as Sugarbush Results Results Excluding Sugarbush Variance 13 Weeks ended 13 Weeks ended 13 Weeks ended Excluding ------------------------ --------------------- ----------------------- Sugarbush 1/27/02 1/28/01 1/27/02 1/28/01 1/27/02 1/28/01 ------------ ----------- ---------- ---------- ----------- ----------- ------------ Total resort revenues $ 108,839 $ 125,539 $ 1 $ 6,752 $ 108,838 $ 118,797 $ (9,949) ------------ ----------- ---------- ---------- ----------- ----------- ------------ Cost of resort operations 72,276 84,291 12 5,028 72,264 79,263 (6,999) Marketing, general and Administrative costs 18,072 17,867 10 772 18,062 17,095 967 Other non-recurring charges 26,128 - - - 26,128 - 26,128 Depreciation and amortization 13,987 18,989 - 980 13,987 18,009 (4,022) Interest expense 9,393 8,772 24 21 9,369 8,751 618 ------------ ----------- ---------- ---------- ----------- ----------- ------------ Total resort expenses 139,856 129,919 46 6,801 139,810 123,118 16,692 ------------ ----------- ---------- ---------- ----------- ----------- ------------ Loss from resort operations $ (31,017) $ (4,380) $ (45) $ (49) $ (30,972) $ (4,331) $ (26,641) ============ =========== ========== ========== =========== =========== ============ Resort EBITDA(1), excluding other non-recurring charges $ 18,491 $ 23,381 $ (21) $ 952 $ 18,512 $ 22,429 $ (3,917) ============ =========== ========== ========== =========== =========== ============
(1) We believe that earnings before interest, taxes, depreciation and amortization ("EBITDA") is an indicative measure of a resort company's operating performance and is generally used by investors to evaluate companies in the resort industry. Excluded from EBITDA in the above schedule for the 13 weeks ended January 27, 2002 was a $25.5 million asset impairment charge related to the sale of Steamboat. We have also excluded $0.6 million of restructuring charges as described in footnote 12. Excluding results of Sugarbush, resort revenues decreased 8.4%, or $10.0 million, in the second quarter of 2002 compared to the second quarter of fiscal 2001, from $118.8 million to $108.8 million, respectively. Our results of operation during the early part of the ski season were weaker than the previous year as a result of the softening economy, warmer than normal temperatures, and a lack of natural snowfall during the beginning of the ski season at most of our resorts. This resulted in decreased skier visits that directly impacted our total revenues. Additionally, during 2001, we experienced very favorable skiing conditions in the east that contributed significantly to the results of 2001. Excluding the results of Sugarbush, our resort segment generated a $31.0 million loss before income taxes and preferred dividends for the 13 weeks ended January 27, 2002, compared to a $4.3 million loss for the 13 weeks ended January 28, 2001. The resort segment operating loss increased by $26.6 million over the comparable 13 week period in fiscal 2001 primarily due to: I. $10 million decrease in revenues, primarily from reduced skier visits II. $7 million reduction in cost of resort operations, primarily from reduced skier visits and cost saving initiatives III. $4 million decrease in depreciation, primarily from the effect of SFAS No. 121 and the Steamboat resort IV. $26.1 million increase in non-recurring restructuring and asset impairment charges. V. $1.0 million increase in marketing, general and administrative costs VI. $0.6 million increase in interest expense During the 13 weeks ended January 27, 2002, we recorded an additional $25.5 million asset impairment charge related to the sale of the Steamboat resort. This charge was a result of revised estimates of the fair value of the resort based on the completed purchase and sale agreement signed January 24, 2002. The Steamboat resort was accounted for in accordance with Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. SFAS No. 121 requires the asset to be disposed of, to be separately classified as an asset held for sale on the balance sheet and that depreciation expense not be recorded during the period in which the asset is held for sale. Therefore, we did not record depreciation and amortization expenses in the accompanying condensed consolidated statement of operations. The $4 million decrease in depreciation from the previous year and was almost entirely related to taking no depreciation on Steamboat in accordance with SFAS. No. 121. We were able to generate cost savings from restructuring efforts and delayed openings of many of our resorts. However, these cost savings have been offset by the significant non-recurring restructuring and asset impairment charges as well as decreased revenues that have been experienced during the 13 weeks ended January 27, 2002. Excluding these non-recurring restructuring and asset impairment charges, our resort earning before interest, taxes, depreciation and amortization, or EBITDA, was $18.5 million and $22.4 million for the 13 weeks ended January 27, 2002 and January 28, 2001, respectively, a $3.9 million decrease. We believe that EBITDA is an indicative measure of a resort company's operating performance and is generally used by investors to evaluate companies in the resort industry. Recent Trends: Results at our resorts have improved since the early part of the ski season, but continue to fall short of the prior year. Results have been impacted positively by natural snowfall at the western resorts, as well as colder temperatures in the east that have allowed the resorts to make additional snow and provide improved skiing conditions. We have also experienced a negative impact at The Canyons from decreased skier visits which we believe to be primarily caused by the Olympics. Additionally, many of the resorts experienced strong holiday weekends during February of 2002. Real Estate Operations: We have made no adjustments for the sale of Sugarbush to our analysis of real estate operations, as there were no material real estate transactions attributed to Sugarbush during the periods discussed. Real estate revenues decreased by $ 18.4 million in the current quarter as compared to fiscal 2001, from $30.7 million to $12.3 million. During the second quarter of 2001, Real Estate operations were favorably impacted by the completion of the Steamboat Grand Hotel, The Canyons Grand Summit Hotel, and the Locke Mountain townhouses at Sunday River. We realized $16.2 million in revenues from closings of pre-sold quartershare units at the Steamboat Grand Hotel, and $5.5 million in revenue from closings at The Canyons Grand Summit Hotel during the 13 weeks ended January 28, 2001. In addition, we recognized $2.2 million of revenue during fiscal 2001 from closings at the Locke Mountain Townhomes project at Sunday River. During the second quarter of fiscal 2002, real estate revenue was primarily driven by sales at the Steamboat Grand Hotel, The Canyons Grand Summit Hotel, and the Attitash Grand Summit Hotel. The sales at the Steamboat and The Canyons Grand Summit Hotels were significantly less than anticipated. However, Attitash quartershare sales contributed $4.1 million in revenue from the execution of management's plan to reduce quartershare inventory for all Grand Summit hotels located in the east. Our Real estate segment generated a loss before income taxes of $4.4 million for the second quarter of fiscal 2002, compared to a $3.9 million loss in the second quarter of fiscal 2001. The current year's operating loss consists of $0.2 million in real estate EBITDA, offset by $4.0 million in real estate interest expense and $0.6 million in real estate depreciation and amortization. The comparative breakdown from the second quarter of fiscal 2001 was real estate EBITDA of $4.5 million, real estate interest expense of $7.5 million and real estate depreciation and amortization of $0.9 million. We believe that EBITDA is an indicative measure of the real estate segment's operating performance and is generally used by investors to evaluate companies in the real estate industry. Recent Trends: Over the past several months we have experienced a reduction in sales volume and sales leads at Steamboat and The Canyons. We believe that this is primarily the result of weakening economic conditions which have impacted destination visits at both resorts as well as Olympic related weakness in the Utah marketplace. We are monitoring the developing economic conditions and adjusting our real estate operations and plans accordingly. We do no currently have any new projects in sales or construction. We are in the development planning stage on several small projects but continue to concentrate our efforts on the reduction of existing inventory. Accretion of discount and dividends accrued on mandatorily redeemable preferred stock. The dividends on mandatorily redeemable preferred stock increased $2.3 million, from $5.8 million for the second quarter of fiscal 2001 to $8.1 million for the current quarter. This increase is attributed to the recapitalization that occurred during July of 2001, and specifically the exchange of the Series B Preferred Stock for the Series C-1 and Series C-2 Preferred Stock (as discussed previously). The Series C-1 and Series C-2 Preferred Stock carry preferred dividends of 12% and 15%, respectively, whereas the Series B carried preferred dividends at an effective rate of 9.7%. Additionally, the compounding effect of accruing dividends on the value of the preferred shares is contributing to the increase in the accompanying consolidated statement of operations for the 13 weeks ended January 27, 2002. Changes in Results from Operations For the 26 weeks ended January 27, 2002 compared to the 26 weeks ended January 28, 2001 Resort Operations: Sale of Sugarbush: We completed the sale of Sugarbush resort on September 28, 2001. As such Sugarbush's results of operations are included in our accompanying statement of operations through September 28, 2001, which covers the first two months of the 2002 fiscal year. For comparability, the results of operations for Sugarbush in both current and prior year results in our analysis of resort operations. The following table reconciles the results from resort operations as reported for the 26 weeks ended January 27, 2002 and January 28, 2001, to the amounts used in our analysis of resort operations (in thousands): Resort Results as Resported Sugarbush Results Results Excluding Sugarbush Variance 26 Weeks ended 26 Weeks ended 26 Weeks ended Excluding ------------------------ --------------------- ----------------------- Sugarbush 1/27/02 1/28/01 1/27/02 1/28/01 1/27/02 1/28/01 ------------ ----------- ---------- ---------- ----------- ----------- ------------ Total resort revenues $ 129,157 $ 146,450 $ 698 $ 7,839 $ 128,459 $ 138,611 $ (10,152) ------------ ----------- ---------- ---------- ----------- ----------- ------------ Cost of resort operations 99,450 114,633 1,153 6,999 98,297 107,634 (9,337) Marketing, general and Administrative costs 29,463 28,310 468 1,311 28,995 26,999 1,996 Other non-recurring charges 27,639 - - - 27,639 - 27,639 Depreciation and amortization 17,580 22,518 - 994 17,580 21,524 (3,944) Interest expense 18,713 16,803 32 34 18,681 16,769 1,912 ------------ ----------- ---------- ---------- ----------- ----------- ------------ Total resort expenses 192,845 182,264 1,653 9,338 191,192 172,926 18,266 ------------ ----------- ---------- ---------- ----------- ----------- ------------ Loss from resort operations $ (63,688) $(35,814) $ (955) $(1,499) $(62,733) $(34,315) $ (28,418) ============ =========== ========== ========== =========== =========== ============ Resort EBITDA(1), excluding Other non-recurring charges $ 244 $ 3,507 $ (923) $ (471) $ 1,167 $ 3,978 $ (2,811) ============ =========== ========== ========== =========== =========== ============ (1) We believe that earnings before interest, taxes, depreciation and amortization ("EBITDA") is an indicative measure of a resort company's operating performance and is generally used by investors to evaluate companies in the resort industry. Excluded from EBITDA in the above schedule for the 26 weeks ended January 27, 2002 was a $25.5 million asset impairment charge related to the sale of Steamboat. We have also excluded $2.1 million of restructuring charges as described in footnote 12.
Excluding the results of Sugarbush, resort revenues decreased 7.3%, or $10.2 million, during fiscal 2002 compared to the fiscal 2001, from $138.6 million to $128.5 million, respectively. Our results from operations during the early part of the ski season were weaker than the previous year as a result of the softening economy, warmer than normal temperatures, and a lack of natural snowfall. This resulted in decreased skier visits that directly impacted total revenues recognized during the 26 weeks ended January 27, 2002. Additionally, during 2001, we experienced very favorable skiing conditions in the east that contributed significantly to the results of fiscal 2001. Our resort segment generated a $62.7 million loss before income taxes and preferred dividends for the first 26 weeks of fiscal 2002, compared to a $34.3 million loss for the first 26 weeks of fiscal 2001. Our resort segment operating loss increased by $28.4 million compared to the prior period primarily due to $27.6 million of non-recurring restructuring and asset impairment charges. During the 26 weeks ended January 27, 2002, we recorded an additional $25.5 million asset impairment charge related to the Steamboat resort. This charge was a result of revised estimates of the fair value of the resort based on the completed purchase and sale agreement signed January 24, 2002. The sale of the Steamboat resort was accounted for in accordance with Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. SFAS No. 121 requires the asset to be disposed of to be separately classified as an asset held for sale on the balance sheet and that depreciation expense not be recorded during the period in which the asset is held for sale. Therefore, we did not record depreciation and amortization expenses in the accompanying condensed consolidated statement of operations. There was $4 million decrease in depreciation from the previous year and was almost entirely related to taking no depreciation on Steamboat in accordance with SFAS. No. 121. We were able to generate cost savings from restructuring efforts and delayed openings of many of our resorts. However, these cost savings have been offset by the significant non-recurring restructuring and asset impairment charges as well as decreased revenues that have been experienced during the 26 weeks ended January 27, 2002. Excluding these non-recurring restructuring and asset impairment charges, our resort earning before interest, taxes, depreciation and amortization, or EBITDA, was $1.2 million and $4.0 million for the 26 weeks ended January 27, 2002 and January 28, 2001, respectively, a $2.8 million decrease. We believe that EBITDA is an indicative measure of a resort company's operating performance and is generally used by investors to evaluate companies in the resort industry. Recent Trends: Results at the resorts have improved since the early part of the ski season, but continue to fall short of the prior year. Results have been impacted positively during periods of natural snowfall at the western resorts, as well as colder temperatures in the east that have allowed the resorts to make additional snow and provide improved skiing conditions. We have also experienced a negative impact at The Canyons from decreased skier visits which we believe to be primarily caused by the Olympics. Additionally, many of the resorts experienced strong holiday weekends during February. Real Estate Operations: We have not made any adjustments for the sale of Sugarbush to our analysis of real estate opertions, as there were no material real estate transactions attributed to Sugarbush during the peiods discussed. Real estate revenues decreased by $42.8 million in the current 26 week period compared to the 26 week period of fiscal 2001, from $57.9 million to $15.1 million. During the first six months of 2001, Real Estate operations were favorably impacted by the completion of the Steamboat Grand Hotel, The Canyons Grand Summit Hotel, and the Locke Mountain townhouses at Sunday River. We realized $31.8 million in revenues from closings of pre-sold quartershare units in the recently completed Steamboat Grand Hotel. We also realized $10.8 million in revenue from closings at The Canyons Grand Summit Hotel during the current quarter. In addition, we recognized $2.5 million of revenue in the current quarter from closings at the fully sold Locke Mountain Townhomes project at Sunday River. Also in fiscal 2001, we sold our option rights to certain real estate in the South Lake Tahoe Redevelopment District to Marriott Ownership Resorts, Inc., a wholly owned subsidiary of Marriott International, for $8.5 million. During the second quarter of fiscal 2002 , real estate revenue was primarily driven by sales at the Steamboat Grand Hotel, The Canyons Grand Summit Hotel, and the Attitash Grand Summit Hotel. The sales at the Steamboat and The Canyons Grand Summit Hotels were significantly less than anticipated. However, Attitash quartershare sales contributed $4.1 million in revenue from the execution of management's plan to reduce quartershare inventory for all Grand Summit hotels located in the east. Our Real estate segment generated a loss before income taxes of $10.9 million for the 26 week period ended January 27, 2002, compared to a $6.5 million loss for the 26 week period ended January 28, 2001. The current year operating loss consists of an EBITDA loss of $1.2 million, $8.4 million in real estate interest expense, and $1.3 million in real estate depreciation and amortization. The comparative breakdown from fiscal 2001 was a real estate EBITDA loss of $8.1 million, real estate interest expense of $13.2 million, and real estate depreciation and amortization of $1.4 million. We believe that EBITDA is an indicative measure of a resort company's operating performance and is generally used by investors to evaluate companies in the resort industry. Recent Trends: Over the past several months we have experienced a reduction in sales volume and sales leads at Steamboat and The Canyons. The decrease in sales volume was not anticipated for this period. We believe that this is primarily the result of weakening economic conditions which have impacted destination visits at both resorts as well as business volume weakness related to the impact of the Olympics . We are monitoring economic conditions and adjusting our real estate operations and plans accordingly. We do no currently have any new projects in sales or construction. We are in the development planning stage on several small projects but continue to concentrate our efforts on the reduction of existing inventory. Cumulative effect of accounting changes. In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. This statement applies to goodwill and intangible assets acquired after June 30, 2001, as well as goodwill and intangible assets previously acquired. Under this statement, goodwill as well as certain other intangible assets determined to have an infinite life, will no longer be amortized. Instead, these assets will be reviewed for impairment on a periodic basis. The Company has elected early adoption of the provisions of SFAS No. 142 during the fiscal quarter ended October 28, 2001. As a result of the adoption of SFAS No. 142, the Company recorded an impairment charge of $18.7 million, which has been recorded as a cumulative effect of accounting change in the accompanying consolidated statement of operations. See Notes 6 and 7 for additional disclosure information required by SFAS No. 142. In the first quarter of fiscal 2001, the Company changed its method of accounting for interest rate swaps in accordance with its adoption of SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities, SFAS No. 137 Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 - an Amendment of FASB Statement No. 133 and SFAS No. 138 Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of FASB Statement No. 133 (collectively "SFAS No. 133 as amended"). SFAS No. 133 as amended requires that derivatives be recorded on the balance sheet as an asset or liability at fair value. The Company has entered into three interest rate swap agreements that do not qualify for hedge accounting under SFAS No. 133 as amended. As of July 30, 2000, the Company had $8.6 million recorded in Other Long Term Liabilities in the accompanying Consolidated Balance Sheet and had been recording the net effect of the anticipated $2.1 million in interest savings from these agreements on a straight line basis over the life of the agreements through the income statement. Upon adoption of SFAS No. 133 as amended, the fair value of these swaps was recorded as a $6.5 million asset and an $11.1 million liability, with a corresponding $4.6 million entry to cumulative effect of accounting change in earnings. The $8.6 million recorded in Other Long Term Liabilities was also recognized through a cumulative effect of accounting change in earnings, resulting in a net cumulative effect of accounting change of $4.0 million (before a $1.5 million provision for income taxes). Subsequent changes in the fair values of the swaps are being recorded through the income statement as an adjustment to interest expense. Accretion of discount and dividends accrued on mandatorily redeemable preferred stock. The dividends on manditorily redeemable preferred stock increased $4.2 million, from $11.5 million for fiscal 2001 to $15.7 million for 2002. This increase is attributed to the recapitalization that occurred during July of 2001, and specifically the exchange of the Series B Preferred Stock for the Series C-1 and Series C-2 Preferred Stock (as discussed previously). The Series C-1 and Series C-2 Preferred Stock carry preferred dividends of 12% and 15%, respectively, whereas the Series B carried preferred dividends at an effective rate of 9.7%. Additionally, the compounding effect of accruing dividends on the value of the preferred shares is contributing to the increase in the accompanying consolidated statement of operations for the 26 weeks ended January 27, 2002. Recently Issued Accounting Standards. In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. We believe the adoption of SFAS No. 143 will not have a material impact on our results of operations or financial position and will adopt such standards on July 29, 2002, as required. In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement supercedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. This statement requires that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and it broadens the presentation of discontinued operations to include more disposal transactions. The provisions of this statement are effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early adoption permitted. We are currently evaluating whether we will early adopt the provisions of SFAS No. 144, and management will not be able to determine the ultimate impact of this statement on its results of operations or financial position until such time as its provisions are applied. Item 3 Quantitative and Qualitative Disclosures about Market Risk There have been no material changes in information relating to market risk since the Company's disclosure included in Item 7A of Form 10-K as filed with the Securities and Exchange Commission on November 14, 2001. Item 4 Submission of Matters to a Vote of Security Holders On January 2, 2002, the Company held its Annual Meeting of its shareholders to approve: o The election of the Company's Board of Directors; and o The ratification of Arthur Andersen as the Company's independent auditors for the 2002 fiscal year. The results of the Annual Meeting were as follows: The Company did solicit proxies with respect to the Annual Meeting, and the Board of Directors listed in the Company's proxy statement with respect to the Annual Meeting was re-elected in its entirety. The results of the Annual Meeting were as follows: Board Election: Voting For Voting Against or Abstaining Broker Non-Votes Withheld David Hawkes 14,790,597(1) 168,832 0 0 Paul Wachter 14,790,597(1) 168,832 0 0 Leslie B. Otten 14,760,530(2) 0 0 0 ---------------------- ----------------------- ------------------- ------------------------- Gordon Gillies 14,760,530(2) 0 0 0 Alexandra Hess 14,760,530(2) 0 0 0 Robert Branson 14,760,530(2) 0 0 0 Bradford Bernstein 150,000(3) 0 0 0 Steven Gruber 150,000(3) 0 0 0 Jay Crandall 150,000(3) 0 0 0 William Janes 150,000(3) 0 0 0 (1) Messrs. Hawkes and Wachter were elected by the holders of the Company's Common Stock. (2) Messrs. Otten, Gillies and Branson and Ms. Hess were elected by the holders of the Company's Class A Common Stock. (3) Messrs. Bernstein, Gruber, Crandall and Janes were elected by the holders of the Company's Series B Preferred Stock.
Ratification of Arthur Andersen: Voting For Voting Against Abstaining Broker Non-Votes Common Stock 14,782,096 129,767 47,566 0 Class A Common Stock 14,760,530 0 0 0 Series C-1 Preferred Stock 40,000(1) 0 0 0 ---------------------- ----------------------- ------------------- ------------------------- 10.5% Preferred Stock 36,626(2) 0 0 0 ---------------------- ----------------------- ------------------- ------------------------- Total All Classes 65,433,318(1) (2) 129,767 47,566 0 (1) The Series C-1 Preferred Stock votes together with Common Stock on an "as-if-converted" basis. The 40,000 shares of Series C-1 Preferred Stock, together with accrued and unpaid dividends, have a voting right equal to 32,641,600 shares of Common Stock. The results set forth in the "Total All Classes" row is calculated using this as-if-converted number. (2) The 10.5% Preferred Stock votes together with Common Stock on an "as-if-converted" basis. The 36,626 shares of 10.5% Preferred Stock, together with accrued and unpaid dividends, have a voting right equal to 3,249,092 shares of Common Stock. The results set forth in the "Total All Classes" row is calculated using this as-if-converted number.
Part II - Other Information Item 6 Exhibits and Reports on Form 8-K a) Exhibits Included herewith are the following material agreements entered as of in the Company's second fiscal quarter of 2002. Exhibit No. Description 10.01 Waiver Under the Amended, Restated and Consolidated Credit Agreement dated as of January 27, 2002. 10.02 Fifth Amendment to the Amended, Restated And Consolidated Credit Agreement dated January 14, 2002 with respect to the Amended, Restated and Consolidated Credit Agreement dated as of October 12, 1999 by and among American Skiing Company and the other borrowers party thereto, the lenders party thereto and Fleet National Bank, N.A. as agent 10.03 Loan Participation Agreement dated as of January 14, 2002 by and among the lenders under the Amended, Restated and Consolidated Credit Agreement dated as of October 12, 1999, as amended, and Madeleine L.L.C. b) Reports on Form 8-K The Company filed a report on Form 8-K on March 7 2002, reporting that it had received notification from the New York Stock Exchange ("NYSE") that trading on American Skiing Company's common stock will be suspended as of March 14, 2002 and the issue will be removed from the NYSE's trading list. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: March 18, 2002 /s/ William Fair - ------------- -------------------------------- William Fair Chief Executive Officer (Duly Authorized Officer) Date: March 18, 2002 /s/ Mark J. Miller - ------------- ------------------------------- Mark J. Miller Senior Vice President Chief Financial Officer (Principal Financial Officer) EX-10 3 form10q2qexh01.txt WAIVER & CONSENT WAIVER AND CONSENT WAIVER AND CONSENT dated as of January 27, 2002 (this "Waiver") with respect to the Amended, Restated and Consolidated Credit Agreement dated as of October 12, 1999 (as amended to date, the "Credit Agreement") by and among American Skiing Company ("ASC") and the other borrowers party thereto (collectively, the "Borrowers"), the lenders party thereto (the "Lenders") and Fleet National Bank, N.A. (formerly known as BankBoston, N.A.), as agent (the "Agent"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, pursuant to the Credit Agreement, the Lenders have made Loans and other financial accommodations to the Borrowers which remain outstanding; WHEREAS, certain Events of Default have occurred and are continuing; and WHEREAS, the Borrowers have requested that the Agent and the Lenders waive such Events of Default, and the Agent and the Lenders are willing to do so, but only on the terms and conditions set forth herein; WHEREAS, the Borrowers have requested that the Agent and the Lenders consent to certain transactions as set forth herein, and the Agent and the Lenders are willing to do so, but only on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS Section 1.1. Defined Terms. Unless otherwise defined herein, capitalized terms used herein have the meanings assigned in the Credit Agreement and the following terms shall have the following meanings: "Specified Events of Default": Events of Default arising or in respect of Section 10.1(b) of the Credit Agreement as a result of the Borrowers' failure to comply with Sections 7.1, 7.2, 7.3, 7.5 and 7.6 of the Credit Agreement with respect to the fiscal quarter ended January 27, 2002. "Steamboat Presentation": ASC's presentation to the Lenders dated February 7, 2002 regarding the Steamboat Sale. "Steamboat Sale": the sale by ASC of the assets or capital stock of the Steamboat Subsidiaries, pursuant to the terms of that certain Stock Purchase and Merger Agreement dated as of January 24, 2002, attached hereto as Exhibit A. ARTICLE II WAIVER; CONSENT; AGREEMENT Section 2.1. Waiver. Subject to the terms and conditions hereof, the Agent and the Lenders hereby agree to waive the Specified Events of Default. Section 2.2. Consents. (a) The Agent and the Lenders hereby consent to the Steamboat Sale; provided, that the net cash proceeds (after purchase price adjustments and repayment of certain indebtedness as outlined in the Stock Purchase and Merger Agreement) shall be applied to prepay the Loans as set forth in the Credit Agreement (less up to $7,500,000 to the lenders of American Skiing Company Resort Properties, Inc. and as otherwise identified in the Steamboat Presentation), and (b) the Lenders hereby consent to the release by the Agent of all security interests held by the Agent for the benefit of the Lenders in the assets that are the subject of the Steamboat Sale in the event of, and in conjunction with, the consummation of the Steamboat Sale, as well as the release of any other Borrowers that are transferred in conjunction with such sale. Section 2.3. Agreements The Agent, the Lenders and the Borrowers hereby agree that, notwithstanding anything to the contrary set forth in Sections 2.3 or 2.5 of the Credit Agreement or elsewhere, the Borrowers, jointly and severally, shall, as of March 18, 2002, pay interest on the unpaid balance of the Term Loans and the Revolving Credit Advances from time to time outstanding at the Base Rate plus 4.25%. ARTICLE III WAIVER EFFECTIVE DATE Section 3.1 Effective Date. This Waiver shall become effective as of the date hereof upon receipt by the Agent of (a) counterparts of this Waiver, duly executed and delivered by the Borrowers, the Agent and the Lenders and (b) payment in full in cash of the invoiced and unpaid fees and expenses of the Agent's professionals. ARTICLE IV INTERPRETATION Section 4.1. Continuing Effect of the Credit Agreement. The Borrowers, the Agent and each Lender hereby acknowledges and agrees that the Credit Agreement shall continue to be and shall remain unchanged and in full force and effect in accordance with its terms, except as expressly modified hereby. Section 4.2. No Waiver. Nothing contained in this Waiver shall be construed or interpreted or is intended as a waiver of any Default or Event of Default (other than the Specified Events of Default) or of any rights, powers, privileges or remedies that the Agent or the Lenders have or may have under the Credit Agreement, any other related document or applicable law on account of such Default or Event of Default (other than the Specified Events of Default). ARTICLE V MISCELLANEOUS Section 5.1. Representations and Warranties. The Borrowers hereby represent and warrant as of the date hereof that, after giving effect to this Waiver, (a) no Default or Event of Default has occurred and is continuing, except the Specified Events of Default, and (b) all representations and warranties of the Borrowers contained in the Credit Agreement are true and correct in all material respects with the same effect as if made on and as of such date, except that Section 5.22(a) of the Credit Agreement shall be deemed to exclude any Specified Event of Default. Section 5.2. Payment of Fees and Expenses. The Borrowers hereby agree to pay or reimburse the Agent on demand for all its reasonable out-of-pocket costs and expenses incurred in connection with the preparation and 2 execution of this Waiver, including, without limitation, the reasonable fees and disbursements of counsel to the Agent Section 5.3. Counterparts. This Waiver may be executed by the parties hereto in any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Section 5.4. GOVERNING LAW. THIS WAIVER AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS WAIVER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE COMMONWEALTH OF MASSACHUSETTS. Section 5.5. Reservation of Rights. Notwithstanding anything contained in this Waiver, the Borrowers acknowledge that the Agent and the Lenders do not waive, and expressly reserve, the right to exercise, at any time, any and all of their rights and remedies under the Credit Agreement, any other related document and applicable law on account of any Default or Event of Default (other than Specified Events of Default). Section 5.6. Confirmation of Indebtedness. The Borrowers hereby confirm and acknowledge that (i) as of the Effective Date, the Borrowers are truly and justly indebted to the Lenders, without defense, counterclaim or offset of any kind and (ii) as of March 7, 2002, the Borrowers are liable to the Lenders in respect of Loans and Letters of Credit in the aggregate principal amount of $93,373,348. Section 5.7. Waiver. The Borrowers hereby release, waive, and forever relinquish all claims, demands, obligations, liabilities and causes of action of whatever kind or nature, whether known or unknown, which any of them have, may have, or might assert at the time of execution of this Waiver or in the future against the Agent, the Lenders and/or their respective parents, affiliates, participants, officers, directors, employees, agents, attorneys, accountants, consultants, successors and assigns (collectively, the "Lender Group"), directly or indirectly, which occurred, existed, was taken, permitted or begun prior to the execution of this Waiver, arising out of, based upon, or in any manner connected with (i) any transaction, event, circumstance, action, failure to act or occurrence of any sort or type, whether known or unknown, with respect to the Credit Agreement, any other Lender Agreement and/or the administration thereof or the obligations created thereby; (ii) any discussions, commitments, negotiations, conversations or communications with respect to the refinancing, restructuring or collection of any obligations related to the Credit Agreement, any other Lender Agreement and/or the administration thereof or the obligations created thereby, or (iii) any matter related to the foregoing; provided, however, that the provisions of this Section 5.7 shall not apply to any such matters of which the Borrowers are presently unaware and which constitute or result from the gross negligence and/or willful misconduct of any member of the Lender Group. 3 IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be duly executed and delivered by their proper and duly authorized officers as of the date first above written. AMERICAN SKIING COMPANY By: /s/ Mark J. Miller -------------------------------------------- Title: Senior Vice President & CFO SUNDAY RIVER SKIWAY CORPORATION By: /s/ Mark J. Miller -------------------------------------------- Title: Senior Vice President & CFO SUNDAY RIVER LTD. By: /s/ Mark J. Miller -------------------------------------------- Title: Senior Vice President & CFO PERFECT TURN, INC. By: /s/ Mark J. Miller -------------------------------------------- Title: Senior Vice President & CFO SUNDAY RIVER TRANSPORTATION INC. By: /s/ Mark J. Miller -------------------------------------------- Title: Senior Vice President & CFO L.B.O. HOLDING, INC. By: /s/ Mark J. Miller -------------------------------------------- Title: Senior Vice President & CFO 4 SRH, INC. By: /s/ Mark J. Miller -------------------------------------------- Title: Senior Vice President & CFO S-K-I, LTD. By: /s/ Mark J. Miller -------------------------------------------- Title: Senior Vice President & CFO KILLINGTON, LTD. By: /s/ Mark J. Miller -------------------------------------------- Title: Senior Vice President & CFO MOUNT SNOW LTD. By: /s/ Mark J. Miller -------------------------------------------- Title: Senior Vice President & CFO PICO SKI AREA MANAGEMENT COMPANY By: /s/ Mark J. Miller -------------------------------------------- Title: Senior Vice President & CFO KILLINGTON RESTAURANTS, INC. By: /s/ Mark J. Miller -------------------------------------------- Title: Senior Vice President & CFO DOVER RESTAURANTS, INC. By: /s/ Mark J. Miller -------------------------------------------- Title: Senior Vice President & CFO 5 SUGARLOAF MOUNTAIN CORPORATION By: /s/ Mark J. Miller -------------------------------------------- Title: Senior Vice President & CFO MOUNTAINSIDE By: /s/ Mark J. Miller -------------------------------------------- Title: Senior Vice President & CFO ASC UTAH By: /s/ Mark J. Miller -------------------------------------------- Title: Senior Vice President & CFO STEAMBOAT SKI & RESORT CORPORATION By: /s/ Mark J. Miller -------------------------------------------- Title: Senior Vice President & CFO HEAVENLY SKI & RESORT CORPORATION By: /s/ Mark J. Miller -------------------------------------------- Title: Senior Vice President & CFO HEAVENLY CORPORATION By: /s/ Mark J. Miller -------------------------------------------- Title: Senior Vice President & CFO HEAVENLY VALLEY, LIMITED PARTNERSHIP By: Heavenly Corporation, its general partner By: /s/ Mark J. Miller -------------------------------------------- Title: Senior Vice President & CFO 6 FLEET NATIONAL BANK (successor in interest to BankBoston, N.A.), as Agent By: /s/ Daniel D. Butler -------------------------------------------- Title: Vice President FLEET NATIONAL BANK (successor in interest to BankBoston, N.A.), as a Lender By: /s/ Daniel D. Butler -------------------------------------------- Title: Vice President WELLS FARGO BANK, NATIONAL ASSOCIATION, as a Lender By: /s/ illegible -------------------------------------------- Title: AVP WELLS FARGO BANK, NATIONAL ASSOCIATION, successor by merger to First Security Bank, N.A., as a Lender By: /s/ illegible -------------------------------------------- Title: AVP U.S. BANK NATIONAL ASSOCIATION, as a Lender By: /s/ Hassan Salem -------------------------------------------- Title: Vice President 7 THE HOWARD BANK, N.A., as a Lender By: /s/ illegible -------------------------------------------- Title: BLACK DIAMOND CLO 1998-1 LTD., as a Lender By: /s/ illegible -------------------------------------------- Title: Director BLACK DIAMOND CLO 2000-1 LTD., as a Lender By: /s/ illegible -------------------------------------------- Title: Director BLACK DIAMOND INTERNATIONAL FUNDING, LTD., as a Lender By: /s/ illegible -------------------------------------------- Title: Director 8 MERRILL LYNCH PRIME RATE PORTFOLIO, as a Lender By: Merrill Lynch Asset Management, L.P., as Investment Advisor By: /s/ illegible -------------------------------------------- Title: DEBT STRATEGIES FUND, INC., as a Lender By: /s/ illegible -------------------------------------------- Title: CAPTIVA II FINANCE LTD., as a Lender By: David Dyer -------------------------------------------- Title: Director KZH-PAMCO LLC, as a Lender By: /s/illegible -------------------------------------------- Title: Authorized Agent KZH HIGHLAND-2 LLC, as a Lender By: /s/illegible -------------------------------------------- Title: Authorized Agent VAN KAMPEN PRIME RATE INCOME TRUST, as a Lender By: Van Kampen Investment Advisory Corp. By: /s/ Christina Jamieson -------------------------------------------- Title: Vice President GLENEAGLES TRADING LLC, as a Lender By: Ann E. Morris -------------------------------------------- Title: Assistant Vice President SRV-HIGHLAND, INC., as a Lender By: Ann E. Morris -------------------------------------------- Title: Assistant Vice President LONG LANE MASTER TRUST IV, as a Lender By: Fleet National Bank as Trust Administrator By: /s/ illegible -------------------------------------------- Title: EX-10 4 form10q2qexh02.txt FIFTH AMENDMENT FIFTH AMENDMENT TO THE AMENDED, RESTATED AND CONSOLIDATED CREDIT AGREEMENT FIFTH AMENDMENT dated as of January 14, 2002 (this "Amendment") with respect to the Amended, Restated and Consolidated Credit Agreement dated as of October 12, 1999, (as amended, the "Credit Agreement") by and among American Skiing Company ("American Skiing") and the other borrowers party thereto (collectively, the "Borrowers"), the lenders party thereto (the "Lenders") and Fleet National Bank, N.A. (formerly known as BankBoston, N.A.), as agent (the "Agent"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, pursuant to the Credit Agreement, the Lenders have made Loans and other financial accommodations to the Borrowers which remain outstanding; and WHEREAS, the Borrowers have requested that the Agent and the Lenders amend the Credit Agreement as set forth herein, and the Agent and the Lenders are willing to do so, but only on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS Section 1.1. Defined Terms. Unless otherwise defined herein, capitalized terms used herein have the meanings assigned in the Credit Agreement (as amended by this Amendment) and the following terms shall have the following meanings: "Closing Date": the first date on which the conditions precedent specified in Article IV of this Amendment shall have been satisfied or the satisfaction thereof shall have been waived in accordance with the terms hereof. "Participant": shall have the meaning set forth in Section 4.1. "Participated Advance Fee": shall have the meaning set forth in Section 6.2(b). ARTICLE II AMENDMENTS Section 2.1. Amendments to Section 1.1 (Definitions). (a) Section 1.1 of the Credit Agreement is hereby amended by (i) deleting the definition of Existing Revolving Credit Advances, and (ii) inserting the following definitions in their proper alphabetical order: "Existing Revolving Credit Advances" shall mean all Revolving Credit Advances, other than the Additional Revolving Credit Advances and the Participated Advances. "Fifth Amendment" shall mean the Fifth Amendment, dated as of January 14, 2002, to the Agreement, dated as of October 12, 1999 as amended by the First, Second, Third and Fourth Amendment, executed and delivered by the parties to such Agreement. "Participated Advances" shall mean those certain Revolving Credit Advances made on a non-revolving basis on the Closing Date (as defined in the Fifth Amendment) by the Revolving Credit Lenders to the Borrowers pursuant to this Agreement as amended by the Fifth Amendment in an aggregate amount not to exceed $7,200,000 the proceeds of which are to be used solely to pay interest in such amount due on January 15, 2002 under the Senior Subordinated Notes. "Steamboat Sale" shall mean any and all amounts received by the Borrowers or any of their direct or indirect Subsidiaries or from any proceeds of any sale or other disposition of, or realization on, any of the assets or capital stock, of any of the Steamboat Subsidiaries. Section 2.2. Amendment to Section 2.1 (The Revolving Credit). Section 2.1(b) of the Credit Agreement is hereby amended by (i) deleting the period at the end thereof, and (ii) inserting a new proviso in lieu thereof, as follows: "; and provided, further however, that the Additional Revolving Credit Advances and the Participated Advances shall be made on a non-revolving basis and may not be reborrowed." Section 2.3. Amendment to Section 2.3 (Interest on Revolving Credit Advances). Section 2.3 is hereby amended by deleting the last sentence thereof and inserting in lieu thereof the following sentence: "Notwithstanding anything to the contrary contained in this Section 2.3 or elsewhere in this Agreement, the Borrowers, jointly and severally, shall pay interest on the unpaid balance of (i) the Additional Revolving Credit Advances from time to time outstanding at a per annum rate equal to 12.0%, (ii) the Participated Advances from time to time outstanding at a per annum rate equal to 17.5%, and (iii) until such time as the Borrowers shall have consummated the Optional Prepayment, the Borrowers, jointly and severally, shall pay interest on the unpaid balance of the Existing Revolving Credit Advances from time to time outstanding at the following rates: (a) during the period from the Effective Date through December 31, 2001, the Base Rate plus 3.00%, (b) during the period from January 1, 2002 through April 30, 2002, the Base Rate plus 3.75%, and (c) thereafter the Base Rate plus 4.25%.". Section 2.4. Amendment to Section 4.1 (Mandatory Repayments and Prepayments). Sections 4.1(d) and (e) of the Credit Agreement are hereby amended as follows: "(d) Notwithstanding anything to the contrary contained in this Section 4.1 or elsewhere in this Agreement, (i) (A) $50,000,000 in proceeds from the Optional Prepayment (to the extent unrelated to a Steamboat Sale) shall be applied first, pro rata to prepay the outstanding Additional Revolving Credit Advances in full (together with all accrued and unpaid interest thereon), second, pro rata to prepay the Existing Revolving Credit Advances (together with all accrued and unpaid interest thereon), whereupon the Maximum Revolving Credit Amount shall be reduced by an amount equal to the amount of principal so prepaid and (B) all remaining proceeds from the Optional Prepayment (to the extent unrelated to a Steamboat Sale) shall be applied first, pro rata to the Term Loans, in inverse order of maturity (together with all accrued and unpaid interest thereon), second, pro rata to prepay any remaining outstanding Additional Revolving Credit Advances in full (together with all accrued and unpaid interest thereon), third, to pay 2 all other Lender Obligations (other than with respect to the Participated Advances) that are then due and, fourth pro rata to prepay the Participated Advances (together with all accrued and unpaid interest thereon), and (ii) the Net Cash Proceeds of any Steamboat Sale (including, in the case of any Optional Prepayment) shall be applied first, pro rata to prepay the outstanding Additional Revolving Credit Advances in full (together with all accrued and unpaid interest thereon), second, pro rata, to prepay the outstanding Participated Advances in full (together with all accrued and unpaid interest thereon), and thereafter, according to the priority set forth in Section 4.1(c)(v). (e) Except as set forth in Section 4.1(d), mandatory repayments and prepayments to the Revolving Credit Advances pursuant to this Section 4.1 shall be applied first, to the Existing Revolving Credit Advances, second, to the Additional Revolving Credit Advances, and third, only if all such Revolving Credit Advances, the Term Loans and all other Lender Obligations (other than the Participated Advances) that are then due shall have been paid in full in cash, to the Participated Advances (together with all accrued and unpaid interest thereon). Section 2.5. Amendment to Section 4.2 (Voluntary Prepayments). Section 4.2 of the Credit Agreement is hereby amended by inserting a new Section 4.2(e) at the end thereof as follows: "(e) Notwithstanding anything to the contrary contained in this Section 4.2 or elsewhere in this Agreement, the Borrowers may not voluntarily prepay the Participated Advances unless and until all Revolving Credit Advances, the Term Loans and all other Lender Obligations (other than in respect of the Participated Advances) shall have been paid in full in cash.". ARTICLE III AGREEMENTS Section 3.1. Covenant Restrictions. The Borrowers hereby agree that, notwithstanding anything to the contrary set forth in Section 9.1 of the Credit Agreement or the Second Amendment, so long as any Participated Advances shall remain outstanding, neither the Borrowers nor any Restricted Subsidiary shall create, incur, suffer or permit to exist, or assume or guarantee, directly or indirectly, Indebtedness permitted pursuant to Section 9.1(f) of the Credit Agreement, except the following: (A) Capitalized Lease Obligations and Indebtedness to purchase tangible assets (which Indebtedness may be secured by the assets so purchased) in an aggregate amount not to exceed $15,000,000, and (B) other unsecured Indebtedness in an amount not to exceed $15,000,000. Section 3.2. Agreements Deemed Agreements under the Credit Agreement. For purposes of the Credit Agreement, the agreements of the Borrowers contained in this Article III shall be deemed to be, and shall be, agreements under the Credit Agreement. Any breach on the part of the Borrowers of any agreement contained in this Article III shall constitute an Event of Default. ARTICLE IV CLOSING DATE Section 4.1 Closing Date. This Amendment shall become effective as of the date hereof upon (a) receipt by the Agent of counterparts of this Amendment, duly executed and delivered by the Borrowers, the Agent and the Lenders, (b) payment by or on behalf of the Borrowers of the Participated Advance Fee to the Person that purchases a participation interest (a "Participant") in the Participated Advances, (c) receipt by the Agent of a certificate from a duly authorized officer of the Borrowers certifying that (i) no Event of Default has occurred or is continuing as at the Closing Date, (ii) all representations and warranties set forth in any Lender Agreement are true and correct, as if made on and as of the Closing Date (except as to representations and warranties made as of a certain date, which shall be true 3 and correct as of such date), and (iii) all necessary approvals, consents and authorizations of any Person required with respect to the transactions contemplated hereby have been obtained, and (d) receipt by the Agent of a legal opinion from counsel to the Borrowers as to such matters as the Agent reasonably requested in form and substance satisfactory to the Agent and each Participant. ARTICLE V INTERPRETATION Section 5.1. Continuing Effect of the Credit Agreement. The Borrowers, the Agent and each Lender hereby acknowledges and agrees that the Credit Agreement shall continue to be and shall remain unchanged and in full force and effect in accordance with its terms, except as expressly modified hereby. Section 5.2. No Waiver. Nothing contained in this Amendment shall be construed or interpreted or is intended as a waiver of any Default or Event of Default or of any rights, powers, privileges or remedies that the Agent or the Lenders have or may have under the Credit Agreement, any other related document or applicable law on account of such Default or Event of Default. ARTICLE VI MISCELLANEOUS Section 6.1. Representations and Warranties. The Borrowers hereby represent and warrant as of the date hereof that, after giving effect to this Amendment, (a) no Default or Event of Default has occurred and is continuing, and (b) all representations and warranties of the Borrowers contained in the Credit Agreement are true and correct in all material respects with the same effect as if made on and as of such date. Section 6.2. Payment of Fees and Expenses. (a) The Borrowers hereby agree to pay or reimburse the Agent on demand for all its reasonable out-of-pocket costs and expenses incurred in connection with the preparation and execution of this Amendment, including, without limitation, the reasonable fees and disbursements of counsel to the Agent. In furtherance of the provisions of this Section 6.2 and Section 14.5 of the Credit Agreement, the Borrowers hereby agree that the Agent shall be entitled, upon one Business Day's written notice to the Borrowers, to debit any operating account of any Borrower to collect costs and expenses to which the Agent is entitled pursuant to this Section 6.2 and Section 14.5 of the Credit Agreement. Any such written notice shall identify the operating account to be debited. Additionally, the Borrowers hereby agree to pay or reimburse the Participant for reasonable fees and expenses (including the reasonable fees and disbursements of counsel) of the Participant in an aggregate amount not to exceed $25,000. (b) The Borrowers shall pay to the Participants on a pro rata basis, a fee in the amount of $288,000, payable on the Closing Date (the "Participated Advance Fee"). Section 6.3. Counterparts. This Amendment may be executed by the parties hereto in any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Section 6.4. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE COMMONWEALTH OF MASSACHUSETTS. 4 Section 6.5. Reservation of Rights. Notwithstanding anything contained in this Amendment, the Borrowers acknowledge that the Agent and the Lenders do not waive, and expressly reserve, the right to exercise, at any time, any and all of their rights and remedies under the Credit Agreement, any other related document and applicable law on account of any Default or Event of Default. Section 6.6. Confirmation of Indebtedness. The Borrowers hereby confirm and acknowledge that, as of the Closing Date, (i) the Borrowers are truly and justly indebted to the Lenders, without defense, counterclaim or offset of any kind and (ii) the Borrowers are liable to the Lenders in respect of Loans and Letters of Credit in the aggregate principal amount of $130,587,385. Section 6.7. Waiver. The Borrowers hereby release, waive, and forever relinquish all claims, demands, obligations, liabilities and causes of action of whatever kind or nature, whether known or unknown, which any of them have, may have, or might assert at the time of execution of this Amendment or in the future against the Agent, the Lenders and/or their respective parents, affiliates, participants, officers, directors, employees, agents, attorneys, accountants, consultants, successors and assigns (collectively, the "Lender Group"), directly or indirectly, which occurred, existed, was taken, permitted or begun prior to the execution of this Amendment, arising out of, based upon, or in any manner connected with (i) any transaction, event, circumstance, action, failure to act or occurrence of any sort or type, whether known or unknown, with respect to the Credit Agreement, any other Lender Agreement and/or the administration thereof or the obligations created thereby; (ii) any discussions, commitments, negotiations, conversations or communications with respect to the refinancing, restructuring or collection of any obligations related to the Credit Agreement, any other Lender Agreement and/or the administration thereof or the obligations created thereby, or (iii) any matter related to the foregoing; provided, however, that the provisions of this Section 6.7 shall not apply to any such matters of which the Borrowers are presently unaware and which constitute or result from the gross negligence and/or willful misconduct of any member of the Lender Group. 5 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the date first above written. AMERICAN SKIING COMPANY By:/s/ Mark J. Miller ----------------------------------- Title: Senior Vice President and CFO SUNDAY RIVER SKIWAY CORPORATION By:/s/ Mark J. Miller ----------------------------------- Title: Senior Vice President and CFO SUNDAY RIVER LTD. By:/s/ Mark J. Miller ----------------------------------- Title: Senior Vice President and CFO PERFECT TURN, INC. By:/s/ Mark J. Miller ----------------------------------- Title: Senior Vice President and CFO SUNDAY RIVER TRANSPORTATION INC. By:/s/ Mark J. Miller ----------------------------------- Title: Senior Vice President and CFO L.B.O. HOLDING, INC. By:/s/ Mark J. Miller ----------------------------------- Title: Senior Vice President and CFO SUGARBUSH RESORT HOLDINGS, INC. By:/s/ Mark J. Miller ----------------------------------- Title: Senior Vice President and CFO 6 SUGARBUSH LEASING COMPANY By:/s/ Mark J. Miller ----------------------------------- Title: Senior Vice President and CFO S-K-I, LTD. By:/s/ Mark J. Miller ----------------------------------- Title: Senior Vice President and CFO KILLINGTON, LTD. By:/s/ Mark J. Miller ----------------------------------- Title: Senior Vice President and CFO MOUNT SNOW LTD. By:/s/ Mark J. Miller ----------------------------------- Title: Senior Vice President and CFO PICO SKI AREA MANAGEMENT COMPANY By:/s/ Mark J. Miller ----------------------------------- Title: Senior Vice President and CFO RESORT SOFTWARE SERVICES, INC. By:/s/ Mark J. Miller ----------------------------------- Title: Senior Vice President and CFO KILLINGTON RESTAURANTS, INC. By:/s/ Mark J. Miller ----------------------------------- Title: Senior Vice President and CFO 7 DOVER RESTAURANTS, INC. By:/s/ Mark J. Miller ----------------------------------- Title: Senior Vice President and CFO SUGARLOAF MOUNTAIN CORPORATION By:/s/ Mark J. Miller ----------------------------------- Title: Senior Vice President and CFO MOUNTAINSIDE By:/s/ Mark J. Miller ----------------------------------- Title: Senior Vice President and CFO ASC UTAH By:/s/ Mark J. Miller ----------------------------------- Title: Senior Vice President and CFO STEAMBOAT SKI & RESORT CORPORATION By:/s/ Mark J. Miller ----------------------------------- Title: Senior Vice President and CFO 8 HEAVENLY SKI & RESORT CORPORATION By:/s/ Mark J. Miller ----------------------------------- Title: Senior Vice President and CFO HEAVENLY CORPORATION By:/s/ Mark J. Miller ----------------------------------- Title: Senior Vice President and CFO HEAVENLY VALLEY, LIMITED PARTNERSHIP By: Heavenly Corporation, its general partner By:/s/ Mark J. Miller ----------------------------------- Title: Senior Vice President and CFO 9 FLEET NATIONAL BANK (successor in interest to BankBoston, N.A.), as Agent By: /s/ Daniel Butler ------------------------------------- Title: FLEET NATIONAL BANK (successor in interest to BankBoston, N.A.), as a Lender By: /s/ Daniel Butler ------------------------------------- Title: WELLS FARGO BANK, NATIONAL ASSOCIATION, as a Lender By: /s/ illegible --------------------------------------- Title: AVP WELLS FARGO BANK, NATIONAL ASSOCIATION, successor by merger to First Security Bank, N.A., as a Lender By: /s/ illegible --------------------------------------- Title: AVP U.S. BANK NATIONAL ASSOCIATION, as a Lender By: /s/ illegible -------------------------------------- Title: Vice President 10 THE HOWARD BANK, N.A., as a Lender By: /s/ illegible -------------------------------------- Title: Vice President BLACK DIAMOND CLO 1998-1 LTD., as a Lender By: /s/ illegilbe -------------------------------------- Title: Director BLACK DIAMOND CLO 2000-1 LTD., as a Lender By: /s/ illegilbe -------------------------------------- Title: Director BLACK DIAMOND INTERNATIONAL FUNDING, LTD., as a Lender By: /s/ illegilbe -------------------------------------- Title: Director By:___________________________________ Title: 11 MERRILL LYNCH PRIME RATE PORTFOLIO, as a Lender By: Merrill Lynch Asset Management, L.P., as Investment Advisor By: /s/ illegible --------------------------------------- Title: DEBT STRATEGIES FUND, INC., as a Lender By: /s/ illegible --------------------------------------- Title: CAPTIVA II FINANCE LTD., as a Lender By:___________________________________ Title: KZH-PAMCO LLC, as a Lender By: /s/ Susan Lee -------------------------------------- Title: Authorized Agent KZH HIGHLAND-2 LLC, as a Lender By: /s/ Susan Lee -------------------------------------- Title: Authorized Agent 12 PAM CAPITAL FUNDING L.P., as a Lender By: Highland Capital Management, L.P., as Collateral Manager By:___________________________________ Title: PAMCO CAYMAN, LTD., as a Lender By: Highland Capital Management, L.P., as Collateral Manager By:___________________________________ Title: VAN KAMPEN PRIME RATE INCOME TRUST, as a Lender By: Van Kampen Investment Advisory Corp. By: /s/ Darvin D. Pierce -------------------------------------- Title: Executive Director 13 GLENEAGLES TRADING LLC, as a Lender By: /s/ Ann E. Morris -------------------------------------- Title: Assitant Vice President SRV-HIGHLAND, INC., as a Lender By: /s/ Ann E. Morris -------------------------------------- Title: Assitant Vice President 14 LONG LANE MASTER TRUST IV, as a Lender By: /s/ Kevin Kearns -------------------------------------- Title: Managing Director EX-10 5 form10q2qexh03.txt LOAN PARTICIPATION AGREEMENT LOAN PARTICIPATION AGREEMENT LOAN PARTICIPATION AGREEMENT dated as of January 14, 2002 (this "Participation Agreement") by and among (i) the lenders (the "Lenders") party to the Credit Agreement (as defined below), (ii) Fleet National Bank, N.A. (formerly known as BankBoston, N.A.), as agent (the "Agent") under the Credit Agreement (as defined below) and (iii) Madeleine L.L.C. (the "Participant"). W I T N E S S E T H: WHEREAS, the Lenders and the Agent are parties to that certain Amended, Restated and Consolidated Credit Agreement dated as of October 12, 1999, as amended by the First, Second, Third and Fourth Amendments thereto (the "Credit Agreement"), by and among American Skiing Company ("American Skiing") and the other borrowers party thereto (collectively, the "Borrowers"), the Lenders and the Agent; WHEREAS, pursuant to the Credit Agreement, the Lenders have made Loans and other financial accommodations to the Borrowers which remain outstanding; WHEREAS, each Revolving Credit Lender wishes to sell, transfer, assign and convey to the Participant, and the Participant wishes to purchase, accept and acquire from each such Revolving Credit Lender, an undivided junior and subordinated participating interest in each such Revolving Credit Lender's pro rata share of the Participated Advances (as defined below), in accordance with the terms and conditions set forth herein; and WHEREAS, this Participation Agreement sets forth the terms and conditions of such sale and purchase, and of the continuing administration by the Agent and the Lenders of the Credit Agreement, as may be amended, the other Lender Agreements, any Collateral and the Loans; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: Section 1. Definitions. Unless otherwise defined herein, capitalized terms used herein have the meanings assigned in the Credit Agreement and the following terms shall have the following meanings: "Fifth Amendment" shall mean the Fifth Amendment, dated as of the date hereof, to the Credit Agreement, executed and delivered on the date hereof by the parties to the Credit Agreement. "Participant" shall have the meaning set forth in the Preamble. "Participated Advances" shall mean those certain Revolving Credit Advances to be made on a non-revolving basis on the date hereof by the Revolving Credit Lenders to the Borrowers pursuant to the Credit Agreement, as amended by the Fifth Amendment, in an aggregate amount equal to $7,200,000, the proceeds of which are to be used solely to pay interest in such amount due on January 15, 2002 under the Senior Subordinated Notes. Section 2. Sale and Purchase of Junior and Subordinated Participating Interest in the Participated Advances. Each Revolving Credit Lender hereby sells, transfers, assigns and conveys to the Participant, and the Participant hereby purchases, accepts and acquires from such Revolving Credit Lender, an undivided junior and subordinated participating interest in such Revolving Credit Lender's pro rata share of the Participated Advances. Contemporaneously with the making of the Participated Advances, (i) the Participant shall pay to the Agent at the account designated in Part 1 of Schedule A hereto, for the ratable benefit of the Revolving Credit Lenders, in immediately available funds, an amount equal to the aggregate amount of the Participated Advances and (ii) the Borrowers shall pay to the Participant at the account designated in Part 2 of Schedule A hereto, in immediately available funds, an amount equal to the aggregate amount of the Participated Advance Fees (as defined in the Fifth Amendment). Section 3. Terms of Participated Advances. As set forth in the Credit Agreement, as amended by the Fifth Amendment, and notwithstanding anything to the contrary set forth in the other Lender Agreements: (a) except as provided in Section 3(b) below, any and all amounts received by the Agent or any of the Lenders from any of the Borrowers in respect of the Lender Obligations shall be applied as follows: (i) first, to pay in full in cash interest on the Lender Obligations (other than the Participated Advances) then due and payable under the Lender Agreements; (ii) second, to pay in full in cash interest on the Participated Advances then due and payable under the Lender Agreements; (iii) third, to pay or prepay in full in cash all Lender Obligations (other than in respect of the Participated Advances); and (iv) fourth, to pay or prepay in full in cash all Lender Obligations in respect of the Participated Advances. (b) any and all amounts received by the Agent or any of the Lenders from any sale or other disposition of, or realization on, any of the assets or capital stock of any of the Steamboat Subsidiaries shall be applied as follows: (i) first, to pay or prepay in full in cash all principal of and interest on the Additional Revolving Credit Advances; (ii) second, to pay or prepay in full in cash all principal of and interest on the Participated Advances; and (iii) third, to pay or prepay in full in cash the Lender Obligations in accordance with the Credit Agreement, as may be amended. If for any reason, the Agent and the Lenders are required to disgorge to any Borrower or any other Person any payments received pursuant to this Section 3(b), promptly after receipt by the Participant of notice thereof from the Agent or such Lender, pay to the Agent or such Lender, as the case may be, an amount equal to the lesser of (i) the amount so disgorged (ii) the amount received by the Participant pursuant to clause (ii) above. 2 Section 4. Subordination of Participating Interests. (a) The Participant hereby agrees that, except as provided in Section 3, (i) its junior and subordinated participating interest in the Participated Advances shall be a "last-out", "first-loss" participation and shall be junior and subordinated to each Lender's right to prior payment in full of all Lender Obligations due to such Lender, as well as to such Lender's interest in any Loans, Notes, Collateral, the Credit Agreement, as may be amended, and any other Lender Agreements including, without limitation, interest on the Loans, to the extent that such interest shall constitute an allowed claim in bankruptcy or similar proceeding, (ii) its junior and subordinated participating interest in the Participated Advances does not afford it any of the rights or privileges of a Lender under the Credit Agreement, as may be amended, or any of the other Lender Agreements, including, without limitation, (A) the right to participate in any meetings or conference calls among the Agent, the Lenders and/or the Borrowers and (B) except for the Participated Advance Fees, the right to any fees payable to the Lenders under the Credit Agreement, as may be amended, or any other Lender Agreement, (iii) the Agent and the Lenders shall retain the exclusive right to carry out the provisions of the Credit Agreement, as may be amended, and any other Lender Agreements, to enforce and collect the Loans, and otherwise to exercise and enforce all rights and privileges accruing to the Agent or any Lender with respect to the Loans, the Notes, Collateral, the Credit Agreement, as may be amended, and any other Lender Agreements, all in the Agent's or such Lender's sole business judgment, exercised in good faith, and (iv) the Agent and the Lenders may, in their sole discretion, exercised in good faith, without prior notice to the Participant, (A) agree to any amendment, modification or waiver of any of the terms of the Credit Agreement, as may be amended, or any other Lender Agreement, (B) consent to any action or failure to act by the Borrowers or any party under the Credit Agreement, as may be amended, or any other Lender Agreement, and (C) exercise or refrain from exercising any rights or remedies which the Agent or any Lender may have with respect to the Loans, the Notes, Collateral, the Credit Agreement, as may be amended, and any other Lender Agreements, including, without limitation, the right at any time, in their sole discretion, exercised in good faith, to (1) to declare, or refrain from declaring, any Loan and any Note due and payable when permitted to do so pursuant to the Credit Agreement, as may be amended, or any other Lender Agreement, (2) to foreclose and sell and otherwise deal with, or refrain from foreclosing and selling or otherwise dealing with, any Collateral, (3) to enforce, or refrain from enforcing, the Credit Agreement, as may be amended, or any other Lender Agreement or (4) to file any proof of claim with respect to the Lender Obligations, including the Participated Advances, and vote to accept or reject a plan of reorganization with respect to such claim in a bankruptcy proceeding of any Borrower; provided, however, that, notwithstanding anything to the contrary in the foregoing revisions of this Section 4(a); (x) in any bankruptcy or similar proceeding affecting any Borrower, the Agent and the Lenders shall include all Lender Obligations relating to the Participated Advances in any proof of claim filed by them with respect to the Lender Obligations or shall otherwise file such proofs of claims with respect to the Participated Advances as the Participant may reasonably request to preserve any claim against any of the Borrowers with respect to the Participated Advances; (y) without the prior written consent of the Participant, neither the Agent nor any Lender shall (I) forgive any portion or modify the amount of the principal of or the rate of interest applicable to the Participated Advances, (II) postpone the scheduled payment, repayment or prepayment of any principal of or interest on the Participated Advances, or (III) release, or subordinate any security interest in or other Lien on, all or any material portion of the Collateral for, or any material guarantor of, the Lender Obligations except in connection with dispositions made in accordance with Sections 4.1 and 9.8 of the Credit Agreement, provided that the proceeds of any such disposition are applied as provided in Section 3; and 3 (z) without the prior written consent of the Participant, neither the Agent nor any Lender shall consent to, or waive any noncompliance by the Borrowers with any covenant prohibiting, the incurrence by any of the Borrowers of (i) any Indebtedness other than Indebtedness that is permitted by the Credit Agreement and Section 3.1 of the Fifth Amendment (other than debtor-in-possession financing) or (ii) any additional Indebtedness under the Lender Agreements other than Revolving Credit Advances, Reimbursement Obligations and Swing Line Loans, in each case not to exceed the maximum amount thereof permitted under the Credit Agreement; (b) So long as any Lender Obligations are outstanding and have not been indefeasibly paid in full in cash or cash equivalents, whether or not any insolvency proceeding has been commenced by or against any Borrower, the Participant acknowledges and agrees that is has no right to, and has no right to direct the Agent or any Lender to, (i) exercise or seek to exercise any rights or remedies with respect to any Collateral, (ii) institute any action or proceeding with respect to such rights or remedies, including, without limitation, any action of foreclosure, contest, protest or objection to any foreclosure proceeding or action brought by the Lenders and/or the Agent on behalf of the Lenders, or any other exercise by the Lenders and/or the Agent on behalf of the Lenders, of any rights and remedies relating to the Collateral under the Lender Agreements or otherwise, or any release of any or all of the Collateral for any purpose, (iii) object to the forbearance by the Lenders and/or the Agent from bringing or pursuing any foreclosure proceeding or action of any other exercise of any rights or remedies relating to the Collateral, (iv) seek or request, or take action or file any motion with respect to, adequate protection or any similar right or remedy relating to the Collateral in an insolvency proceeding, or (v) contest any request by the Lenders and/or the Agent with respect to adequate protection or any similar right or remedy relating to the Collateral in an insolvency proceeding. Section 5. Collateral. All Collateral and all Lender Agreements shall be held by the Agent or any Lender, as the case may be, in its name, and the Participant shall have no interest in (i) any property taken as collateral security for any Loan made to the Borrowers by the Agent or any Lender or (ii) any property now or hereafter in the possession or control of the Agent or any Lender which may be or become collateral security for any Loan by reason of (a) the general description contained in any general loan agreement or note or security agreement or other collateral document held by the Agent or any Lender or (b) any right of setoff, counterclaim, banker's lien or otherwise. Section 6. Delivery of Documents and Information. Unless prohibited from doing so by the Credit Agreement, as may be amended, or any other Lender Agreement, the Agent will furnish to the Participant, upon request, a copy of each material document, certificate, report and financial statement which the Agent shall receive from time to time pursuant to the Credit Agreement, as may be amended. The Agent will use reasonable efforts to advise the Participant of (a) the existence of a Default or Event of Default, (b) any acceleration of any Lender Obligations, (c) the Steamboat Sale, and (d) any material factual information which relates to the Steamboat Sale or which has a material effect on the creditworthiness or operations of the Borrowers; provided, however, that the Agent shall have no obligation to disclose to the Participant any confidential information which the Agent is prohibited from disclosing pursuant to the Credit Agreement, as may be amended, or any other Lender Agreement until the Agent shall have received any required consent of the Borrowers. Failure of the Agent to provide any such information referred to in clauses (a) through (d) above shall not result in any liability to the Agent. Section 7. Payments on Account of Participated Advances. Each of the Agent and the Lenders shall apply any and all amounts received from any of the Borrowers or from proceeds of any Collateral in accordance with Section 3, with any and all payments payable to the Participant to be made to it at the account specified in Part B of Schedule A hereto. In the event that any payment or distribution of assets of the Borrowers, whether in cash, property or 4 securities shall be received by the Participant otherwise than in accordance with the priorities set forth in Section 3, such payment or distribution shall be held in trust for the benefit of the Agent and the Lenders and shall be immediately paid over or delivered to the Agent, on behalf of the Lenders, for disposition in accordance herewith. Section 8. Limitation of Liability. (a) The Agent and the Lenders shall not be liable to the Participant for any error in judgment or for any action taken or omitted to be taken by the Agent or any Lender in good faith. Without limiting the foregoing, the Agent and each Lender may rely upon the advice of counsel or other professionals concerning legal or other matters and upon any written document believed by it to be genuine and correct and to have signed or sent by the proper and duly authorized Person or Persons. (b) Neither the Agent nor any Lender shall be required to make any inquiry concerning the Borrowers' or any other Person's obligations to the Agent or the Lenders under the Credit Agreement, as may be amended, any Note or any of the other Lender Agreements or to inspect the properties or books and records of the Borrowers or any such other Person. (c) Neither the Agent nor any Lender makes any representation or warranty or assumes any responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement, as may be amended, or any other Lender Agreement, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement, as may be amended, any Note, any other Lender Agreement or any other instrument or document furnished pursuant thereto, (iii) the financial condition of the Borrowers or any party to any Lender Agreement or (iv) the performance of the Borrowers' obligations under the Credit Agreement, as may be amended, any Note and any Lender Agreement or the obligations of any other party to any Lender Agreement. (d) Except as provided in Section 4, neither the Agent nor any Lender shall be under any duty to file or record any documents relating to any Collateral or to maintain any such filings or recordings. (e) Except as provided in Section 6, neither the Agent nor any Lender shall have any duty or responsibility to provide the Participant with any credit or other information concerning the affairs, financial condition or business of the Borrowers or any parties to any other Lender Agreements which may come into the possession of the Agent or any Lender, or any of their affiliates. Section 9. Transferability. Participant acknowledges that each Lender may assign or sell participations or other interests in the Loans, other than the Participated Advances, to others. Participant hereby agrees that it will not sell, assign, convey or otherwise dispose of, or create or permit to exist any lien or other security interest upon all or any part of its junior and subordinated participating interest without the consent of the Agent and the Lenders which consent shall not be unreasonably withheld. Notwithstanding anything to the contrary in the preceding sentence, Participant shall be permitted to sell or assign its participating interest to any affiliate of Participant; provided, that such affiliate agrees to become a party to this Agreement and shall have all the rights and obligations of Participant hereunder. Section 10. Representations and Agreements by Participant. The Participant hereby represents and warrants that (a) it has entered into this Participation Agreement on the basis of its own credit evaluation of, or independent commercial relationship with, the Borrowers, based on such documents and information as the Participant has deemed appropriate, independently and without reliance upon any Lender or the Agent and (b) it will continue to make, independently and without reliance upon any Lender or the Agent, and based on such documents and information as it deems appropriate, its own appraisal of and 5 investigation into the financial condition, creditworthiness, affairs, status and nature of the Borrowers and any party to any other Lender Agreements and its own decision to take actions under this Participation Agreement. Section 11. Assignment. After the indefeasible payment in full in cash of all Lender Obligations (other than with respect to the Participated Advances) and the termination of all obligations of the Lenders to make Revolving Credit Advances, the Swing Line Lender to make Swing Line Loans and the obligation of the Issuing Bank to issue, extend or renew Letters of Credit, each of the Agent and the Lenders shall, without representation, warranty or recourse of any kind and at the sole cost and expense of the Participant and to the extent that such assignment is not prohibited by applicable law or court order, (i) assign to the Participant all Liens on and other interests in the Collateral and all of its rights with respect thereto and all of its rights, title and interest under the Lender Agreements, and (ii) in connection with such assignment, execute all such documents and take such other action as the Participant may reasonably request to obtain the benefits intended to be conferred by such assignment; provided, however, upon such assignment (x) nothing herein or in the Credit Agreement, as amended by the Fifth Amendment, shall be deemed to result in, the Cerberus Purchase Agreement, the 10.5% Repriced Convertible Exchangeable Preferred Stock, The Series A Certificate of Designation or any other agreement or instrument evidencing the Cerberus Investment being a Lender Agreement and the obligations arising thereunder shall not be deemed Lender Obligations, and (y) no Collateral, shall by reason of any such documents, secure the obligations of any Borrower with respect to the Cerberus Investment. Section 12. Miscellaneous. (a) Notices. All notices, requests and demands under this Participation Agreement to be effective shall be in writing (or by telex, fax or similar electronic transfer confirmed in writing) and shall be deemed to have been duly given or made when delivered by hand, or three Business Days after being deposited in the mail, postage prepaid, or if by telex, fax or similar electronic transfer, when sent and receipt has been confirmed, addressed to any Lender, the Agent or the Participant at its address or transmission number for notices provided on the signature page hereto or, in the case of any Lender, as provided in the Credit Agreement, as may be amended. The parties may change their addresses and transmission numbers for notices by notice in the manner provided in this paragraph. (b) Waivers and Amendments; Successors and Assigns. None of the terms or provisions of this Participation Agreement may be waived, amended, supplemented or otherwise modified except by a written instrument executed by each Lender, the Agent and the Participant. This Participation Agreement shall be binding upon and inure to the benefit of each parties' successors and assigns. (c) GOVERNING LAW. THIS PARTICIPATION AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS PARTICIPATION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE COMMONWEALTH OF MASSACHUSETTS. (d) Integration. This Participation Agreement constitutes the entire understanding of the parties hereto with respect to the transactions contemplated hereby. (e) Counterparts. This Participation Agreement may be executed by the parties hereto in any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. (f) Continuing Agreement. This agreement is a continuing agreement and shall remain in full force and effect until the earlier of (i) 6 such date upon which all of the Lender Obligations, including without limitation the principal of and interest on the Participated Advances, shall have been indefeasibly paid in full in cash and (ii) date on which the assignment described in Section 11 shall have been consummated and all deliveries in connection therewith made in accordance with such Section. Section 13. Acknowledgement. The Borrowers hereby acknowledge the purchase and sale of the Participated Advances pursuant to the terms of this Participation Agreement and agree that they shall not prepay or repay the Loans in any way that would result in a violation of Section 3. IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective duly authorized officers. MADELEINE L.L.C. By:___________________________________ Title: 450 Park Avenue, 28th Floor, New York, New York, 10022 Attention: _______________ Tel. no.: ________________ Fax no.: ________________ FLEET NATIONAL BANK (successor in interest to BankBoston, N.A.), as Agent By: /s/ Daniel Butler ----------------------------------- Title: Vice President FLEET NATIONAL BANK (successor in interest to BankBoston, N.A.), as a Lender By: /s/ Daniel Butler ----------------------------------- Title: Vice President WELLS FARGO BANK, NATIONAL ASSOCIATION, as a Lender By: /s/ illegible ---------------------------------- Title: Assistant Vice President WELLS FARGO BANK, NATIONAL ASSOCIATION, successor by merger to First Security Bank, N.A., as a Lender By: /s/ illegible ---------------------------------- Title: Assistant Vice President U.S. BANK NATIONAL ASSOCIATION, as a Lender By: /s/ illegible ------------------------------------ Title: Vice President THE HOWARD BANK, N.A., as a Lender By:/s/ illegible ------------------------------------ Title: Vice President BLACK DIAMOND CLO 1998-1 LTD., as a Lender By: /s/ illegible ------------------------------------ Title: Vice President BLACK DIAMOND CLO 2000-1 LTD., as a Lender By: /s/ illegible ------------------------------------ Title: Director BLACK DIAMOND INTERNATIONAL FUNDING, LTD., as a Lender By: /s/ illegible ------------------------------------ Title: Director By:___________________________________ Title: MERRILL LYNCH PRIME RATE PORTFOLIO, as a Lender By: Merrill Lynch Investment Managers, L.P., as Investment Advisor By: /s/ illegible ------------------------------------ Title: Director DEBT STRATEGIES FUND, INC., as a Lender By: /s/ illegible ------------------------------------ Title: Director CAPTIVA II FINANCE LTD., as a Lender By:___________________________________ Title: KZH-PAMCO LLC, as a Lender By: ------------------------------------ Title: Authorized Agent KZH HIGHLAND-2 LLC, as a Lender By: /s/ Susan Lee ------------------------------------ Title: Authorized Agent PAM CAPITAL FUNDING L.P., as a Lender By: Highland Capital Management, L.P., as Collateral Manager By:___________________________________ Title: PAMCO CAYMAN, LTD., as a Lender By: Highland Capital Management, L.P., as Collateral Manager By:___________________________________ Title: VAN KAMPEN PRIME RATE INCOME TRUST, as a Lender By: Van Kampen Investment Advisory Corp. By: /s/ Darvin D. Pierce ------------------------------------ Title: Executive Director GLENEAGLES TRADING LLC, as a Lender By: /s/ Ann E. Morris ----------------------------------- Title: Asst. Vice President SRV-HIGHLAND, INC., as a Lender By: /s/ Ann E. Morris ----------------------------------- Title: Asst. Vice President LONG LANE MASTER TRUST IV, as a Lender By: /s/ Kevin Kearns ------------------------------------ Title: Managing Director AGREED AND ACKNOWLEDGED: AMERICAN SKIING COMPANY By /s/ Mark J. Miller --------------------------------- Title: Senior Vice President and CFO SUNDAY RIVER SKIWAY CORPORATION By /s/ Mark J. Miller --------------------------------- Title: Senior Vice President and CFO SUNDAY RIVER LTD. By /s/ Mark J. Miller --------------------------------- Title: Senior Vice President and CFO PERFECT TURN, INC. By /s/ Mark J. Miller --------------------------------- Title: Senior Vice President and CFO SUNDAY RIVER TRANSPORTATION INC. By /s/ Mark J. Miller --------------------------------- Title: Senior Vice President and CFO L.B.O. HOLDING, INC. By /s/ Mark J. Miller --------------------------------- Title: Senior Vice President and CFO SUGARBUSH RESORT HOLDINGS, INC. By /s/ Mark J. Miller --------------------------------- Title: Senior Vice President and CFO SUGARBUSH LEASING COMPANY By /s/ Mark J. Miller --------------------------------- Title: Senior Vice President and CFO S-K-I, LTD. By /s/ Mark J. Miller --------------------------------- Title: Senior Vice President and CFO KILLINGTON, LTD. By /s/ Mark J. Miller --------------------------------- Title: Senior Vice President and CFO MOUNT SNOW LTD. By /s/ Mark J. Miller --------------------------------- Title: Senior Vice President and CFO PICO SKI AREA MANAGEMENT COMPANY By /s/ Mark J. Miller --------------------------------- Title: Senior Vice President and CFO RESORT SOFTWARE SERVICES, INC. By /s/ Mark J. Miller --------------------------------- Title: Senior Vice President and CFO KILLINGTON RESTAURANTS, INC. By /s/ Mark J. Miller --------------------------------- Title: Senior Vice President and CFO DOVER RESTAURANTS, INC. By /s/ Mark J. Miller --------------------------------- Title: Senior Vice President and CFO SUGARLOAF MOUNTAIN CORPORATION By /s/ Mark J. Miller --------------------------------- Title: Senior Vice President and CFO MOUNTAINSIDE By /s/ Mark J. Miller --------------------------------- Title: Senior Vice President and CFO ASC UTAH By /s/ Mark J. Miller --------------------------------- Title: Senior Vice President and CFO STEAMBOAT SKI & RESORT CORPORATION By /s/ Mark J. Miller --------------------------------- Title: Senior Vice President and CFO HEAVENLY SKI & RESORT CORPORATION By /s/ Mark J. Miller --------------------------------- Title: Senior Vice President and CFO HEAVENLY CORPORATION By /s/ Mark J. Miller --------------------------------- Title: Senior Vice President and CFO HEAVENLY VALLEY, LIMITED PARTNERSHIP By: Heavenly Corporation, its general partner By /s/ Mark J. Miller --------------------------------- Title: Senior Vice President and CFO -----END PRIVACY-ENHANCED MESSAGE-----