-----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, WB/qC5QYg0R+yFJCYs8rzPG7WQSHTnY4gBEKMUVWrYLayzRfydRCvvqd25pDQccY mY9qbn95xjNJkCC+EM5/uA== 0001001277-99-000012.txt : 19990201 0001001277-99-000012.hdr.sgml : 19990201 ACCESSION NUMBER: 0001001277-99-000012 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981030 FILED AS OF DATE: 19990129 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOOTH CREEK SKI HOLDINGS INC CENTRAL INDEX KEY: 0001037253 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 841359604 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-26091 FILM NUMBER: 99516834 BUSINESS ADDRESS: STREET 1: 9705 HGWY 267 STE #2 CITY: TRUCKEE STATE: CA ZIP: 96161 BUSINESS PHONE: 5305505108 MAIL ADDRESS: STREET 1: 9705 HGWY 267 STE #2 CITY: TRUCKEE STATE: CA ZIP: 96161 10-K 1 10-K - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ FORM 10-K (Mark One) [GRAPHIC OMITTED] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: October 30, 1998 OR [GRAPHIC OMITTED] 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: 333-26091 BOOTH CREEK SKI HOLDINGS, INC. (Exact name of registrant as specified in its charter) Delaware 84-1359604 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1000 South Frontage Road West, Suite 100 Vail, Colorado 81657 (970) 476-4030 (Address, including zip code and telephone number, including area code, of registrant's principal executive offices) ------------------ Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: None. ------------------ Indicate by check mark 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 [GRAPHIC OMITTED] No [GRAPHIC OMITTED] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [GRAPHIC OMITTED] As of January 15, 1999, the number of shares outstanding of the registrant's Common Stock, par value $.01 per share, was 1,000 shares. There is no trading market for the Common Stock. Accordingly, the aggregate market value of the Common Stock held by non-affiliates of the registrant is not determinable. See Part II, Item 5 of this Report. - ------------------------------------------------------------------------------ TABLE OF CONTENTS Item Page Number - ---- ------------ PART I 1. Business................................................. 2 2. Properties............................................... 20 3. Legal Proceedings........................................ 20 4. Submission of Matters to a Vote of Security Holders...... 23 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters...................................... 24 6. Selected Financial Data.................................. 24 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ..................... 27 8. Financial Statements and Supplementary Data.............. 36 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................. 36 PART III 10. Directors and Executive Officers of the Registrant....... 37 11. Executive Compensation................................... 39 12. Security Ownership of Certain Beneficial Owners and Management............................................... 43 13. Certain Relationships and Related Transactions........... 46 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...................................................... 51 2 PART I As used in this Report, the "Company" or "Booth Creek" refers to Booth Creek Ski Holdings, Inc. and its subsidiaries, unless the context otherwise requires. The Company is a wholly-owned subsidiary of Booth Creek Ski Group, Inc. ("Parent"). Since November 27, 1996 the Company has acquired the Northstar-at-Tahoe ("Northstar") and Sierra-at-Tahoe ("Sierra") ski resorts in the Lake Tahoe region of Northern California, the Bear Mountain ski resort in Southern California (together with Northstar and Sierra, the "California Resorts"), the Waterville Valley and Mt. Cranmore ski resorts in New Hampshire, the Summit at Snoqualmie (the "Summit") ski resort complex, which consists of four separate and distinct resorts in the Cascade Mountains of Northwest Washington and the Grand Targhee ski resort in the Grand Tetons in Wyoming. Most recently, on February 26, 1998, the Company acquired the Loon Mountain ski resort ("Loon Mountain") in the White Mountains of New Hampshire. Item 1. Business Overview Booth Creek owns and operates eight ski resort complexes encompassing eleven separate resorts, making the Company the fourth largest operator in North America based on approximately 2.4 million skier days recorded during the 1997/98 ski season at such resorts. Booth Creek primarily operates regional ski resorts which, in the aggregate, attract approximately 85% of their guests from their regional ski markets, within a 200 mile driving radius of each resort. The Company's properties offer approximately 9,281 acres of skiable terrain, 399 trails, 94 lifts (including 16 high-speed lifts and 2 Gondolas) and on-mountain capacity to accommodate approximately 56,000 guests daily. For the fiscal years ended October 30, 1998 and October 31, 1997, the Company's resorts generated approximately $115.5 million and $97.8 million of pro forma revenue, respectively, $27.4 million and $14.2 million of pro forma EBITDA, respectively, and $14.8 million and $21.2 million of pro forma net loss, respectively. The Company's resort properties are primarily located near major skiing populations, including four of the five largest regional ski markets: Los Angeles/San Diego, San Francisco/Sacramento, Boston and Seattle/Tacoma. The Company believes this geographical diversification serves to limit the Company's exposure to regional economic downturns and unfavorable weather conditions. The Company's resorts continue to differentiate themselves in their respective markets by selectively upgrading on-mountain facilities and guest services, employing targeted marketing strategies and offering extensive skier development programs, all of which create a competitively-priced, high-quality guest experience. Since its formation in October 1996, the Company's resorts have collectively spent over $27.5 million in capital improvements, including the addition of high-speed chairlifts, additional snowmaking capability, improved trail grooming equipment, and enhanced on-mountain lodging, retail and food service amenities. The Company believes its existing resorts have been well maintained. The Company also uses targeted advertising, database marketing and strategic marketing alliances to enhance the image of its resorts and increase regional market share. The Company also offers extensive development programs to improve the technical skill level of all types of skiers, which management believes is important to expand the total skier population and increase skier visitation frequency. Northstar and Sierra are consistently rated by consumer publications as having premier ski instruction and development programs. The Company is currently implementing similar skier development programs at its other resorts. The following is an organizational chart of Booth Creek Ski Group, Inc. ("Parent") and the Company and its subsidiaries. Each subsidiary of the Company is, directly or indirectly, wholly-owned by Booth Creek. 3 [GRAPH OF ORGANIZATIONAL CHART OMITTED] The Company's principal executive offices are located at 1000 South Frontage Road West, Suite 100, Vail, Colorado 81657. Its telephone number at that location is (970) 476-4030. The Company was incorporated in Delaware on October 8, 1996. Recent and Pending Acquisitions On February 26, 1998, the Company acquired Loon Mountain Recreation Corporation ("LMRC"), the owner and operator of the Loon Mountain ski resort located in New Hampshire. The acquisition of LMRC (the "Loon Mountain Acquisition") was effected pursuant to an Agreement and Plan of Merger, dated September 18, 1997, as amended as of December 22, 1997, by and among the Company, as assignee of Parent, LMRC Acquisition Corp. and LMRC. The aggregate net purchase price for the Loon Mountain Acquisition was approximately $30.2 million (including the assumption of debt which was repaid in connection with the acquisition and acquisition costs). The Loon Mountain Acquisition was financed through (i) proceeds from the offering of $17.5 million aggregate principal amount of the Company's 12.5% Series C Senior Notes due 2007, issued under the Indenture for the Senior Notes dated as of March 18, 1997,(as amended and supplemented, the "Indenture") among the Company, the Guarantors named therein, and the trustee, (ii) a capital contribution of $10.5 million to the Company by Parent (the "Equity Financing"), and (iii) available cash on hand and borrowings under the Company's Amended and Restated Credit Agreement dated March 18, 1997, (which has since been amended and restated effective as of October 30, 1998 (the "Senior Credit Facility"). See Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources"). On August 28, 1998, the Company, Booth Creek Ski Acquisition, Inc., a wholly-owned subsidiary of Booth Creek ("Acquisition Sub"), and Seven Springs Farm, Inc. ("Seven Springs"), the owner and operator of the Seven Springs Mountain Resort, a ski resort and conference center in Pennsylvania, entered into an Agreement of Merger (the "Merger Agreement"), pursuant to which the Company would acquire Seven Springs through the merger of Acquisition Sub with and into Seven Springs. The aggregate merger consideration and related payments will be approximately $83.0 million plus certain deferred payments, subject to certain price adjustments. The proposed acquisition is conditioned on the receipt of a judicial determination that the terms of a certain shareholders' agreement among Seven Springs and its shareholders (the "Seven Springs Shareholder Agreement") does not apply to the transactions contemplated by the Merger Agreement, as well as customary closing conditions. In connection with the proposed acquisition, certain shareholders of Seven Springs filed a lawsuit in the Court of Common Pleas of Somerset County, Pennsylvania against the Company, Acquisition Sub, and Seven Springs and certain of its directors, seeking a declaratory judgment, along with other relief including the rescission of the Merger Agreement. Plaintiffs allege that the terms of the Seven Springs Shareholder Agreement ban the consummation of the proposed acquisition. On October 29, 1998, the Court entered a final judgment denying Plaintiff's motion and has permitted the consummation of the transactions contemplated by the Merger Agreement. On December 28, 1998, the Plaintiff's filed an amended notice of appeal which is currently pending. While the Company believes that Seven Springs will prevail with its position that the Seven Springs Shareholders Agreement does not apply to the transactions contemplated by the Merger Agreement, no assurance can be made regarding the timing or the outcome of this litigation. 4 Industry There are 521 ski areas in the United States which, during the 1997/98 ski season generated approximately 54.1 million skier days. A "skier day" represents one skier or snowboarder visiting one ski resort for one day, including skiers and snowboarders using complementary and season passes. Calculation of skier days requires an estimate of visits by season passholders. Although different ski resort operators may use different methodologies for making such estimates, management believes that any resulting differences in total skier days are immaterial. These areas range from small ski resort operations which, primarily cater to day skiers and regional overnight skiers from nearby population centers, to larger resorts which, given the scope of their operations and their accessibility, are able to attract skiers and snowboarders from their regional ski markets as well as destination resort guests who are seeking a comprehensive vacation experience. While regional ski market skiers tend to focus primarily on lift ticket price and round-trip travel time, destination travelers tend to be heavily influenced by the number of amenities and activities offered as well as the perceived overall quality of the vacation experience. The table below summarizes regional skier days from the 1993/94 ski season through the 1997/98 ski season. U.S. Ski Industry Regions and Skier Days (in thousands) Rocky Pacific Lake Season Northeast Southeast Midwest Mts West Tahoe Total ------ --------- --------- ------- ------ -------- ------ ----- 1993/94......................... 13,718 5,808 7,364 17,503 7,144 3,100 54,637 1994/95......................... 11,265 4,746 6,907 18,412 7,446 3,900 52,676 1995/96......................... 13,825 5,693 7,284 18,148 6,033 3,000 53,983 1996/97......................... 12,407 4,231 7,137 18,904 7,341 2,500 52,520 1997/98......................... 12,712 4,343 6,707 19,191 7,419 3,750 54,122 Five year average............... 12,785 4,964 7,080 18,432 7,077 3,250 53,588
Northeast: CT, MA, ME, NH, NY, VT, RI Southeast: AL, GA, KY, MD, NC, NJ, PA, TN, VA, WV Midwest: IA, IL, IN, MI, MN, MO, ND, NE, OH, SD, WI Rocky Mts: CO, ID, MT, NM, UT, WY Pacific West: AK, AZ, CA (excluding Lake Tahoe Region), NV, OR, WA Source: 1997/98 Kottke National End of Season Survey The ski resort industry is presently experiencing a period of consolidation. The number of United States ski areas has declined from 709 in 1986 to 521 in 1998 and, based on industry estimates, the number of ski areas is expected to decline further, as many mountain resorts lack the infrastructure, capital and management capability to compete in this multi-dimensional and service-intensive industry. No major new ski resort has opened in the United States since 1989. Of the 521 ski areas, the 1997/98 Kottke National End of Season Survey estimates the average resort recorded approximately 103,882 skier days. Only 25% of all resorts typically report more than 200,000 skier days per season. All of the Company's resorts except Mt. Cranmore and Grand Targhee typically record more than 200,000 annual skier days. The trend among leading resorts is toward investing in improving technology and infrastructure, including high-speed lifts, attractive facilities and extensive snowmaking capabilities to deliver a more consistent, quality experience. Since its formation, the Company's resorts have spent over $27.5 million in capital expenditures to improve their competitive position. Management believes the need for increased investment in resorts in general has required a greater access to capital and has enhanced the position of larger and better capitalized resort owners. Despite this consolidation, the ski industry remains highly fragmented, with no one resort accounting for more than 3%, and no one resort operator accounting for more than approximately 10%, of the United States' 54.1 million skier days during the 1997/98 ski season. The four largest ski resort companies, including the Company, accounted for approximately 27.6% of all U.S. skier days recorded during the 1997/98 ski season. Management believes that changes in demographics and certain ski industry trends will be favorable for the U.S. ski industry. Members of the Baby Boom generation, the single largest group of skiers, are moving into an age and economic cycle when a greater portion of their disposable income is available for recreational activities and the purchase of vacation homes. The next largest group of skiers are the Echo Boom generation (children of Baby Boomers) and the "X" Generation (young adults). With an estimated 114 million people, members of these generations are beginning to form their recreational habits and offer the largest potential increase in skiers since the emergence of the Baby Boom generation in the late 1960's through the mid-1970's. 5 The emergence and growth of snowboarding, driven primarily by the Echo Boom and X Generations, have energized interest in "on-snow" recreation. According to the 1997/98 Kottke National End of Season Survey, the estimated number of snowboarder visits has increased from 5.7 million in the 1993/94 ski season to 11.2 million in the 1997/98 ski season, an increase of approximately 96%. Snowboarding is now regarded as one of the fastest growing sports in the world. Recently the International Olympic Committee designated snowboarding as a medal event in the 2002 Winter Olympic Games. Snowboarders tend to be between the ages of 13 and 25 and presently represent an estimated 20.7% of all domestic ski resort visitors. Regional resorts are the industry leaders in providing designated snowboarding parks, trails and specialized trial grooming techniques for snowboarders. All of the Company's resorts have allocated significant terrain to snowboarders. Management believes that the growth in snowboarding has had, and will continue to have, a positive impact on the snow sports industry, especially since it is attracting new age groups, and will continue to be an important source of lift ticket, ski school, retail and rental revenue growth for the Company. The advent of snowboarding has been accompanied by the recent introduction of new "parabolic," or shaped, alpine skis which make skiing easier to learn and enjoy. The new skis are expected to significantly improve a new skier's learning progression, as well as enhance the experience of skiers of all abilities through increased technical ability and control. The California Resorts, the Summit, Grand Targhee and Loon Mountain have replaced all or a majority of their rental skiing equipment with new shaped skis. Further advances and innovations in skier equipment, trail maintenance and lift technology are also expected to lead to the greater popularity of skiing. The Lake Tahoe region has averaged approximately 3.3 million annual skier days over the last five years. Management estimates that approximately 80% of the skiers visiting Lake Tahoe resorts during the 1997/98 ski season were from the San Francisco, Sacramento and Central California Valley metropolitan areas. Other guests come principally from Southern California and states with large ski populations, such as Texas, Illinois and Florida. Skiers in this market can choose from among six major resorts, which include Northstar, Sierra, Squaw Valley, Heavenly Valley, Alpine Meadows, and Kirkwood. Northstar, Squaw Valley and Heavenly Valley attract a significantly greater share of destination skiers than the area's other resorts. The Southern California market has averaged approximately 2.3 million annual skier days over the last five years. Management estimates that approximately 80% of the skiers visiting Southern California resorts during the 1997/98 ski season were drawn primarily from the Los Angeles, Orange County and San Diego metropolitan areas. Skiers in this market can choose from among three major resorts, which include Bear Mountain, Snow Summit and Mammoth Mountain. The Northeast market (including New York) has averaged approximately 12.8 million annual skier days over the last five years. The Northeast market consists of a significant percentage of day or weekend skiers due to the relatively short driving radius to major metropolitan areas. While the Northeast does not draw significant numbers of vacationing skiers from the Western regions of the United States, it does compete with the Rocky Mountains and Pacific West areas for Eastern vacationing skiers. Within the Northeast region, skiers can choose from among over 50 major ski areas and resorts. The region's major ski areas and resorts are concentrated in the mountainous areas of New England and eastern New York, with the bulk of skiers coming from the population centers located in eastern Massachusetts, southern New Hampshire, Connecticut, eastern New York, New Jersey and the Philadelphia area. The Company's Summit resort complex operates in the Washington state segment of the Pacific West market, which recorded approximately 7.4 million skier days during the 1997/98 ski season. Management estimates that approximately 95% of the skier days recorded at Washington state resorts during the 1997/98 ski season were attributable to residents of the Seattle/Tacoma metropolitan area. Other guests come primarily from other parts of Washington, Oregon and Western Canada. Washington state resorts do not attract a significant number of destination skiers. Within Washington state, skiers can choose from among 14 ski resorts, including the four resorts comprising the Summit. The largest ski areas in Washington state are the Summit, Stevens Pass and Crystal Mountain. Other ski areas in Washington are moderate to small in size. The Rocky Mountains market has averaged approximately 18.4 million skier days over the last five years, with a high percentage of visitors consisting of destination skiers. Of the 90 ski areas in the region, 28 are located in Colorado, accounting for approximately 62% of all recorded skier days in the region during the 1997/98 ski season. The 38 ski resorts in the northern Rocky Mountain states of Montana, Idaho and Wyoming recorded a total of approximately 2.9 million skier days during the 1997/98 ski season. Because resorts in this part of the region are generally less accessible than resorts in Colorado or 6 Utah, they tend to be smaller and attract fewer destination skiers from outside of the northern Rocky Mountain states. Resort Operations The Company's eight resort complexes offer a variety of ski and non-ski activities. The table below provides a summary of each resort's ski operations and is followed by a more detailed description of each resort. Approx. Snow- Snow Beds Skiable Vertical Making Grooming Within 12 Resort Acres Drop Trails Lifts Coverage Machines Miles - -------------------------------- ------ ------- ------- ------ --------- -------- ------- Northstar-at-Tahoe............. 2,400 2,280 63 1 Gondola 50% 14 16,000 4 High-Speed Quads (1) 4 Fixed Grip 3 Surface Sierra-at-Tahoe................ 1,663 2,212 46 3 High-Speed 10% 12 30,000 Quads 6 Fixed Grip 1 Surface Bear Mountain.................. 195 1,665 32 2 High-Speed 100% 8 11,000 Quads 7 Fixed Grip 3 Surface Waterville Valley.............. 255 2,020 52 2 High-Speed 100% 8 6,500 Quads 6 Fixed Grip 4 Surface Mt. Cranmore................... 190 1,167 41 1 High-Speed 100% 4 16,000 Quad 4 Fixed Grip 4 Surface The Summit at Snoqualmie................... 1,916 2,200 96 2 High-Speed 0% 14 1,000 Quads 18 Fixed Grip 7 Surface Grand Targhee.................. 2,412 2,200 28 1 High-Speed 0% 7 750 Quad 2 Fixed Grip 1 Surface Loon Mountain.................. 250 2,100 41 1 Gondola 96% 8 13,000 1 High-Speed Quad 5 Fixed Grip 1 Surface
(1) High-Speed Quads are four-person chairlifts which decelerate and detach from a cable during passenger loading and unloading and reattach and accelerate thereafter. Northstar-at-Tahoe In management's opinion, Northstar-at-Tahoe, located near the north end of Lake Tahoe, California offers more activities and services in both winter and summer than any of its competitors in the Lake Tahoe area. The resort's 8,600-foot Mt. Pluto features 2,400 acres of skiable terrain and a 2,280 foot vertical drop. Northstar's 63 ski trails are served by 12 operating lifts, including one gondola, four high-speed quads, two triple lifts and two double lifts, which combine to transport up to 19,275 skiers uphill per hour. Northstar also has approximately 42 kilometers of groomed trails for cross-country skiing and snowshoeing and several on-mountain terrain parks for snowboarders and adventurous skiers offering non-traditional bumps, jumps and turns. Other facilities at Northstar include a European-style village that consists of condominium/hotel accommodations, various restaurants, bars, shops, a child-care center and entertainment and convention facilities, a 22,700 square foot on-mountain ski lodge and a 5,800 square foot on-mountain children's ski school facility. Summer recreation facilities include an 18-hole golf course, ten tennis courts, a 7 horseback riding stable, fly fishing, mountain bike rentals and trails and a swimming pool. Northstar currently ranks third in total skier days in the Lake Tahoe area and is one of only 18 resorts in the United States to surpass the 500,000 skier days milestone, which it did during the 1994/95 and 1997/98 ski seasons. Between 1990 and 1998, Northstar was named one of the top ten family resorts in the United States by Travel & Leisure, Better Homes & Gardens and Family Circle, as well as one of the best 50 ski resorts in North America by Snow Country and Ski magazines. Northstar provides a full-service skiing experience for its clientele, which typically includes the upper-income, Baby Boomer population. Northstar's marketing is focused on the San Francisco Bay and the Sacramento Valley areas as a destination skier's alternative to Colorado and Utah resorts. Northstar also markets aggressively in Southern California and states with large ski populations. Northstar is within a one hour drive of the Reno International Airport, which offers convenient scheduled air service to all parts of the United States, Western Canada and Mexico. Small private planes can fly into the all-weather Truckee Airport, where Northstar operates transit buses to the resort. Typical Northstar guests include single male intermediate skiers between the ages of 25 and 44 and earning between $50,000 and $100,000 and families headed by professionals or business executives with incomes in excess of $100,000. Northstar is within a 200 mile driving radius of the major population centers of San Francisco and Sacramento and, therefore, attracts a significant number of its guests from Northern California. Northstar has approximately 6,000 beds at the resort with an additional 40,000 beds in the vicinity, 10,000 of which are within a 12 mile radius. Management estimates that during the 1997/98 ski season 70% of the skiers visiting Northstar came from Northern California, 10% from Southern California, 17% from other states and 3% from international locales. Northstar's snowmaking system is engineered to cover approximately 50% of its ski trails, which management believes is adequate given the area's heavy annual snowfall, which averaged approximately 326 inches per year during the past five years. Northstar has pumping rights from nearby water sources which, when coupled with its 60 million gallon water storage capacity, have been more than sufficient to support the resort's needs. Snowmaking during the 1997/98 ski season consumed approximately 32.4 million gallons of water. Northstar consists of over 6,500 acres of privately owned land, of which less than one-third has been developed. Management believes that Northstar has significant opportunities to develop additional ski terrain as well as residential and commercial space. See Part I, Item 1. "Business - Real Estate Development." Sierra-at-Tahoe Sierra-at-Tahoe is conveniently located near the large bed base of South Lake Tahoe, California and is the closest major ski resort to Sacramento and the Central California Valley. The resort's 8,852-foot peak offers 1,663 skiable acres and a 2,212 foot vertical drop. Sierra's 46 ski trails are currently served by ten operating lifts, including three high-speed quads, one triple lift and five double lifts, which combine to transport up to 14,921 skiers uphill per hour. In addition to significantly upgrading its retail and restaurant facilities in recent years, Sierra has invested approximately $11.5 million since 1994 to install new high-speed lifts, upgrade its grooming equipment and rebuild its base lodge facilities. Sierra operates a 46,000 sq. ft. base lodge which offers a variety of food and beverage services. Management believes that Sierra's recent investment in its ski infrastructure has made it the best ski value in the South Lake Tahoe area. Sierra does not offer summertime activities. Sierra's demographic characteristics closely parallel Northstar's, although Sierra's core customer base is slightly younger and less affluent with more aggressive skiing demands. Sierra does not own or manage any real estate units in the area but there are approximately 50,000 beds in the South Lake Tahoe vicinity, including 30,000 beds within a 12 mile radius. Sierra attracts a larger share of its guests from the Sacramento and Central California Valleys than the San Francisco Bay area. Sierra owns 20 acres of its 1,689 gross acreage and leases the remainder under a Special Use Permit from the United States Forest Service. See Part I, Item 1. "Business - Regulation and Legislation." Sierra's skiable terrain, notable for its extensive grooming and wind-protected slopes, requires less snow than other resorts to provide appealing ski conditions. Due to its abundant annual snowfall, which has averaged approximately 518 inches per year over the past five years, Sierra is not dependent upon snowmaking and, as a result, its snowmaking equipment covers only 10% of Sierra's total acreage. Sierra also employs a modern fleet of snow grooming machines which maintain high-quality skiing surfaces. 8 Bear Mountain Bear Mountain is located in the San Bernardino mountains of Southern California. Its 8,805-foot peak features 195 acres of skiable terrain and a 1,665 foot vertical drop. Bear Mountain's 32 ski trails are served by 12 lifts, including two high-speed quads, one fixed grip quad, two triple lifts and four double lifts, which combine to transport up to 16,590 skiers uphill per hour. During the last two ski seasons, Bear Mountain invested approximately $1.5 million to upgrade its base lodge facilities. Other facilities at Bear Mountain include three lodges which provide an aggregate of approximately 31,000 square feet of space for food and beverage services (restaurants and cafeterias), skier services and entertainment. Summer recreation facilities include a nine-hole golf course. Bear Mountain is within a one to three hour drive of the Los Angeles and San Diego metropolitan areas, providing it with access to nearly 16 million Southern Californians of whom approximately 800,000 actively participate in skiing and snowboarding. Approximately 90% of Bear Mountain's skiers are from Southern California. Bear Mountain appeals to the younger generations of skiers, the Echo Boom and "X" Generations, who are generally less affluent than the targeted customers at the Company's Lake Tahoe resorts. While Bear Mountain is in the middle of an approximately 11,000 bed base area, it is primarily a day skiing facility. Bear Mountain owns an 116 of its 819 gross acreage, leases 698 acres of mountain terrain under a Forest Service special use permit and leases five acres from third parties. See Part I, Item 1. "Business - Regulation and Legislation." Management believes that Bear Mountain has one of the largest snowmaking capacities per acre of any resort west of the Mississippi River and incorporates a state-of-the-art system which allows it to efficiently cover 100% of its ski trails. Bear Mountain also has access to three reservoirs capable of holding six million gallons of water for snowmaking. Management believes that the skiing infrastructure at Bear Mountain, including lifts, snowmaking and trail grooming equipment, is very strong, making it one of the most attractive ski areas in Southern California. Waterville Valley Waterville Valley has long been recognized as one of the largest and most picturesque ski resorts in New Hampshire. Waterville Valley's major base facilities are located on the 4,004 square foot high Mt. Tecumseh and offer 255 skiable acres and a vertical drop of 2,020 feet. Waterville Valley's 52 trails are served by 12 operating lifts, including two high-speed quads, two triple lifts and four double lifts, which combine to transport up to 15,672 skiers uphill per hour. The resort operates a 41,872 square feet base lodge (complete with multiple food service centers and child care), a mid-mountain lodge featuring a cafeteria and deli and a mountain-top lodge with snack bar and acclaimed restaurant dining. The Waterville Valley resort has a year-round Adventure Center offering mountain bikers, cross-country skiers, and hikers access to 105 kilometers of trails in the White Mountain National Forest. Other resort amenities include an ice skating arena, golf course, tennis center, sports and fitness center, horsedrawn sleigh rides, skateboard park, beach and paddle boats. Waterville Valley's Conference Center has 17,000 square feet of meeting space and provides banquet facilities for up to 1,000 people. With 11 meeting rooms, a business center, audio-visual capabilities and a self-contained pub, the Conference Center's on-site staff supports events year-round. Waterville Valley has traditionally created an environment conducive to families composed of either day skiers, regional overnight skiers or vacation skiers. Its location adjacent to Interstate 93 (a major north-south thoroughfare for skiers) makes it one of the most accessible of the larger New England resorts. The resorts facilities, trails and programs can satisfy adults and children of all abilities. Waterville Valley's proximity to large East Coast markets (Boston is less than two and one-half hours away by car) attracts day skiers, while the town's substantial bed base can accommodate the regional overnight skiers and vacationers who will stay an average of two to four days. There are approximately 6,500 beds in the Waterville Valley area, of which approximately 3,000 can be rented. Management estimates that during the 1997/98 ski season the majority of Waterville Valley's skiers came from Massachusetts (49%) and New Hampshire (30%), with the remainder coming from Rhode Island, Connecticut, New York, New Jersey and other regional locations. 9 Waterville Valley owns 35 acres on Snow Mountain and two acres at the Conference Center. It leases 790 acres of land on Mt. Tecumseh under a Special Use Permit issued by the United States Forest Service. See Part I, Item 1. "Business - Regulation and Legislation." Waterville Valley's snowmaking system is engineered to cover 100% of the ski trails on Mt. Tecumseh. Water for snowmaking is currently pumped from a local river and a pond. Waterville Valley is in the process of obtaining permits for additional water sources and water storage facilities for snowmaking. Mt. Cranmore Mt. Cranmore is the oldest continuously operated ski area in the United States. Strategically located in the hub of New Hampshire's Mount Washington Valley, Mt. Cranmore's 1,714 foot summit offers 190 skiable acres and a 1,167 foot vertical drop. Mt. Cranmore's 41 trails, including nine trails lighted for night skiing, are served by nine operating lifts, including one high-speed quad, one triple lift, three double lifts, three handle tows and one surface lift, which combine to transport up to 6,420 skiers uphill per hour. The mountain is serviced by two base lodges, offering multiple eating locations and pub/restaurant facilities, as well as a restaurant at the summit. In addition, Mt. Cranmore owns a year-round 46,000 square foot athletic facility which includes an outdoor tennis stadium with seating for up to 5,500 people, four indoor tennis courts, a pool, a spa, a weight-lifting area, aerobic rooms, an indoor-climbing wall, locker rooms, a snack area and a nursery. Mt. Cranmore also operates on-site retail and rental shops. Management believes that Mt. Cranmore has great appeal to the family skier due to its intimate size, high percentage of intermediate trails (45%, with 33% for advanced) and its well-developed children's ski programs. An additional family attraction is Mt. Cranmore's neighboring town of North Conway, which is within walking distance of the mountain and has one of New England's largest rural, retail outlet and restaurant centers. North Conway is part of the White Mountains area, which is the dominant tourist destination in New Hampshire. Approximately 13 million people live within a four-hour drive of Mt. Cranmore. During the 1997/98 ski season, management estimates that 46% of the resort's guests were from the Boston metropolitan area, 36% were from New Hampshire and 8% were from Rhode Island. To accommodate destination/vacation skiers there are approximately 16,000 rental beds in the Mt. Washington Valley, including 76 condominium units at Mt. Cranmore itself. Mt. Cranmore owns 754 acres and holds easements enabling it to develop an additional 1,200 acres of ski terrain. Mt. Cranmore does not lease any of its land from the federal government. Mt. Cranmore's snowmaking equipment consists of a computerized Hydralink weather-monitoring snowmaking system which, when installed in 1995, increased snowmaking output by 40% and currently covers 100% of the resort's ski trails. In addition to pumping rights from a nearby stream, Mt. Cranmore has an agreement with the local water district for unrestricted access to an additional reservoir of 1 million gallons of water for snowmaking. Mt. Cranmore's base area pond also holds 2.5 million gallons. The Summit at Snoqualmie The Summit is located in the Cascade Mountains of Northwest Washington and consists of four separate resorts, Alpental at the Summit ("Alpental"), Summit West, Summit Central, and Summit East, which collectively offer 1,916 acres of skiable terrain. Individually, Alpental has a 5,400 foot top elevation, a 2,200 foot vertical drop and 170 acres of skiable trails and runs (93 of which are lighted for night skiing); Summit West has a 3,860 foot top elevation, an 810 foot vertical drop and 172 acres of skiable trails and runs (166 of which are lighted for night skiing); Summit Central has a 3,860 foot top elevation, a 1,020 foot vertical drop and 246 acres of skiable trails and runs (176 of which are lighted for night skiing); and Summit East has a 3,760 foot top elevation, a 1,080 foot vertical drop and 110 acres of skiable trails and runs (58 of which are lighted for night skiing). In total, the Summit complex has 96 designated trails and runs served by 27 operating lifts, including two high-speed quads, four triple lifts, 14 double lifts and 7 surface lifts, which combine to transport up to 32,890 skiers uphill per hour. The Summit Nordic Center also offers approximately 55 kilometers of cross-country skiing on an expert trail system and a lighted beginner student trail which hosts a season-long night racing series. In addition, the Summit West, Summit Central, and Summit East areas are interconnected by a cross-over trail system. Since its acquisition in January 1997, the Company has invested approximately $6.6 million at the Summit to improve base facilities and install additional lifts. In December 1998, the Company completed the installation of new detachable quad lifts at Alpental and Summit Central for the 1998/99 ski season. The Summit 10 operates seven lodges which provide an aggregate of approximately 111,175 square feet of space for food and beverage services (restaurants and cafeterias), skier services and entertainment. The Summit is within a one-hour drive of the Seattle/Tacoma metropolitan area, providing it with access to nearly 450,000 active skiers and snowboarders. Although the complex offers a relatively even variety of trail difficulty, each of the separate properties have been designed to appeal to specific skier profiles: Alpental's trails are designed primarily for intermediate to expert skiers; Summit West's open slopes are geared toward beginner and intermediate skiers; Summit Central's trail systems are heavily weighted toward intermediate to advanced skiers; and Summit East's trails are designed primarily for novice to intermediate skiers. Overall, the Summit complex is one of the largest learn-to-ski areas in the United States, with approximately 30% of its 1997/98 skier days being attributable to guests enrolled in ski school. In addition, the Summit is the largest night ski complex in the United States, with approximately 40% of its skier visits being recorded at night. The Summit owns 686 acres of its 4,152 gross acreage, leases over 1,400 acres under a private permit and utilizes 1,864 acres of mountain terrain under a United States Forest Service Special Use Permit. The Summit enjoys abundant annual snowfall, averaging 422 inches annually over the past five years. As a result, there are no man-made snowmaking capabilities at any of the resorts. The Company does, however, possess water rights that would allow it to engage in snowmaking, if necessary, or desired in the long term. Grand Targhee Grand Targhee is located in the Grand Teton mountains of Wyoming, approximately 50 miles northwest of the town of Jackson. Jackson, Wyoming is a major ski destination resort center, recording an average of 483,000 skier days annually at the area's three resorts in the last five ski seasons. Grand Targhee, with a top elevation of 9,873 feet, 2,412 acres of skiable terrain and a 2,200 foot vertical drop, offers two different mountain ski areas. The first mountain is served by four operating lifts, including the longest high-speed quad in the state of Wyoming, which combine to transport up to 5,460 skiers uphill per hour. The second mountain is reserved for Snowcat powder skiing. Grand Targhee also has approximately 15 kilometers of machine groomed trails for cross-country skiing. Grand Targhee has recently invested approximately $4.0 million to improve uphill capacity and the overall ski experience. Other facilities at Grand Targhee include base lodge facilities, hotel accommodations, restaurants, shops, a child care center and retail stores. In addition, Grand Targhee owns and operates a spa, fitness and conference center. Grand Targhee competes for day and regional overnight skiers in the northern Rocky Mountain region as well as national destination skiers traveling to the greater Jackson, Wyoming area. Guests from Idaho, Utah, Wyoming and Montana have accounted for approximately 38% of Grand Targhee's total skier days over the past five ski seasons. Grand Targhee's national destination guests, those guests residing outside the northern Rocky Mountain region, accounted for the remaining 62% of the resort's skier days during the same period. A majority of these guests came from California, Washington, New York and Minnesota. Overall, approximately 60% of Grand Targhee's skiers reside more than 200 miles from the resort. Given that Grand Targhee only operates 96 rental units, many of the resort's overnight regional and destination skiers secure hotel accommodations at other resorts or hotels in the area. The Company believes that there are in excess of 5,000 beds in the vicinities of Jackson, Wyoming and Driggs, Idaho. Management believes that the distinguishing features of Grand Targhee are well-maintained and uncrowded facilities, excellent ski conditions, attractive vacation packages and a high quality family ski school. Grand Targhee is located entirely on land leased under a United States Forest Service Special Use Permit. See Part I, Item 1. "Business - Regulation and Legislation." Grand Targhee has averaged approximately 512 inches of snowfall annually during the last five years, and historically has received the second highest snowfall amount of all ski resorts in the United States. In 1997, Snow Country magazine rated Grand Targhee as the best ski area in North America for snow conditions. Management believes that Grand Targhee is currently underutilized, and that a key component of increasing skier days at the resort will be expanding its bed base. Grand Targhee recently received United States Forest Service approval to build 590 rental units and has had discussions with the Forest Service that would allow for the future development of private dwellings. See Part I, Item 1. "Business - Real Estate Development." 11 Loon Mountain Loon Mountain is located in the White Mountains of New Hampshire in the town of Lincoln. The resort's 3,050 foot peak features 250 skiable acres and a 2,100 foot vertical drop. Loon Mountain's 41 trails are served by eight operating lifts, including a four-passenger gondola and a high-speed quad, which combine to transport over 10,000 skiers uphill per hour. Loon Mountain's trails cater mostly to intermediate level skiers (64%), with trails provided for beginners (20%) and experts (16%) as well. Resort amenities include access to certain core areas of the on-mountain Mountain Club, including a restaurant, a bar, a swimming pool and conference rooms. Additionally, the resort offers a base lodge with a cafeteria and coffee shop, a restaurant and deck at the summit, the Governor Adams lodge (which provides traditional lodge facilities and also serves as a forum for summer outdoor activities and concerts), trails for cross- country skiing, horseback riding and mountain biking, a steam engine railroad for shuttling visitors, and a Wildlife Theater. Loon Mountain has traditionally created an environment conducive to families who are either day skiers, regional overnight skiers or destination skiers. Its location adjacent to Interstate 93 (a major north-south thoroughfare for skiers) enabled it to receive the number one ranking in North America east of the Mississippi River for accessibility by Snow Country magazine in 1997. Loon Mountain's proximity to large East Coast markets (Boston is less than two and one-half hours away by car) attracts day skiers, while an approximate bed base of 13,000 within twelve miles of the resort can accommodate regional overnight and destination skiers. Loon Mountain owns 565 acres upon which substantially all of the buildings and improvements relating to the resort are located. Loon Mountain leases 775 acres of land in the White Mountain National Forest under a Special Use Permit issued by the United States Forest Service permitting year-round recreational use. Adjacent to such land, an additional 581 acres are leased on "South Mountain" under a separate Special Use Permit permitting certain limited activities, including mountain biking, cross-country skiing and horseback riding. These 581 acres have been designated by management for the eventual development, subject to permitting, of skiing terrain to complement the current skiing area. See Part I. Item 1. "Business-Real Estate Development." The average annual snowfall at Loon Mountain was 142 inches over the last five seasons, although when necessary Loon Mountain has the snowmaking capacity to cover approximately 96% of the skiable acreage. Business Segments Business segment information is presented in Note 10 to the accompanying consolidated financial statements. Real Estate Development The Company believes it has significant opportunities to develop available acreage for additional skiing terrain as well as for residential lodging and commercial uses. Management believes that selective real estate development can enhance the Company's resorts and that there is opportunity for synergy between real estate development and the Company's ski operations. In management's view, increasing the on-mountain bed base, expanding retail and other commercial services and developing additional skiable terrain at a resort can accelerate growth in skier days and ski-related revenues. The following table lists certain owned or leased land available to the Company for expansion. The land subject to Special Use Permits with the United States Forest Service is subject to certain restrictions and approval requirements. Residential/ Commercial/ Number Principal Location How Held Ski Terrain of Acres Uses - ----------------------------- ------------ ------------ --------- ------------------- Northstar: Big Springs....... Owned Residential 90 On-mountain housing Northstar: North Lookout Mountain................... Owned Ski Terrain 450 Expand ski terrain by 16% Northstar: Sawtooth Ridge.... Owned Ski Terrain 652 Expand ski terrain by 22% Northstar: Zoned/Undeveloped. Owned Residential/ 765 On-mountain housing and Commercial expand commercial facilities Mt. Cranmore: Black Cap...... Easement Ski Terrain 700 Significantly expand and vary ski terrain Mt. Cranmore: Base Lands..... Easement Residential/ 35 On-mountain housing and Commercial expand commercial facilities 12 Residential/ Commercial/ Number Principal Location How Held Ski Terrain of Acres Uses - ----------------------------- ------------ ------------ --------- ------------------- Bear Mountain................ Leased: Ski Terrain 126 Expand ski Forest Service terrain by 25% Bear Mountain: Big Bear Lake. Owned Residential/ 6 Develop 56 Ski Terrain condominiums and expand ski terrain Grand Targhee................ Leased: Ski Terrain 900 Expand ski terrain Forest Service by 70% Grand Targhee................ Leased: Residential/ 108 Develop Village Forest Service Commercial (increase on-mountain bed base by 615%) and expand commercial facilities The Summit................... Owned Residential 105 On-mountain housing Loon Mountain: South Mountain............. Leased: Ski Terrain 581 Expand ski terrain Forest Service Loon Mountain: Base Lands.... Deeded: Residential/ 412 On-mountain housing Privately Owned Commercial and expand commercial facilities
The Company's strategy with regard to the expansion of skiable terrain at its resorts is based on the evaluation of several key factors, including (i) the anticipated growth of the skier base within the relevant market and the Company's ability to improve its competitive market position in that market, as measured by the potential increase in the number of skier days and revenue per skier on a long-term basis which the Company believes it can capture through expansion and (ii) the return on capital expected to be realized from an expansion project versus alternative projects. Management plans to undertake extensive planning and pre-development steps prior to investing significant capital into any development project. Currently, the Company is in the process of developing comprehensive master plans for Northstar, Waterville Valley, the Summit, Grand Targhee and Loon Mountain. The Company's management intends to undertake a number of these projects with real estate partners who can provide a substantial portion of the construction capital. The Company's resorts have traditionally taken a conservative approach toward residential and commercial development and real estate development efforts have taken place primarily at Northstar. Beginning in 1995, the resort developed a new single family home community on Mt. Pluto ("Big Springs") consisting of 158 private residential lots. The total project has been planned in five phases to reduce infrastructure development costs and maximize returns by controlling both the timing and inventory of lots on the market. Prior to fiscal 1998, Northstar sold all of the 44 lots offered in phase one and all of the 35 lots offered in phase two for an average price of approximately $154,000. In August 1998, Northstar sold all 32 lots available for sale in phase three for an average lot price of approximately $212,000. New homes built by the owners of such properties range in price from approximately $600,000 to $1.2 million. Phases four and five will require an estimated $2.0 million in capital expenditures to complete infrastructure development for the 46 available lots. Northstar expects to sell the remaining properties over the next one to two years. Management believes that the Big Springs development project alone will increase the on-mountain bed base by 5% over the next two years, and should contribute to an increase in paid skier days. Northstar also has opportunities to develop an additional 756 acres of owned real property on Mt. Pluto, which has been zoned for commercial and residential use. In addition, Northstar has begun a program to harvest timber through third party contracting. The timber harvesting program, which produced revenues of $644,000 during the year ended October 30, 1998, is managed carefully to avoid interference with Northstar's resort operations and prevent any diminution in the quality of the resort's natural environment. The Company also intends to eventually expand Northstar's ski operations to the challenging additional terrain it owns on both North Lookout Mountain and Sawtooth Ridge, which are adjacent to the resort's current operations. Management believes that the skiable acreage at Northstar would increase by 30% with the development of this terrain. The timing and scope of this expansion will depend on market conditions and on an evaluation of the Company's other expansion criteria. 13 Mt. Cranmore holds an easement entitling it to develop at least 700 acres of additional ski terrain known as the "Black Cap Mountain area" or "Black Cap." The Black Cap easement was granted in 1951 and allows the Company to expand Mt. Cranmore's existing ski and recreational infrastructure and develop additional trails. The Black Cap property underlying the Company's easement is privately owned and therefore not subject to the same governmental regulations which presently restrict the activities of many New England ski areas that are located on national or state forest land. The Black Cap land available for development by the Company is high-quality, mostly north and west-facing ski terrain located in an area that can accommodate alpine and cross-country trails, ski lifts and snowmaking. Expansion would not only significantly increase Mt. Cranmore's skier capacity, but would also enhance the quality and diversity of its skiable terrain. Given the resort's location in the heart of the Mt. Washington region, the dominant tourist destination in New Hampshire, the Company believes that expansion into Black Cap could position Mt. Cranmore as a premier attraction in the White Mountains and one of the largest and most appealing resorts in New Hampshire. Additionally, Mt. Cranmore has 35 acres of privately owned land at the southwest flank of the mountain. This southwest facing ski-in/ski-out land is very suitable for development. The timing and scope of this development will depend on market conditions and the Company's other expansion criteria. Bear Mountain has received final approval from the Forest Service and local governmental authorities of an expansion plan that would, among other things, increase the resort's skiable terrain by 114 acres and increase daily skier capacity by approximately 25%. The approval, however, is subject to numerous mitigation conditions, including a requirement that Bear Mountain acquire and dedicate to the Forest Service two acres of spotted owl habitat and one acre of flying squirrel habitat in exchange for each acre proposed for development. Bear Mountain has also entered into a developer's agreement with the City of Big Bear Lake that generally authorizes, subject to certain conditions, the construction of up to 56 condominium units on property currently owned by Bear Mountain. The Company does not presently have any imminent expansion or development plans for Bear Mountain, and any future expansion or development would depend on a variety of factors, including local market conditions and the resolution of regulatory and Forest Service permitting issues. The Summit owns 66 acres of real property at the base of its mountain, which is available for residential development. The developmental real estate at the Summit is currently owned by DRE, L.L.C. (the "Real Estate LLC"), a subsidiary of the Company. The Real Estate LLC has executed a deed of trust with respect to the real property in favor of the holders of the Ski Lifts Preferred Stock (as defined herein) to secure the Real Estate LLC's obligation to purchase such preferred stock. In the event the Real Estate LLC defaults under its obligation to purchase the Ski Lifts Preferred Stock, the holders thereof could foreclose on the developmental real property and deprive the Company of the benefit thereof. The Summit also owns 39 acres of real property at Summit East that is ski-in/ski-out and is zoned as high-density residential and commercial. The parcel will be studied for future development potential when market conditions warrant. The Company, through a study commissioned by Grand Targhee, has identified approximately 900 acres of additional skiable terrain adjacent to the resort which has received preliminary Forest Service approval for development. The study also contains numerous recommendations for the further development of Grand Targhee's infrastructure, including the creation of a European-style village center comprising a variety of tightly-knit structures with central pedestrian streets, plazas, commercial and recreation facilities and amenity spaces which reflect and complement the sloped mountain topography. The village center design includes nine additional or renovated hotel/condotel developments providing 590 additional public accommodation units, which would increase the resort's on-mountain bed base by 615%. The Company has received preliminary approval for the construction of the residential units envisioned by the study, together with the development of an additional 900 acres of skiable terrain, subject to certain conditions. Management believes that the expansion of Grand Targhee's on-mountain bed base will be an important component in addressing the resort's historic underutilization. The Company intends to pursue long-term development opportunities with third parties, although the timing and scope of any such development is still being evaluated. Loon Mountain currently leases approximately 581 acres known as "South Mountain" from the Forest Service. Although currently limited to recreational uses not including downhill skiing, this permitted area has been designated by both Loon Mountain and the Forest Service as an area for expanded skiing activities and the development of additional trails and lifts. A permit allowing this expansion was issued by the Forest Service in 1993, but was subsequently invalidated by the U.S. Court of Appeals. See "Legal Proceedings." Pending the issuance of additional permits, expansion on South Mountain depends upon the Company and Forest Service fulfilling the requirements, including the preparation of supplemental National Environmental Policy Act ("NEPA") documentation, of a court order issued by the 14 federal district court to which the related litigation was remanded. The available South Mountain land is located in an area directly adjacent to the present Loon Mountain ski area and will be able to accommodate alpine and cross country trails, ski lifts (including one connecting the current ski area with South Mountain) and snowmaking from newly installed snowmaking facilities. Expansion would not only significantly increase Loon Mountain's skier capacity, but would also enhance the quality and diversity of its skiable terrain. Loon Mountain also owns 412 acres at the base of the mountain, of which 312 acres is located at the base of South Mountain and is zoned as rural residential and general use. Based on current zoning and subject to approvals, 844 units could be constructed. The balance of land owned by Loon Mountain, subject to approvals and zoning, could allow for up to 400 additional units to be constructed. The Company has no agreements, arrangements or understandings with respect to financing the development of any of the real estate projects discussed herein. Any future development would be subject to, among other things, the Company's ability to obtain the necessary financing and all necessary permits and approvals. The Senior Credit Facility, the Indenture and the Securities Purchase Agreements (as defined herein) significantly limit the Company's ability to incur additional indebtedness. No assurance can be given that the Company will develop successfully any additional properties or, if completed, any such properties will be successful. In addition, there are risks inherent in any expansion project and in the implementation of the Company's development strategy. Marketing and Sales Staff The Company has a marketing staff of approximately 50 persons, including a marketing director at each resort who reports to the Vice President of Marketing and Sales as well as to each resort's general manager. The marketing staff at each resort is responsible for the development of resort-specific marketing plans including advertising, sales, public relations, events, promotions and research. Each resorts' marketing personnel also participate in the development of the Company's overall marketing strategy. Strategy The Company's marketing plans are designed to attract both day skiers and vacationers by emphasizing the Company's diverse facilities and services and proximity to approximately 20% of the total skiers in the United States. The Company intends to position each of its resorts as an attractive alternative to competing regional resorts and to other forms of leisure and entertainment. The primary objectives of the Company's marketing efforts are to (i) increase each of its resorts' relative market share, (ii) expand the number of skiers in each of its markets, (iii) increase skier visitation frequency, (iv) increase the expenditures of each of its visitors, (v) influence the vacation destination choice of its prospective guests by encouraging them to visit other Booth Creek resorts, and (vi) attract and retain new guests to the Company's resorts by expanding the scope of Booth Creek resorts to winter recreation centers offering a multitude of snowsport options in addition to skiing and snowboarding. The Company's marketing efforts are predicated on knowing its guests and understanding the markets in which it competes. Accordingly, the Company's resorts, typically through professional firms, conduct extensive market research, including on-site guest surveys, focus groups, advertising tests and regional phone surveys. Each of the Company's resorts develops its own resort-specific marketing program based upon its unique qualities and characteristics as well as the demographics of its skier base. Management believes that a major benefit of being a multiple resort operator will be the ability to coordinate resort marketing programs in a manner that makes them more effective. For example, the extension of frequency/loyalty programs to all of the Company's resorts will, in management's view, reinforce the existing marketing programs at each resort and create significant cross-marketing opportunities. The Company's resorts offer a variety of terrain for alpine skiing and snowboarding, with most providing a high percentage of intermediate trails and well developed skier development programs, which can accommodate skiers and snowboarders of all skill levels. Northstar markets primarily to the upper income Baby Boom generation and their families residing in the San Francisco Bay and Sacramento Valley areas as a full service, all season resort for day and vacation guests. In addition, the resort has been successful in attracting vacationing skiers from major Southern California markets largely through the use of targeted marketing programs, including tour packages with major airlines and tour operators. Management believes that Northstar's diverse year round activities and services have made it attractive to affluent families interested 15 in recreation-centered vacation homes. Real estate development and the resulting increase in on-mountain bed base likewise provide Northstar with significant opportunities for future growth. Sierra has been positioned as Lake Tahoe's economical "value" resort, primarily targeted to families, teenagers and young adults from the Central California Valley. Bear Mountain primarily targets Generation "X" skiers and snowboarders as well as value-oriented families from the major Southern California metropolitan areas. Waterville Valley generally focuses on regional and vacationing families from the Southern New Hampshire and Boston metropolitan markets by promoting the resort's diverse year round facilities and New England village atmosphere. Mt. Cranmore targets vacationing families (including non-skiers) from the Boston metropolitan area by emphasizing its proximity to the Mt. Washington 16,000 area bed base and North Conway retail and restaurant district. The Summit's diversity of terrain among its four resorts and significant night skiing programs allow the resort to target multiple demographic groups including families, teenagers and young adults from the Seattle/Tacoma metropolitan area. Grand Targhee primarily targets destination skiers visiting the Jackson Hole area as well as day skiers and regional overnight skiers from Wyoming, Idaho and Utah. Loon Mountain has traditionally targeted families composed of either day skiers, regional overnight skiers or destination skiers. Programs The Company has developed a number of specific marketing programs to achieve its objectives, including the following: o Customer loyalty programs o Multimedia advertising (including Internet strategies) o Data-based marketing programs (including e-mail broadcasting) o Snowsport development programs (programs include a multitude of snowsport options such as snowbikes, snowscoots and tubing as well as more traditional skiing and snowboarding) o Strategic marketing alliances o School, group and business affiliations Customer loyalty programs. The Company believes that the success of each of its resorts depends, in large part, on its ability to retain and increase the skier visitation frequency of its existing customer base. For example, approximately 79% of Northstar's 1997/98 ski season skier days were attributable to guests who had visited the resort on at least one other occasion. The Company believes a critical component to developing customer loyalty will be the success of its customer loyalty programs, including its Vertical Plus and Vertical Value frequent skier programs. For an annual membership fee of $49, Vertical Plus members receive a special, personalized identification wristband containing a preprogrammed computer microchip which acts as their lift access for the season. In addition to offering daily ticket discounts, the system tracks the amount of vertical feet skied at participating resorts and rewards members with prizes based on the number of vertical feet skied in a season. Other benefits of the program include members-only lift lines, direct lift access, the convenience of being able to make cashless retail transactions and electronic messaging. In addition to Vertical Plus, the Company has developed Vertical Value, a program that appeals to a broader range of skiers and offers an incentive for frequent visitation at all of the Company's resorts. Visitors also receive a welcome packet with targeted offers and a newsletter which allows the resorts to communicate effective and timely information to their frequent guests. Multimedia advertising. The Company's marketing efforts include print, broadcast, outdoor, Internet and direct mail advertising, with the particular method tailored for each resort and existing market opportunities. The Company is also very active in a variety of promotional programs designed to attract guests from population centers in and around the Los Angeles, San Diego, San Francisco, Sacramento, Seattle and Boston metropolitan areas and states with large skier populations such as Texas, Illinois, Florida and New York. For example, the Company's Northstar and Sierra resorts have participated in extensive cooperative marketing with other Lake Tahoe resorts to promote the region as a premier vacation destination. Data-based marketing programs. Through the information obtained from its customer loyalty programs, extensive market surveys and other market research, the Company maintains a database containing detailed information on its existing customers. Management believes that database marketing is an effective and 16 efficient method to identify, target and maintain an on-going relationship with the Company's best customers. For example, the Company has been successful in the use of targeted direct mailings and e-mail broadcasts, which are designed to match customer preferences with special ski package offers to build peak and off-peak volume. Management believes that these types of relationship-based marketing programs build guest loyalty and play an important role in solidifying a resort's existing customer base. Skier development programs. The Company's resorts operate a variety of skier development programs designed to improve the skills of children and beginners, as well as more advanced skiers and snowboarders. Management believes that these development programs increase skier days at the Company's resorts by expanding the total market of skiers and making skiing more enjoyable. Northstar, Sierra and Waterville Valley operate ski schools that are consistently rated among the best in their respective regions. In addition, several of the Company's resorts have introduced a development program, Vertical Improvement, geared toward intermediate and advanced skiers, which offers free specialized instruction and daily training. This has proven to increase repeated resort visitation. Booth Creek is expanding the definition of ski and snowboard areas to winter recreation centers. Resorts are offering a multitude of unique options for sliding on snow. Booth Creek Hill Thrill Centers include snow tubing, snowbikes, snowfoxes, snowscoots and Zorbs. Many of these are low-skill, high-sensation activities that even those who have never skied or snowboarded can enjoy. There are also transferable learning skills from these sliding devices to learning to ski or snowboard. Other efforts have been instituted at all resorts to embrace and welcome new participants to the sport of skiing or snowboarding. Strategic marketing alliances. The Company is a national ski resort operator with more than 2.4 million skier days recorded during the 1997/98 ski season. At least one of the Company's resorts is within driving distance of four of the five largest consumer markets in the United States. These factors, together with the attractive demographics of the Company's skier base, position the Company to further develop resort marketing programs with major corporate sponsors. Sponsorship opportunities include potential relationships with automobile manufacturers, soft drink companies, and ski and snowboard equipment manufacturers. For example, Northstar and Sierra have a relationship with a major automobile manufacturer that involves over $1 million worth of television exposure, free use of vehicles for Company purposes and a vehicle give-away promotion for resort guests. Management believes that the media exposure generated by this partnership is important in building market share and the image of the resorts, and that current joint marketing programs can be greatly expanded. School, group and business affiliations. The Company is dedicated to developing special programs designed to attract school, business and other groups. By introducing skiing, snowboarding and other methods of sliding on snow to a wider audience, these programs broaden the Company's customer base and have proven to be a particularly effective way to build name recognition and brand loyalty. Ski groups have also emerged as the fastest and most profitable way of increasing business during non-peak periods. Marketing personnel at each resort provide year-round assistance to group leaders in organizing and developing events. Business affiliations are developed and maintained through corporate tickets programs, whereby participating businesses are given an opportunity to provide their employees with incentive-based pricing. Seasonality The business of the Company is highly seasonal, with the vast majority of its annual revenues expected to be generated between November and April of each fiscal year. Management considers it essential to achieve optimal operating results during key holidays and weekends during this period. The Company has sought to mitigate the downside risk of its seasonal business by purchasing a skier day insurance policy for the 1998/99 ski season. During the off-season months of May through October, the Company's resorts typically experience a substantial reduction in labor and utility expense due to the absence of ski operations, but make significant expenditures for maintenance, expansion and capital improvement in preparation for the ensuing ski season. Competition The general unavailability of new developable mountains, regulatory requirements and the high costs and expertise required to build and operate resorts present significant barriers to entry in the ski industry. The last major new ski resort to open in the United States was in 1989, and in the past 15 years, management believes at least 85 proposed resorts have been stalled or abandoned due to environmental issues and the high costs of entering into the capital intensive ski industry. The domestic ski industry is currently comprised of 521 resorts 17 and is highly competitive. The Company's competitive position in the markets in which it competes is dependent upon many diverse factors, including proximity to population centers, pricing, snowmaking capabilities, type and quality of skiing offered, prevailing weather conditions, quality and price of complementary services. The Company's Lake Tahoe resorts, Northstar and Sierra, face strong competition from Lake Tahoe's seven other major ski resorts. Northstar's primary competition in the North Lake Tahoe area is from Squaw Valley and Alpine Meadows. Northstar also competes with major ski and non-ski destination resorts throughout North America. Sierra primarily competes in the Southern Lake Tahoe area with Heavenly Valley and Kirkwood. The Company's other California resort, Bear Mountain, competes primarily with Snow Summit and Mammoth Mountain. The Company's New England resorts, Waterville Valley, Mt. Cranmore and Loon Mountain, compete in the highly competitive Northeast ski market, which consists of Maine, New Hampshire, Vermont, Massachusetts, Connecticut and New York. Within the Northeast region, skiers can choose from over 50 major resorts and ski areas, most of which are located in the mountainous areas of New England and eastern New York. Waterville Valley's primary regional competitors include Bretton Woods, Attitash/Bear Peak and Gunstock. Mt. Cranmore's primary regional competitors are the Attitash/Bear Peak ski resort and Gunstock. Loon Mountain's primary regional competitors are Okemo and Sunday River. The Summit competes primarily with five local ski areas, including Crystal Mountain, Stevens Pass, White Pass, Mission Ridge and Mt. Baker. Additional competition comes from the regional destination resorts at Mt. Bachelor, Mt. Hood Meadows, Sun Valley and Whistler/Blackcomb, as well as other day and weekend ski facilities in Washington, Oregon and British Columbia. Grand Targhee competes for day and regional overnight skiers in the northern Rocky Mountain region as well as national destination skiers traveling to the greater Jackson, Wyoming area. Jackson Hole Ski Resort is the resort's largest single competitor. Grand Targhee has participated in joint marketing programs with Jackson Hole to promote the Jackson area and many visitors to the region ski at both resorts. Grand Targhee also competes for day and regional overnight skiers with Sun Valley and resorts in Utah. On a regional basis, at least one of the Company's resorts is readily accessible to four of the five largest ski markets in the United States. Management estimates that approximately 70% of the skiers visiting the Company's Lake Tahoe resorts are from the San Francisco, Sacramento Valley, Central California Valley and Lake Tahoe regions, while approximately 90% of Bear Mountain's skiers are from the Los Angeles and San Diego metropolitan areas. Waterville Valley, Mt. Cranmore and Loon Mountain are estimated to attract approximately 80% of their guests from Massachusetts and New Hampshire, with a large percentage of such visitors coming from the Boston metropolitan area. The Summit attracts approximately 90% of its skier guests from the Seattle/Tacoma region. Grand Targhee primarily attracts day and regional overnight skiers from the northern Rocky Mountain region and destination skiers visiting the region. Regulation and Legislation The Company's operations are dependent upon its ownership or control over the real estate constituting each resort. The real property presently used at the Northstar and Mt. Cranmore resorts is owned by the Company. The Company has the right to use a substantial portion of the real property associated with the Bear Mountain, Sierra, Summit, Grand Targhee and Waterville Valley resorts under the terms of Special Use Permits issued by the Forest Service. The Special Use Permits for the Bear Mountain, Sierra, Waterville Valley, the Summit and Grand Targhee resorts were reissued at the time of the Company's acquisition of such resorts, with the Bear Mountain permit expiring in 2020, the Sierra permit expiring in 2008, the Waterville Valley permit expiring in 2034, the Summit permit expiring in 2032 and the Grand Targhee permit expiring in 2034. A substantial portion of the real property associated with the Loon Mountain resort is likewise used under Forest Service permits. In 1993, the Forest Service authorized various lift, trail and snowmaking improvements on Loon Mountain and an expansion onto South Mountain. In 1996, the United States Court of Appeals for the First Circuit overturned this authorization on the ground that the Forest Service had failed to properly address certain environmental issues under NEPA. Certain improvements and part of the expansion had been constructed before the First Circuit ruled. On May 5, 1997, the United States District Court for the District of New Hampshire entered a stipulated order which authorizes existing improvements to remain in place and existing operations to continue but generally prohibits future construction, restricts use of a major snowmaking 18 water source, and requires certain water discharge permits to be pursued, pending Forest Service reconsideration of the projects under NEPA. In August 1998, the Forest Service announced that it expects to complete this NEPA process and issue a new decision on the improvements sometime in the Spring of 1999. In a December 4, 1998 court filing, the Forest Service revised the target date for a draft NEPA document on the improvements and the proposed expansion to the Fall of 1999. The District Court entered a final order on December 11, 1998 specifying that the conditions imposed on operations at Loon Mountain in the May 5, 1997 order will remain in effect until the Forest Service completes its NEPA review and issues a new decision. Existing use of Loon Mountain is authorized under a Term Special Use Permit, which covers facilities and expires in 2006, and a supplemental permit, which covers the balance of Loon Mountain; existing non-skiing, use of South Mountain is authorized under an annual permit which expires in February 1999, but is expected to be reissued. After the Forest Service reconsiders the improvements and expansion under NEPA, it will need to render a new decision and, if appropriate, issue a new permit. At that time, the District Court order will terminate. Based upon the existing administrative record, and certain proposed modifications to the resort's snowmaking operations which are intended to better protect water resources, the Company expects that the improvements and expansion will be approved by the Forest Service. However, no assurance can be given regarding the timing or outcome of this process. In August 1997, the Forest Service authorized the Loon Mountain resort to construct a new snowmaking pipeline across permitted land. The Forest Service found that such construction is consistent with the District Court order and will enable the resort to modify its snowmaking operations to better protect water resources and replace snowmaking capacity lost under the order. Although the pipeline has been completed, its use was challenged by private parties who assert that the Forest Service violated NEPA. On January 20, 1998, the United States District Court for the District of New Hampshire issued a decision finding that the Forest Service violated NEPA in failing to address the potential for the new pipeline to increase the amount of snow made and any associated environmental effects. On March 10, 1998, the District Court issued a series of further orders which, among other things, direct the Forest Service to re-evaluate the pipeline, allow such re-evaluation to proceed separate from and prior to the Forest Service's reconsideration of the larger expansion, and enjoin LMRC from using the pipeline pending further action by the Court. On July 2, 1998, the Forest Service issued a new decision approving the pipeline and addressing its potential to increase the amount of snow made. This decision was challenged by several of the same private parties, who, again, asserted that it violated NEPA. The Forest Service subsequently withdrew its decision authorizing the pipeline to conduct further review. Additionally, two of the parties whose challenge to the new pipeline decision is pending before the District Court filed a new lawsuit on August 20, 1998, in the same court, challenging the same decision on the same grounds, as well as additional grounds that another party has asserted in that case or that were previously addressed by the District Court in its January 20, 1998 decision. The District Court consolidated the new lawsuit with the existing action on November 19, 1998. The same day, the Court modified the injunction precluding use of the pipeline to permit LMRC to use the pipeline to withdraw and convert 159.7 million gallons of water into snow per ski season while the Forest Service further reviews the pipeline under NEPA. On December 4, 1998, the Forest Service filed a Notice of Administrative Action stating that it intends to combine its NEPA review of the pipeline with its NEPA review of the improvements and proposed expansion at Loon Mountain. The Forest Service stated that it hopes to issue a draft NEPA document for public comment on the pipeline, the improvements, and the expansion in the Fall of 1999. No assurances can be given regarding the timing or outcome of this process. The Forest Service has the right to approve the location, design and construction of improvements in permit areas and many operational matters at resorts with permits. Under the permits, the Company is required to pay fees to the Forest Service. Under recently enacted legislation, retroactively effective to the 1995/96 ski season, the fees range from 1.5% to approximately 4.0% of certain revenues, with the rate generally rising with increased revenues. However, through fiscal 1998, the Company is required to pay the greater of (i) the fees due under the new legislation and (ii) the fees actually paid for the 1994/95 ski season, unless gross revenue in a ski season falls more than 10% below that of the 1994/95 ski season, in which case the fees due are calculated solely under the new legislation. The calculation of gross revenues includes, among other things, lift tickets, ski school lessons, food and beverages, rental equipment and retail merchandise revenues. Total fees paid to the Forest Service by the Company during the year ended October 30, 1998 were $1,014,000. The new legislation is not expected to have a material effect on fees payable in future periods. 19 The Company believes that its relations with the Forest Service are good, and, to the best of its knowledge, no special use permit for any major ski resort has ever been terminated by the Forest Service. Prior to permit termination, the United States Forest Service would be required to notify the Company of the grounds for such action and to provide it with reasonable time to correct any curable non-compliance. Employees As of December 31, 1998, the Company employed a full-time corporate staff of 40 persons. In addition, the Company's resorts employ an aggregate of approximately 614 full-time and 5,600 seasonal employees. None of the employees of the Company or its resorts is represented by a labor union, and the Company considers its employee relations to be good. Regulatory Matters The Company's resorts are subject to a wide variety of federal, state and local laws and regulations relating to land use, water resources, discharge, storage, treatment and disposal of various materials and other environmental matters. Management believes that the Company's resorts are presently in compliance with all land use and environmental laws, except where non-compliance is not expected to result in a material adverse effect on its financial condition. The Company also believes that the cost of complying with known requirements, as well as anticipated investigation and remediation activities, will not have a material adverse effect on its financial condition or future results of operations. However, failure to comply with such laws could result in the imposition of severe penalties and other costs or restrictions on operations by government agencies or courts that could adversely affect operations. The Company has not received any notice of material non-compliance with permits, licenses or approvals necessary for the operation of its properties or of any material liability under any environmental law or regulation. However, at Grand Targhee, the Wyoming Department of Environmental Quality (the "DEQ") has issued a Notice of Violation of state water pollution requirements based on alleged discharge from a wastewater lagoon without a permit. The Company has entered into an negotiated compliance order with the DEQ requiring construction and operation of a new wastewater facility at a cost of approximately $1.0 million. The Company has substantially completed the construction of the new wastewater facility and is awaiting final approval of the facility by the DEQ. Pursuant to the air emissions reduction program currently in effect in the area regulated by the South Coast Air Quality Management District (the "SCAQMD"), where Bear Mountain is located, Bear Mountain will be required to "bank" emission credits from other facilities which have already implemented NOx emission reductions. The Company may purchase "banked" emission credits in a one-time transaction at the current market rate of approximately $700,000 or over time up to the year 2010 at prevailing market rates. Bear Mountain has a water supply contract ("Contract") for 500 acre-feet per year with Big Bear Municipal Water District executed January 8, 1988, the initial fifteen-year term of which expires on January 7, 2003. Big Bear Municipal Water District's primary source of water is from a portion of the water in Big Bear Lake shared with Bear Valley Mutual Water Company, the senior water rights holder. The Contract provides water primarily for snow making and slope irrigation purposes. The obligation of Big Bear Municipal Water District to supply water is excused only if the level of Big Bear Lake recedes below 6,735.2 feet above sea level or 8 feet below the top of Big Bear Lake Dam. Bear Valley Mutual Water Company recently claimed that its rights in the Lake are not subject to Big Bear Municipal Water District's obligation to supply water to Bear Mountain. This claim is vigorously contested by all interested parties and a two-year moratorium agreement between Bear Valley Mutual Water Company and Big Bear Municipal Water District was executed in November, 1998, which withdraws Bear Valley's claim for two years while the issues between Bear Valley and Big Bear Municipal are worked out. This allows continued service to Bear Mountain on an uncontested basis during the moratorium period. The Company expects that the issue will be resolved favorable to the interests of Bear Mountain because of its contribution to the local economy, the stenghth of its contract rights with Big Bear Municipal Water District, and the alternate sources of water supply that are available. It should be noted the foregoing is premised on normal conditions prevailing and the absence of droughts, earthquakes, dam failure, or other types of similar calamities that impact the ability to obtain or supply water and no assurance can be made regarding the outcome of this situation or the timing negotiations during the next two years. The operations at the resorts require permits and approvals from certain federal, state and local authorities. In addition, the Company's operations are heavily dependent upon its continued ability, under applicable laws, regulations, policies, permits, licenses or contractual arrangements, to have access to adequate supplies of water with which to make snow and service the other needs of its facilities, and otherwise to conduct its operations. There can be no assurance that new applications of existing laws, regulations and policies, or changes in such laws, regulations and policies will not occur in a manner that could have a detrimental effect on the Company, or that material permits, licenses or agreements will not be canceled, non-renewed, or renewed on terms materially less favorable to the Company. Major expansions of any one or more resorts could require, among other things, the filing of an environmental impact statement or other documentation with the Forest Service and state or local governments under the NEPA and certain state or local counterparts if it is determined that the expansion may have a significant impact upon the environment. Although the Company has no reason to believe that it will not be successful in implementing its operations and development plans, no assurance can be given that necessary permits and approvals will be obtained. Pursuant to the decision of the United States Court of Appeals for the First Circuit and the United States District Court for the District of New Hampshire's order, each discussed under Part I - Item 3, LMRC has applied to the Environmental Protection Agency ("EPA") for a Clean Water Act (the "CWA") discharge permit covering discharges associated with its snowmaking operations. Certain ongoing discharges are authorized by the District Court order pending final action on the permit and subject to the District Court's reserved power to modify such approval to 20 address any resulting environmental issues. The EPA issued a discharge permit prior to the 1998/99 ski season. Certain regulatory approvals associated with the new snowmaking pipeline at Loon Mountain impose minimum stream flow requirements on LMRC. These requirements will compel LMRC to construct water storage facilities within the next ten years, and such construction will require further regulatory approvals and environmental documentation under the NEPA. In addition, LMRC was notified in September 1997 that it had allegedly filled certain wetlands at the resort in violation of the CWA. In response, LMRC worked with the EPA to remove the alleged fill and implement certain erosion control measures. On January 15, 1998, an individual notified the EPA, LMRC, and certain other persons that he intended to initiate a lawsuit under the CWA regarding the alleged wetland violation. On February 2, 1998, the EPA wrote to such individual stating that the alleged fill had been removed and that the EPA does not believe there is a continuing violation at the site. While the Company believes that its position would prevail, no assurance can be given regarding any outcome. Item 2. Properties Northstar consists of over 6,500 acres of privately owned land, of which less than one-third has been developed. Sierra owns 20 acres of its 1,689 gross acreage and leases the remainder under a Special Use Permit with the United States Forest Service. Bear Mountain owns 116 of its 819 gross acreage, leases 698 acres of mountain terrain under a Forest Service Special Use Permit and leases 5 acres from third parties. Waterville Valley owns 35 acres on Snow Mountain and two acres at the Conference Center, and leases 790 acres of land on Mt. Tecumseh from the federal government under a Special Use Permit issued by the Forest Service. Mt. Cranmore owns 754 acres and holds deeded easements enabling it to develop an additional 1,200 acres of ski terrain. The Summit owns 686 acres of its 4,152 gross acreage, leases 1,400 acres under a private permit and utilizes 1,864 acres of mountain terrain under a Forest Service Special Use Permit. Grand Targhee leases all of the land on which the resort is operated under a Special Use Permit with the United States Forest Service. Loon Mountain owns 565 acres upon which substantially all of the buildings and improvements relating to the resort are located. Loon Mountain leases 775 acres of land in the White Mountain National Forest under a Special Use Permit issued by the United States Forest Service permitting year-round recreational use. Adjacent to such land, an additional 581 acres are leased on "South Mountain" under a separate Special Use Permit permitting certain limited activities, including mountain biking, cross country skiing and horseback riding. For further information regarding the Company's properties, see Part I, Item 1. "Business - Resort Operations" and "- Regulation and Legislation." Item 3. Legal Proceedings Each of the Company's resorts has pending and is regularly subject to litigation with respect to personal injury claims relating principally to skiing activities at its resorts. The Company and each of its resorts maintain extensive liability insurance that the Company considers adequate to insure claims related to usual and customary risks associated with the operation of ski resorts. The Company does not believe that it or any of its resorts are involved in any litigation that will, individually or in the aggregate, have a material adverse effect on its financial condition or future results of operations. On March 25, 1997, Killington West, Ltd., a California corporation formerly known as Bear Mountain, Ltd. ("Killington"), filed a breach of contract lawsuit in the Superior Court of the State of California (County of San Bernardino) against Fibreboard Corporation ("Fibreboard") and Bear Mountain, Inc. alleging that Fibreboard and Bear Mountain, Inc. breached the asset purchase agreement dated October 6, 1995 (the "Original Bear Mountain Agreement") among Killington, Fibreboard and Bear Mountain, Inc., pursuant to which Bear Mountain, Inc. acquired the Bear Mountain ski resort from Killington. Killington's lawsuit concerns an alleged breach by Fibreboard and Bear Mountain, Inc. of a change of control provision in the Original Bear Mountain Agreement. In connection with the Company's acquisition of Bear Mountain, Inc. in December 1996, the Company obtained from Fibreboard indemnification for any claim that might be made by Killington, and further, required that $1.0 million of the purchase price be held in escrow pending the outcome of any potential disputes with Killington. Fibreboard has acknowledged its obligation to indemnify Bear Mountain, Inc. with respect to the Killington lawsuit and has commenced the defense of such lawsuit on behalf of Fibreboard and Bear Mountain, Inc. However, no assurances can be given regarding the outcome of this litigation. 21 In connection with the Loon Mountain Acquisition, certain shareholders (the "Plaintiffs") of LMRC filed a lawsuit in New Hampshire state court against LMRC and its former directors alleging breach of fiduciary duty and against the Company alleging that the Company failed to comply with the New Hampshire Security Takeover Disclosure Act (the "Takeover Statute"). Prior to the filing of the lawsuit against the Company, the Company had sought and received a "no action" order from the Bureau of Securities Regulation, New Hampshire Department of State (the "Bureau") finding that the Takeover Statute was inapplicable to the proposed merger. The two lawsuits were consolidated in the Superior Court in Grafton County, New Hampshire. The Plaintiffs' initial request for a preliminary injunction prohibiting the Company (or its affiliates) from proceeding with the Loon Mountain Acquisition based on allegations that the Company failed to comply with the Takeover Statute was denied on October 28, 1997. Before the litigation proceeded further, both parties amended the merger agreement relating to the Loon Mountain Acquisition. The Company then sought and obtained an additional order by the Bureau that the Takeover Statute did not apply. On January 30, 1998, the Company filed its answer to the Plaintiffs' petition and, on February 10, 1998, filed a motion to dismiss the action against the Company under the Takeover Statute in its entirety, asserting, inter alia, that the Takeover Statute did not apply to the transaction as a matter of law. On June 11, 1998, the Court denied the Company's motion to dismiss. On July 2, 1998, the Company filed a motion to reconsider the Court's decision. On August 1, 1998, the Court granted the Company's motion for reconsideration and dismissed Plaintiffs' claims under the Takeover Statute. Plaintiffs filed a motion for reconsideration as to the Court's dismissal of the Takeover Statute claim which was denied on October 1, 1998, and Plaintiffs have appealed the dismissal of their Takeover Statute claim to the New Hampshire Supreme Court. Plaintiffs' breach of fiduciary duty action against LMRC and its directors remains pending. Plaintiffs have conducted limited discovery and a trial date has not been set. On December 15, 1998, Plaintiffs moved to amend their complaint to allege a cause of action seeking money damages against the Company, LMRC and the former LMRC directors for breach of fiduciary duty and omissions and misrepresentations in connection with the approval of the Loon Mountain Acquisition and the solicitation of proxies from the LMRC shareholders to approve the transaction. Plaintiffs' potential remedies include monetary damages for the directors' alleged failure to maximize the consideration to LMRC shareholders and/or failing to properly disclose material information to LMRC shareholders in connection with the Loon Mountain Acquisition. If Plaintiffs are successful in pursuing their claims against the former LMRC directors, LMRC has certain indemnity obligations to the former directors and is currently involved in such directors' defense. The Company may have available to it as a defense the exclusive remedy provisions of the New Hampshire statute on dissenters' rights, which rights, as described below, the Plaintiffs have exercised. While management of the Company believes that the former LMRC directors will prevail against Plaintiffs' claims and appeals, no assurance can be given regarding the outcome of the above described litigation. In connection with the Loon Mountain Acquisition, Plaintiffs exercised dissenters' rights under the New Hampshire Business Corporation Act (the "NHBCA"). Under the statutory procedure for settling the Plaintiffs' dissenters' rights, LMRC paid Plaintiffs an aggregate of $34,436, or $30.61 per share, as its estimate of the fair value of their 1,125 shares. Plaintiffs demanded additional payments necessary to compensate them for the $71.38 per share price, plus interest, which they have asserted as the fair value of their shares. Pursuant to the NHBCA, LMRC commenced a proceeding in the Grafton County New Hampshire Superior Court on July 20, 1998 seeking a judicial appraisal of the value of Plaintiffs shares in LMRC. On September 30, 1998, Plaintiffs moved to dismiss the appraisal proceeding on the grounds that LMRC's payments to them were untimely and that the accompanying notice omitted certain required information. The court denied the Plaintiff's motion to dismiss on December 14, 1998. LMRC anticipates that discovery will commence in early 1999. While the Company believes that the amount paid to the Plaintiffs prior to the commencement of the appraisal proceeding represents the fair value of their shares, there can be no assurance as to the value which the appraisal proceeding will assign to the Plaintiffs 1,125 shares. In 1995, an individual sued the United States Forest Service in the United States District Court for the District of New Hampshire (the "District Court") alleging that the Forest Service had violated NEPA, the CWA, and an executive order in 1993 approving improvements to facilities on Loon Mountain and an expansion of the Loon Mountain resort on to South Mountain. LMRC and an environmental group intervened. The District Court entered summary judgment for the United States Forest Service on all claims and the original plaintiff along with an intervening party appealed.In December 1996, the United States Court of Appeals for the First Circuit (the "First Circuit") reversed the District Court and ruled that the Forest Service must reconsider certain environmental issues under NEPA and that LMRC must obtain a discharge permit under the CWA for certain discharges from its snowmaking system. On May 5, 1997, later finalized December 11, 1998, the District Court entered a stipulated order that: enjoins LMRC from any further construction implementing the project with certain limited exceptions; imposes various restrictions on LMRC's existing snowmaking operations and requires LMRC to apply for a CWA discharge permit for discharges of water and any associated pollutants associated with its snowmaking; allows 22 existing construction to remain in place and existing uses to continue; requires LMRC to undertake certain erosion control and monitoring measures; requires the Forest Service to prepare supplemental NEPA documentation on the improvements and expansion; and reserves the right to require restoration of areas developed under the 1993 Forest Service decision to their preexisting condition if not ultimately approved by the Forest Service. This order will remain in effect until the supplemental NEPA process is completed and the Forest Service issues a new special use permit. The Company has received a CWA permit for its snowmaking system, and the Forest Service currently expects to issue draft NEPA documentation in the Fall of 1999. However, no assurance can be provided on the timing, terms or outcome of this proceeding. Following the First Circuit's decision, the plaintiffs filed a motion with the District Court asking it to impose a civil penalty under the CWA of $5,550,125 and attorney fees and costs against LMRC for unpermitted discharges into Loon Pond without a discharge permit during its snowmaking operations in the 1996/97 ski season and preceding years. The discharge at issue involves water transfers from the East Branch of the Pemigewasset River and drain back from the snowmaking system into Loon Pond. In connection with the Loon Mountain Acquisition, the Company obtained environmental pollution insurance for $4,500,000 of coverage above a $1.2 million deductible to cover any penalties, fees, and costs that the Court assesses against LMRC. LMRC asserted defenses to the merits and amount of penalty sought. In a December 11, 1998 final order, the District Court dismissed the claim for civil penalties and attorney fees under the CWA on grounds of mootness and standing. One of the plaintiffs filed a notice of appeal on January 8, 1999 to appeal the final order to the United States Court of Appeals for the First Circuit but has not yet identified issues on appeal. No assurances can be given regarding the outcome of this litigation. On August 29, 1997, the plaintiffs filed a second lawsuit against the Forest Service in the District Court alleging that the Forest Service violated NEPA in authorizing LMRC to construct and operate a snowmaking pipeline across permitted land. Another party intervened as plaintiff, and LMRC intervened as defendant. The Forest Service and LMRC asserted various defenses. On January 20, 1998, the District Court held that the pipeline may be analyzed and approved by the Forest Service separately from the South Mountain expansion, but that the Forest Service violated NEPA by failing to consider the potential environmental effects of the alleged increase in snowmaking capacity. On March 10, 1998, the District Court issued a series of further orders which establish a schedule for the Forest Service's reconsideration of the pipeline and any resulting challenges, deny plaintiffs' request that such reconsideration be deferred until the Forest Service's decision on the larger expansion, and enjoin Loon Mountain from using the pipeline pending further action by the Court. Three of the plaintiffs have appealed the District Court's denial of their claim that reconsideration of the pipeline be deferred until the Forest Service's decision on the larger expansion, but briefing on these appeals has not yet commenced in the First Circuit. On July 2, 1998, the Forest Service issued a new decision reauthorizing the pipeline and addressing the potential environmental effects of the projected increase in snowmaking capacity. Three of the prior plaintiffs filed challenges to this decision with the District Court, alleging that it, too, violated NEPA. The Forest Service subsequently withdrew its decision authorizing the pipeline to conduct further review under NEPA. On August 20, 1998, two of the plaintiffs who have challenges to the new pipeline decision pending before the District Court filed a separate lawsuit against the Forest Service in the same court challenging the pipeline decision on the same grounds, as well as additional grounds that another party has asserted in that case or that are identical to claims that the Court addressed in its January 20, 1998 decision. The Court consolidated the new lawsuit with the existing action on the pipeline on November 19, 1998. That same day, the Court modified the injunction precluding Loon Mountain from using the pipeline to permit Loon Mountain to use the pipeline to withdraw and convert 159.7 million gallons of water into snow per ski season until the Forest Service completes its environmental review of the pipeline. On December 4, 1998, the Forest Service filed a Notice of Administrative Action stating that it intends to combine its NEPA review of the pipeline with the NEPA review of the improvements and proposed expansion at Loon Mountain. The Forest Service currently expects to release a draft NEPA document for public comment on the pipeline, the improvements, and the proposed expansion in Fall 1999. No assurances can be given regarding the timing or outcome of this process or the litigation on the pipeline. The plaintiffs in the Loon Mountain pipeline litigation have stated that they intend to seek attorney fees in the combined amount of $52,965. One plaintiff has indicated that he will claim $23,581 in attorney fees against LMRC on grounds of bad faith. The other plaintiffs have not ruled out claims for attorney fees against LMRC. The Company believes LMRC has substantial defenses 23 in the event claims for attorney fees are filed; however, it cannot guarantee any particular result. On August 1, 1997, two plaintiffs filed a lawsuit against the Town of Lincoln Planning Board and LMRC in the Grafton County Superior Court in the State of New Hampshire alleging that the Lincoln Planning Board had improperly approved various facilities associated with the snowmaking pipeline. On September 30, 1997, LMRC moved to dismiss the claims against it, but sought to remain in the case as in intervenor. Also on September 30, 1997, the Lincoln Planning Board answered the complaint, denying most of the allegations and raising various defenses. On February 23, 1998, the court granted LMRC's motion to dismiss. However, in the event that the plaintiffs are successful, the Lincoln Planning Board would be requested to reconsider the facilities and issue a new decision. No assurance can be given regarding the outcome or timing of this litigation or any resulting Lincoln Planning Board review. In connection with the Seven Springs Acquisition certain shareholders of Seven Springs filed a lawsuit in the Court of Common Pleas of Somerset County, Pennsylvania against the Company, Acquisition Sub, and Seven Springs and certain of its directors, seeking a declaratory judgment, along with other relief including the rescission of the Merger Agreement by and among the Company, Acquisition Sub and Seven Springs. Plaintiffs allege that the terms of the Seven Springs Shareholder Agreement ban the consummation of the Seven Springs Acquisition. On October 29, 1998, the Court entered a final judgment denying Plaintiff's motion and has permitted the consummation of the transactions contemplated by the Merger Agreement. On December 28, 1998, the Plaintiff's filed an amended notice of appeal which is currently pending. While the Company believes that Seven Springs will prevail with its position that the Seven Springs Shareholders Agreement does not apply to the transactions contemplated by the Merger Agreement, no assurance can be made regarding the timing or the outcome of this litigation. Item 4. Submission Of Matters To Vote Of Security Holders No matters were submitted to a vote of security holders during the fourth quarter of fiscal 1998. 24 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters There is no established trading market for any class of equity securities of the Company. Item 6. Selected Financial Data The following selected financial data should be read in conjunction with the combined financial statements of the Fibreboard Resort Group and the consolidated financial statements of the Company and related notes thereto included elsewhere in this Report and Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." The selected combined financial data (except for the other financial and operating data) of the Fibreboard Resort Group (i) as of and for the years ended December 31, 1994 and 1995 and as of and for the ten months ended October 31, 1996 have been derived from the audited combined financial statements of the Fibreboard Resort Group, which have been audited by Arthur Andersen LLP, independent accountants, (ii) for the ten months ended October 31, 1995 have been derived from the unaudited combined financial statements of the Fibreboard Resort Group and (iii) for the period from November 1, 1996 to December 2, 1996 have been derived from the audited combined financial statements of the Fibreboard Resort Group, which have been audited by Ernst & Young LLP, independent auditors. The selected consolidated financial data (except for the other financial and operating data) of the Company as of and for the years ended October 31, 1997 and October 30, 1998 have been derived from the audited consolidated financial statements of the Company, which have been audited by Ernst & Young LLP, independent auditors. The Company was formed in October 1996 and had no operations until its acquisition of seven ski resort complexes during the first six months of fiscal 1997. The other financial and operating data presented below includes information on "EBITDA" and "EBITDA margin." "EBITDA" represents income from operations before depreciation, depletion and amortization expense and the noncash cost of real estate sales. "EBITDA margin" is EBITDA divided by total revenue. Although EBITDA is not a measure of performance under United States generally accepted accounting principles ("GAAP"), the term is presented because management believes it provides useful information regarding a company's ability to incur and service debt. EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with GAAP, or as a measure of profitability or liquidity. In addition, "EBITDA" and "EBITDA margin" as determined by the Company may not be comparable to related or similar measures as reported by other companies and do not represent funds available for discretionary use. 25 Fibreboard Resort Group ---------------------------------------------------- 10 Months 10 Period From Ended Months November 1, Year Ended October Ended 1996 to December 31, 31, October December 2, ------------------ 1994(a) 1995(b) 1995(b) 1996(c) 1996(c) ------- -------- -------- ------- ----------- (Dollars in Thousands, except Revenue per Skier Day) Statement of Operations Data: Revenue: Resort Operations..................... $ 40,810 $ 39,823 $ 32,072 $ 36,829 $ 1,395 Real Estate and Other................. 610 5,213 4,659 4,288 304 -------- -------- -------- -------- -------- 41,420 45,036 36,731 41,117 1,699 Operating Expenses: Cost of Sales - Resort Operations..... 23,471 24,545 18,547 22,596 2,884 Cost of Sales - Real Estate and Other. 280 1,989 1,780 2,142 161 Depreciation, Depletion and Amortization 3,449 4,024 2,989 4,354 6 Selling, General and Administrative... 5,545 5,871 4,399 5,220 1,766 Management Fees and Corporate Expenses 655 1,247 513 701 70 -------- -------- -------- -------- -------- Operating Income (Loss)................. 8,020 7,360 8,503 6,104 (3,188) Interest Expense, Net................... 666 821 334 1,189 206 -------- -------- -------- -------- --------- Pre-tax Income (Loss)................... 7,354 6,539 8,169 4,915 (3,394) Income Taxes (Benefit).................. 2,979 2,624 3,308 2,018 (1,358) -------- -------- -------- -------- --------- Net Income (Loss)....................... $ 4,375 $ 3,915 $ 4,861 $ 2,897 $ (2,036) ======== ======== ======== ======== ========= Other Financial and Operating Data: Skier Days............................... 837,179 784,964 626,500 706,075 30,818 Revenue per Skier Day (f)................ $ 48.75 $ 50.73 $ 51.19 $ 52.16 $ 45.27 Noncash Cost of Real Estate Sales (g).... $ - $ 1,618 $ 1,488 $ 1,461 $ 133 Capital Expenditures Excluding Acquisitions and $ 6,199 $ 5,226 $ 3,786 $ 5,761 $ 5,587 Real Estate and Other.................. Net cash provided by (used in): Operating activities................... $ 9,482 $ 7,861 $ 7,506 $ 4,923 $ 5,769 Investing activities................... (6,287) (29,430) (28,321) (8,467) (6,151) Financing activities................... (2,664) 26,071 18,059 (2,778) 1,115 EBITDA................................... $ 11,469 $ 13,002 $ 12,980 $ 11,919 $ (3,049) EBITDA Margin............................ 27.7% 28.9% 35.3% 29.0% (179.5)% Fibreboard Resort Group ----------------------------------------- As of December 31, As of October 31, ------------------ --------------------- 1994(a) 1995(b) 1995(b) 1996(c) ------ ------- -------- ---------- (Dollars in Thousands) Balance Sheet Data: Working Capital (Deficit)............ $ (6,555) $(35,980) $(36,123) $(36,187) Total Assets......................... 43,065 73,316 64,125 69,602 Total Debt Including Intercompany 15,422 41,493 33,487 38,715 Payable............................ Net Assets........................... 19,752 23,667 24,606 26,564
(see accompanying footnotes) 26 Company ------------------------------------------------ Historical Unaudited Pro Forma(i) ---------- ----------------------- Year Year Year Year Ended Ended Ended Ended October October October October 31, 30, 31, 30, 1997(d) 1998(e) 1997 1998 --------- ------- ------- ------ (Dollars in Thousands, except Revenue per Skier Day) Statement of Operations Data: Revenue: Resort Operations........................... $ 68,136 $ 97,248 $ 93,850 $ 107,887 Real Estate and Other....................... 3,671 7,608 3,975 7,608 -------- -------- --------- ----------- 71,807 104,856 97,825 115,495 Operating Expenses: Cost of Sales - Resort Operations........... 44,624 61,325 82,999(j) 87,163(j) Cost of Sales - Real Estate and Other....... 2,799 4,671 2,960 4,671 Depreciation, Depletion and Amortization.... 11,681 17,752 15,795 18,547 Selling, General and Administrative......... 13,719 19,645 - - --------- -------- --------- ---------- Operating Income (Loss)....................... (1,016) 1,463 (3,929) 5,114 Interest Expense, Net......................... 14,912 18,733 18,759 19,612 --------- -------- --------- ----------- Pre-tax (Loss)................................ (15,928) (17,270) (22,688) (14,498) Income Tax Benefit............................ (1,728) - (1,728) - --------- -------- --------- ---------- Loss Before Minority Interest and (14,200) (17,270) (20,960) (14,498) Extraordinary Item.......................... Minority Interest............................. 229 260 281 260 --------- -------- --------- --------- Loss Before Extraordinary Item................ (14,429) (17,530) (21,241) (14,758) Extraordinary Loss on Early Retirement of Debt (2,664) - - - --------- --------- --------- ---------- Net Loss...................................... $(17,093) $(17,530) $(21,241) $(14,758) ========= ========= ========== =========== Other Financial and Operating Data: Skier Days.................................... 1,565,917 2,113,562 2,186,196 2,386,478 Revenue per Skier Day (f)..................... $ 43.51 $ 46.01 $ 42.93 $ 45.21 Noncash Cost of Real Estate Sales (g).......... $ 2,237 $ 3,721 $ 2,370 $ 3,721 Capital Expenditures Excluding Acquisitions and Real Estate $ 9,459 $ 15,500 $ 20,075 $ 16,721 and Other.................................... Net cash provided by (used in): Operating activities........................ $ 1,552 $ 7,559 NA NA Investing activities........................ (152,685) (47,718) NA NA Financing activities........................ 151,595 40,322 NA NA EBITDA........................................ $ 12,902 $ 22,936 $ 14,236 $ 27,382 EBITDA Margin................................. 18.0% 21.9% 14.6% 23.7%
Company ------------------- As of As of October October 31, 30, 1997(d) 1998(e) --------- -------- (Dollars in Thousands) Balance Sheet Data: Working Capital (Deficit)..................... $(26,634) $(33,093) Total Assets.................................. 186,416 218,546 Total Debt.................................... 136,327 156,280 Preferred Stock of Subsidiary (h)............. 3,354 2,634 Common Shareholder's Equity................... 29,407 37,377 (see accompanying footnotes) 27 Notes to Selected Financial Data The selection of a December 31 year end by the Fibreboard Resort Group does not result in the presentation of the results of the resorts for a single ski season. Accordingly, as the results of a single ski season are split into two reporting periods, differing trends may develop, as compared to results of operations for other resorts consisting of a single ski season, which should be evaluated by the reader. As the results of operations of ski resorts are highly seasonal, with the majority of revenue generated in the period from November through April, the results of operations for the 10 months ended October 31, 1996 and 1995 and the period from November 1, 1996 to December 2, 1996 are not representative of a pro rata year of operations. (a) Includes the financial results of Northstar and Sierra for the entire period. (b) Includes the financial results of Northstar and Sierra for the entire period and of Bear Mountain for the period beginning October 23, 1995, the date on which it was acquired by Fibreboard Corporation. (c) Includes the financial results of Northstar, Sierra and Bear Mountain for the entire period. (d) Reflects the financial results of Waterville Valley and Mt. Cranmore from November 27, 1996, Northstar, Sierra and Bear Mountain from December 3, 1996, the Summit from January 15, 1997, and Grand Targhee from March 18, 1997, the respective dates of acquisition of each resort by the Company. (e) Reflects the financial results of Waterville Valley, Mt. Cranmore, Northstar, Sierra, Bear Mountain, the Summit and Grand Targhee for entire period, and Loon Mountain for the period beginning February 26, 1998, the date on which it was acquired by the Company. (f) Reflects revenue from resort operations divided by skier days. (g) Noncash cost of real estate sales represents the allocated portion of real estate development expenditures previously capitalized (including acquisition costs allocated to real estate development) which relate to current year real estate sales. (h) Represents preferred stock of a subsidiary of the Company which is subject to mandatory redemption requirements. (i) Pro forma statements of operations and other financial data for the years ended October 31, 1997 and October 30, 1998 give effect to the resort acquisitions and related financing transactions as if they had occurred on November 1, 1996. (j) The historical financial presentations for the Fibreboard Resort Group, Waterville Valley, Mt. Cranmore, Ski Lifts, Inc., Grand Targhee Incorporated and Loon Mountain Recreation Corporation are inconsistent in categorizing cost of sales-resort operations and selling, general and administrative expenses. For presentation purposes in the pro forma information, all operating expenses, excluding depreciation, depletion and amortization, have been aggregated as cost of sales-resort operations. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis relates to (i) the historical financial statements and results of operations of the Company and the California Resorts, (ii) the pro forma financial results of the Company, and (iii) the liquidity and capital resources of the Company. The following discussion should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Report. Certain matters discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" are forward-looking statements that involve risks and uncertainties. Forward-looking statements are based on management's current views and assumptions and involve risks and uncertainties that could significantly affect expected results. The Company wishes to caution the reader that certain factors could significantly affect the Company's actual results, causing results to differ materially from those in any forward-looking 28 statement. These factors include: regional and national economic conditions, the successful or unsuccessful integration of acquired businesses, weather conditions, natural disasters (such as earthquakes), industry competition, governmental regulation and risks associated with expansion, leased property and property used pursuant to United States Forest Service permits and the ability of the Company to make its information technology assets and systems year 2000 compliant and the costs of any modifications necessary in this regard. General The Company's ski operations are highly sensitive to regional weather conditions and the overall strength of the regional economies in the areas in which the Company operates. The Company believes that the geographic diversity of the Company's resorts and the use of extensive snowmaking technology coupled with advanced trail grooming equipment, which together can provide consistent skiing conditions, can partially mitigate the risk of both economic downturns and adverse weather conditions in any given region. However, the Company remains vulnerable to warm weather, heavy rains and drought conditions, which can have a significant effect on the operating revenues and profitability at any one of the Company's resorts. The Company's four most weather-sensitive resorts, Bear Mountain, Waterville Valley, Loon Mountain and Mt. Cranmore, have invested heavily in snowmaking capabilities to provide coverage on virtually all of their trails and have been open for skiing at least 123, 144, 145 and 105 days, respectively, during each of the last five ski seasons. The Company's Northstar, Sierra, the Summit and Grand Targhee resorts are less weather-sensitive based on their historical natural snowfall, averaging approximately 326, 518, 422, and 512 inches of snow, respectively, per year for the past five ski seasons. As a result of their historic natural snowfall, their snowmaking capabilities are considerably less extensive than at Bear Mountain, Waterville Valley, Loon Mountain or Mt. Cranmore. The Company's results of operations are also highly dependent on its ability to compete in each of the large regional ski markets in which it operates. At Northstar and Sierra more than 70% of the 1997/98 ski season total skier days were attributable to residents of the San Francisco, Sacramento, Central California Valley and Lake Tahoe regions. At Bear Mountain, more than 90% of the 1997/98 ski season total skier days were attributable to residents of the Los Angeles and San Diego metropolitan regions. At Waterville Valley, Loon Mountain and Mt. Cranmore, approximately 80% of the 1997/98 ski season total skier days were attributable to residents of Massachusetts and New Hampshire, with a large percentage of such visitors coming from the Boston metropolitan area. At the Summit, the Company estimates that more than 90% of the 1997/98 ski season total skier days were attributable to residents of the Seattle/Tacoma metropolitan region. The Company's Grand Targhee resort attracts approximately 50% of its skiers from outside its local skiing population. The Company seeks to maximize revenues and operating income by managing the mix of skier days and revenue per skier day. These strategies are also designed to maximize resort cash flow. The strategy for each resort is based on the demographic profile of its market and the physical capacity of its mountain and facilities. The Company seeks to increase skier days by developing effective ticket pricing strategies and marketing programs to improve peak and off-peak volume. The Company seeks to improve revenue per skier day by effectively managing the price, quality and value of each of its ski-related services, including retail shops, ski rentals, ski lessons and food and beverage facilities. The Company also generates revenue from a variety of non-ski related services, such as golf, tennis, health clubs and conference centers, as well as from real estate and timber sales. The Company expects to increase skier days by offering a consistent, quality guest experience and developing effective target marketing programs. See Part I, Item 1. "Business - Marketing and Sales." The Company's resorts have spent more than $27.5 million (including $2.5 million of equipment acquired through capital leases and other debt) in capital expenditures during the last two years to upgrade chairlift capacity, expand terrain, improve rental lodging and retail facilities and increase snowmaking capabilities, all of which management believes are important in providing a consistent, quality guest experience. 29 The Company believes it can selectively increase lift ticket prices and skier days to generate additional revenue and resort cash flow from other related services and activities in conjunction with the upgrading of its resort infrastructure and facilities. The Company believes that by extending its successful operating strategies it can significantly increase revenue per skier day at each of its resorts. In addition to revenues generated from skiing operations, the Company's resorts generate significant revenues from non-ski operations, including lodging, conference center services, health and tennis clubs and summer activities such as mountain biking rentals and golf course fees. During the year ended October 30, 1998, approximately 47.9%, 39.9% and 12.2% of the Company's revenues were generated from lift ticket sales, other ski-related sales and non-ski related sales (excluding real estate and timber sales), respectively. For the year ended October 31, 1997, approximately 49.6%, 40.5% and 9.9% of the Company's revenues were generated from lift ticket sales, other ski-related sales and non-ski-related sales (excluding real estate and timber sales), respectively. Moreover, real estate and timber sales at Northstar generated $7.4 million and $3.7 million during the year ended October 30, 1998 and the period from December 3, 1996 (the date the Company acquired Northstar) to October 31, 1997, accounting for 18.0% and 11.8% of Northstar's total revenue during such periods. A significant portion of total operating costs at the Company's resorts are variable, consisting primarily of retail and food service cost of sales, utilities and labor expense. These variable costs can fluctuate significantly based upon skier days and seasonal factors. With the exception of certain management, marketing and maintenance personnel, all of the Company's employees are compensated on an hourly basis. Management believes a key element to maximizing profitability during the winter season is to closely monitor staffing requirements and to redirect or lay-off employees when skier volumes or seasonal needs dictate. In addition to financial performance, the advanced management information system currently in place at all of the Company's resorts provides detailed statistics regarding staffing utilization which is instrumental in adjusting personnel requirements. Management believes that, over time, the utilization of this system will yield significant labor cost savings. Results of Operations of the Company Overview The Company was formed on October 8, 1996. Since inception, the Company made the following acquisitions, which are included in the results of operations of the Company from the respective purchase dates and accounted for using the purchase method: Resort Acquisition Date --------------------------------------------- ------------------ Waterville Valley......................... November 27, 1996 Mt. Cranmore.............................. November 27, 1996 Northstar................................. December 3, 1996 Sierra.................................... December 3, 1996 Bear Mountain............................. December 3, 1996 The Summit................................ January 15, 1997 Grand Targhee............................. March 18, 1997 Loon Mountain............................. February 26, 1998 Historical Year Ended October 30, 1998 as Compared to the Historical Year Ended October 31, 1997 Total revenue for the year ended October 30, 1998 was $104,856,000, an increase of $33,049,000 or 46.0%, over the Company's revenue for the year ended October 31, 1997. Due to the timing of the acquisitions, the 1997 period does not reflect a full period of operating revenues for the resorts, which accounts for a significant part of the increase. The increase in revenue is also due to more typical weather conditions in the Lake Tahoe region in the current period than during the comparable period in the 1996/97 ski season, which resulted in increased revenues at Sierra and Northstar of 67.9% and 23.2%, respectively. During the 1996/97 ski season, revenue was negatively impacted by a mudslide which shut down the highway which provides primary access to Sierra and poor weather conditions during the Christmas holiday period at many of the Company's other resorts. Total skier visits at Sierra and Northstar increased by 62.7% and 21.9% or approximately 132,000 and 97,000, respectively, in the 1998 period as compared to the 1997 period. Real estate and timber sales for the year ended October 30, 1998 were $7,608,000, an increase of $3,937,000 or 107.2%, over real 30 estate and timber sales for the year ended October 31, 1997. In August 1998, Northstar conducted an auction of certain real estate parcels as part of the third phase of an ongoing real estate development project. All of the lots available for sale were sold at an average lot price of $212,000 as compared to an average lot price of $154,000 for the two prior phases. Total operating expenses for the year ended October 30, 1998 were $103,393,000, an increase of $30,570,000 or 42.0%, over the Company's total operating expenses for the year ended October 31, 1997. Due to the timing of the acquisitions, the 1997 period does not reflect a full period of operating expenses for the resorts, which accounts for a significant part of the increase. Payroll related costs, the single largest component of operating expenses, were approximately $37,628,000 for the year ended October 30, 1998, as compared to $27,555,000 for the 1997 period. Cost of sales for the real estate and timber sales increased by $1,872,000 due to an increase in the number of lots sold in 1998 as compared to the prior period. Interest expense for the year ended October 30, 1998 totaled $17,510,000, an increase of $4,241,000 over the Company's interest expense for the year ended October 31, 1997, reflecting generally higher levels of borrowings in the 1998 period and a slightly higher interest rate on the Senior Notes as compared to the interest rates on the bridge financing facilities in place through March 17, 1997. During the year ended October 31, 1997, the Company recorded tax benefits for current operating losses to the extent of recorded deferred tax liabilities. Due to the Company's lack of profitable history, the tax benefits of excess operating losses in the 1997 period were fully offset by a valuation reserve. Similarly, no federal income tax provision was recorded for the year ended October 30, 1998 due to continued operating losses. Pro Forma Year Ended October 30, 1998 as Compared to the Pro Forma Year Ended October 31, 1997 The following unaudited pro forma results of operations of the Company for the year ended October 30, 1998 and October 31, 1997 assume that all the resort acquisitions and related financings had occurred on November 1, 1996. These unaudited pro forma results of operations are not necessarily indicative of the actual results of operations that would have been achieved nor are they necessarily indicative of future results of operations. Pro Forma Pro Forma Year Ended Year Ended October 31, October 30, 1997 1998 ------------- ------------ Statement of Operations Data: Revenue: Resort Operations........................... $ 93,850 $ 107,887 Real Estate and Other....................... 3,975 7,608 ----------- ----------- 97,825 115,495 Operating Expenses: Resort Operations........................... 82,999 87,163 Cost of Sales - Real Estate and Other....... 2,960 4,671 Depreciation, Depletion and Amortization.... 15,795 18,547 ----------- ---------- Operating Income (Loss)....................... (3,929) 5,114 Interest Expense, Net......................... 18,759 19,612 ----------- ---------- Loss Before Income Taxes...................... (22,688) (14,498) Income Tax Benefit............................ 1,728 - ----------- ----------- Loss Before Minority Interest................. (20,960) (14,498) Minority Interest............................. 281 260 ----------- ------------ Net Loss...................................... $ (21,241) $ (14,758) ============ ============= Other Data: EBITDA........................................ $ 14,236 $ 27,382 Noncash Cost of Real Estate Sales............. $ 2,370 $ 3,721
31 Total pro forma revenues for the year ended October 30, 1998 would have been $115,495,000, an increase of $17,670,000 or 18.1% over the comparable period in 1997. Sierra, Northstar, Grand Targhee, Bear Mountain and Waterville Valley generated increased revenues in the 1998 period of 63.3%, 20.7%, 11.3%, 11.8%, and 8.0%, respectively, due primarily to skier day increases. The increase in revenue is primarily due to the more typical weather conditions in the Lake Tahoe region in the 1998 period than during the comparable period in the 1996/97 ski season. Pro forma revenues for Mt. Cranmore, the Summit and Loon Mountain for the 1998 period were generally comparable to the level of revenues in the 1997 period. Total pro forma skier visits would have increased 9.2%, or approximately 200,000, in the 1998 period as compared to the 1997 period primarily due to improved weather conditions during the holiday periods which allowed travelers to reach the Company's resorts. During the 1996/97 ski season, revenues were negatively impacted by a mudslide which shut down the highway which provides primary access to Sierra and poor weather conditions during the holiday period at many of the Company's other resorts. Sales of real estate and timber during the year ended October 30, 1998 were $7,608,000, as compared to $3,975,000 in the comparable 1997 pro forma period. In August 1998, Northstar conducted an auction of certain real estate parcels as part of the third phase of an ongoing real estate development project. All of the lots available for sale were sold at an average lot price of $212,000 as compared to an average lot price of $154,000 for the two prior phases. Pro forma resort operating expenses, excluding depreciation, depletion and amortization, for the year ended October 30, 1998 would have been $87,163,000, an increase of $4,164,000, or 5.0%, over the comparable period in 1997. Pro forma payroll related costs for the 1998 period would have been $40,039,000, an increase of $1,593,000 or 4.1%, over the comparable 1997 period. The increase in pro forma payroll related costs was due primarily to higher seasonal employment at Northstar and Sierra due to the improved operating conditions and extended season. Cost of sales for real estate and timber activities for the year ended October 30, 1998 would have been $4,671,000. The increase of $1,711,000 over the comparable period in 1997 was due to an increase in the number of lots sold in 1998 as compared to the prior period. Pro forma depreciation, depletion and amortization for the pro forma year ended October 30, 1998 would have been $18,547,000. The increase of $2,752,000 or 17.4% over the 1997 period was due principally to higher average asset balances in the 1998 period. Net interest expense for the pro forma year ended October 30, 1998 would have totaled $19,612,000, an increase of $853,000 or 4.6% from the comparable period in 1997. The increase was due to interest expense on borrowings under the Senior Credit Facility used to fund capital expenditures, maintenance activities and normal seasonal working capital requirements in the off-season periods. Income tax benefit for the pro forma year ended October 31, 1997 of $1,728,000 reflects the benefit of operating losses to the extent of net deferred tax liabilities recorded in purchase accounting. As the effective tax rate for the year ended October 30, 1998 was zero, no income tax benefit was recorded during the pro forma year ended October 30, 1998. Historical Year Ended October 31, 1997 For the year ended October 31, 1997, revenues totaled approximately $71.8 million, approximately $31.2 million, or 43.4%, of which was generated by Northstar. Operating loss for the same period totaled approximately $1.0 million. Both revenues and operating income were negatively impacted by the poor weather conditions experienced by a number of the Company's resorts during the 1996/97 ski season. During the peak period of the 1996/97 ski season, the Lake Tahoe region experienced significant rainfall, flooding and mudslides. The inclement weather resulted in poor ski conditions at Northstar and Sierra and a major access highway to Sierra being closed for several weeks during the first quarter of the Company's fiscal year ended October 31, 1997. Furthermore, much of the poor weather occurred during the Christmas holiday period, a traditionally busy period at the Company's resorts. As a result, skier days and resort revenue at Sierra were adversely impacted. Certain of the Company's other resorts also experienced poor weather conditions during the year ended October 31, 1997, which resulted in a reduction in skier days, revenue and operating income. Operating loss is also net of approximately $11.7 million of depreciation, depletion and amortization expenses reflecting the stepped-up values of the recently acquired resorts. 32 Interest expense is primarily comprised of interest on $90 million in bridge notes and $10 million in intercompany notes to the Company's parent (together, the "Bridge Financing Facilities"), which bore interest at approximately 11% per annum through March 18, 1997, and on $116 million aggregate principal amount of the Company's 12.5% Senior Notes due 2007 (the "Senior Notes"), which have borne interest at 12.5% per annum since March 18, 1997. Amortization of deferred financing costs relate primarily to fees associated with the Bridge Financing Facilities and the Senior Notes. Unamortized fees associated with the Bridge Financing Facilities at March 18, 1997, the date the Bridge Financing Facilities were repaid, totaled approximately $2.7 million and were written off and reflected as an extraordinary loss on the early retirement of debt in the consolidated statement of operations. The effective income tax rate for the year ended October 31, 1997 was 10.8%. The Company has recorded a tax benefit of $1.7 million primarily to reflect the benefit of operating losses generated during the period to the extent of net deferred tax liabilities recorded in purchase accounting. For financial reporting purposes, the remaining net deferred tax assets arising in the year ended October 31, 1997, which relate principally to the Company's net operating losses, have been fully offset by a valuation allowance. Results of Operations of California Resorts The Fibreboard Resort Group was acquired by Booth Creek effective December 3, 1996, and its results of operations have been included in the Company's consolidated results of operations since such date. The following review of the performance of the Fibreboard Resort Group is for the unaudited ten month period ended October 31, 1995 and the audited ten month period ended October 31, 1996. The following table summarizes Fibreboard Resort Group's historical results of operations as a percentage of revenue for the ten month periods ended October 31, 1995 and 1996. Ten Months Ended October 31, ---------------- 1995 1996 ------- ------ Statement of Operations Data: Net revenues - Lift Tickets....................................................... 42.7 % 45.0% - Ski Related Resort................................................. 34.0 34.0 - Non-Ski related Resort............................................. 10.6 10.6 - Real Estate and Timber............................................. 12.7 10.4 ------- ------- Total net revenues............................................... 100.0 100.0 Cost of Sales - Resort Operations.................................... 58.6 65.5 Cost of Sales - Real Estate and Other................................ 4.8 5.2 Selling, General and Administrative Expense.......................... 12.0 12.7 Corporate Allocations and Management Fees............................ 1.4 1.7 ------- ------ Operating Income..................................................... 23.2 14.9 Interest (Income) Expense, Net....................................... 0.9 2.9 ------- ------ Pre-tax Income....................................................... 22.3 12.0 Income Taxes......................................................... 9.0 4.9 ------ ------ Net Income........................................................... 13.3 % 7.1% ======= ======= Other Data EBITDA............................................................... 35.3 % 29.0%
Ten Months Ended October 31, 1996 as Compared to the Ten Months Ended October 31, 1995 The ski resort industry is highly seasonal, with operations typically commencing in November or December of each year, and closing in April or May. The exclusion of the months of November and December from the 1996 and 1995 33 fiscal periods results in decreases in virtually all income statement captions when compared to full fiscal periods. Total revenue for the ten months ended October 31, 1996 was $41,117,000, an increase of $4,386,000 or 11.9% from the comparable period in 1995. This increase is attributable to the acquisition of Bear Mountain in October 1995, which accounted for $7,147,000 of additional revenue during the ten month period ended October 31, 1996. Partially offsetting this increase was a $2,390,000 decline in lift ticket and ski-related revenues at the Company's Northstar and Sierra resorts, primarily resulting from fewer skier days, and a $371,000 decline in real estate and timber sales, primarily resulting from fewer developmental real estate sales. Skier days and revenue per skier day were 706,075 and $52.16 for the ten months ended October 31, 1996, as compared to 626,500 and $51.19 for the comparable period in 1995. The increase in skier days is attributable to the acquisition of Bear Mountain in October 1995, which accounted for 174,984 of the additional skier days. Skier days at the Company's Northstar and Sierra resorts declined by 95,409 in the ten months ended October 31, 1996 as compared to the comparable period in the prior year due to particularly favorable ski conditions in the prior period. Cost of sales for resort operations for the ten months ended October 31, 1996 increased by $5,414,000, or 25.1%, from the comparable period in the prior year due to a $5,860,000 increase in costs resulting from the acquisition of Bear Mountain in October 1995, offset by slightly lower cost of sales for resort operations at Northstar and Sierra of approximately $500,000. Selling, general, administrative and other operating expenses (including management fees and corporate allocations) increased by $1,009,000, or 20.5%, in the ten months ended October 31, 1996 as compared to the comparable period in the prior year due to a $1,406,000 increase in costs resulting from the acquisition of Bear Mountain in October 1995, offset by slightly lower selling, general, administrative and other operating expenses at Northstar and Sierra. Interest expense, net for the ten months ended October 31, 1996 increased by $855,000 as compared to the same period in 1995 as a result of the advance made by Fibreboard Corporation to the Resort Group in October 1995 to finance the acquisition of Bear Mountain. The provision for income taxes for the ten months ended October 31, 1996 decreased by $1,290,000 as compared to the comparable period in 1995 due to the decrease in income subject to income tax. The effective income tax rate for the ten months ended October 31, 1996 was 41.1%, as compared to 40.5% for the same period in 1995. EBITDA for the ten months October 31, 1996 was $11,919,000, a decrease of $1,061,000, or 8.2%, from the comparable period in the prior year. EBITDA margin decreased from 35.3% during the ten months ended October 31, 1995 to 29.0% during the comparable 1996 period. Liquidity and Capital Resources The Company's primary liquidity needs are to fund capital expenditures, service indebtedness and support seasonal working capital requirements. The Company's primary sources of liquidity are cash flow from operations and borrowings under the Senior Credit Facility which was amended and restated on January 28, 1999 and effective beginning on October 30, 1998. Virtually all of the Company's operating income is generated by its subsidiaries. As a result, the Company is dependent on the earnings and cash flow of, and dividends and distributions or advances from, its subsidiaries to provide the funds necessary to meet its debt service obligations. The Senior Credit Facility currently provides for borrowing availability of up to $25 million during the term of such facility, which expires November 15, 1999. The Senior Credit Facility requires that the Company not have borrowings thereunder in excess of $8.0 million in addition to certain amounts maintained by the Company in certain depository accounts with the Agent for a period of 60 consecutive days each year commencing sometime between February 1 and February 28. The Company intends to use borrowings under the Senior Credit Facility to meet seasonal fluctuations in working capital requirements, primarily related to off-season operations and maintenance activities during the months of May through November, to fund capital expenditures for lifts, trail work, grooming equipment and other on-mountain equipment and facilities and to build retail and other inventories prior to the start of the skiing season and for other cash requirements. As of October 30, 1998, outstanding borrowings under the Senior Credit Facility totaled approximately $17.1 million. 34 While the Company's ski resorts typically generate significant amounts of cash during the ski season, the Company had a working capital deficit of $33.1 million as of October 30, 1998 which will negatively affect liquidity during 1999. The Company generated cash from operating activities of $7.6 million for the year ended October 30, 1998 as compared to $1.6 million for the year ended October 31, 1997. This increase is due to the significantly improved operating results in the 1998 period and the inclusion of all resorts for the full period in 1998 (except for Loon Mountain which has been included in 1998 operations since February 26, 1998). Cash used in investing activities totaled $47.7 million and $152.7 million for the years ended October 30, 1998 and October 31, 1997, respectively. The results for the 1998 period reflect primarily capital expenditures and the Loon Mountain Acquisition, whereas the results for the 1997 period include $142.0 million of cash used for the acquisition of the Company's other ski resorts. Cash provided by financing activities totaled $40.3 million and $151.6 million for the years ended October 30, 1998 and October 31, 1997, respectively. The results for the 1998 period reflect net borrowings and receipt of additional capital contributions to fund the Loon Mountain Acquisition and certain planned capital expenditures. The results for the 1997 period reflect borrowings on long-term debt and capital contributions used to fund the 1997 ski resort acquisitions. The Company's capital expenditures for property and equipment for the year ended October 30, 1998 were approximately $18.0 million (including approximately $2.5 million of equipment acquired through capital leases and other debt). Management anticipates that capital expendentures for property and equipment for fiscal year 1999 and fiscal 2000 will be approximately $14 million in the aggregate, including approximately $4 million in resort maintenance capital for each year. The Company plans to fund these capital expenditures from available cash flow, vendor financing to the extent permitted under the Senior Credit Facility and the Indenture and borrowings under the Senior Credit Facility. Commitments for future capital expenditures through 1999 totaled approximately $4.4 million at October 30, 1998. Management believes that there is a considerable degree of flexibility in the timing (and, to a lesser degree, the scope) of its capital expenditure program, and even greater flexibility as to its real estate development objectives. While the capital expenditure program described above is regarded by management as important, both as to timing and scope, discretionary capital spending above maintenance levels can be deferred, in some instances for substantial periods of time, in order to address cash flow or other constraints. With respect to the Company's potential real estate development opportunities, management believes that such efforts will enhance ski-related revenues and will contribute independently to earnings. In addition, with respect to significant development projects, the Company anticipates entering into joint venture arrangements that would reduce infrastructure and other development costs. Nonetheless, existing lodging facilities in the vicinity of each resort are believed to be adequate to support current skier volumes, and a deferral or curtailment of these development efforts is not regarded by management as likely to adversely affect skier days and ski-related revenues or profitability. The Company also believes that its current infrastructure is sufficient, and that development of real estate opportunities is not presently necessary, to support its existing operations. The Company's liquidity has been and will continue to be significantly affected by its high leverage. As a result of its leveraged position, the Company has significant cash requirements to service debt and funds available for working capital, capital expenditures, acquisitions and general corporate purposes are limited. In addition, the Company's high level of debt may increase its vulnerability to competitive pressures and the seasonality of the skiing and recreational industries. Any decline in the Company's expected operating performance could have a material adverse effect on the Company's liquidity and on its ability to service its debt and make required capital expenditures. Further, upon the occurrence of a Change of Control (as defined in the Indenture), the Company may be required to repurchase the Senior Notes at 101% of the principal amount thereof, plus accrued and unpaid interest. The occurrence of a Change of Control may also constitute a default under the Senior Credit Facility. No assurance can be given that the Company would be able to finance a Change of Control repurchase offer. In addition, the Senior Credit Facility and the Indenture each contain covenants that significantly limit the Company's ability to obtain additional 35 sources of capital and may affect the Company's liquidity. These covenants restrict the ability of the Company and its restricted subsidiaries to, among other things, incur additional indebtedness, create liens, make investments, consummate certain asset sales, create subsidiaries, issue subsidiary stock, consolidate or merge with any other person, or transfer all or substantially all of the assets of the Company. The Company currently has $133.5 million aggregate principal amount of Senior Notes outstanding, which will result in annual cash interest requirements of approximately $16.7 million. The Company expects that cash generated from operations, together with borrowing availability, will be adequate to fund the interest requirements on the Senior Notes and the Company's other cash operating and debt service requirements over the next twelve months. However, any decline in the Company's expected operating performance could have a material adverse effect on the Company's liquidity. In such case, the Company could be required to attempt to refinance all or a portion of its existing debt, sell assets or obtain additional financing. No assurance can be given of the Company's ability to do so or the terms of any such transaction. In addition, the Company would require additional financing for future acquisitions. The Company believes that inflation has had little effect on its results of operations and any impact on costs has been largely offset by increased pricing. Impact of the Year 2000 Issue The year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions or engage in normal business activities. The Company has conducted an assessment of its information and telecommunications technology ("IT") assets and systems. Substantially all of the Company's IT systems, except for a portion of the Company's ticketing and sales systems, operate using software developed and supported by third party vendors. The Company is in the process of implementing its planned program to remedy such third party developed systems, which will entail either modifications to or replacement of certain existing IT systems. The cost of modifications will be expensed as incurred and is not expected to be significant. The cost of purchased replacements will be capitalized and is expected to range from $500,000 to $700,000. The Company is currently performing an assessment of the necessary efforts to make its primary ticketing and sales system year 2000 compliant, and expects to complete this assessment by February 1999. The cost of necessary modifications to the ticketing and sales software will be expensed as incurred. Purchases of replacement hardware, if any, will be capitalized. The expected cost of necessary software modifications and hardware replacements is not currently known. The Company has commenced a program to ensure that significant vendors and service providers with which it does business are year 2000 compliant. In addition, the Company is conducting an assessment of its operating assets to determine whether there will be any significant financial impacts to ensure year 2000 compliance for such assets. The Company intends to complete its year 2000 assessments and remediation program by the third calendar quarter of 1999. However, if the Company or its vendors are unable to resolve the year 2000 issue in a timely manner, or the Company's assessment of the extent of year 2000 issues surrounding its IT systems, operating assets or significant vendors or service providers were to be incorrect, the year 2000 issue could have a material impact on the operations of the Company. The Company does not presently have a contingency plan in the event its year 2000 compliance program is unsuccessful or not completed on a timely basis. The cost of the project and the date on which the Company believes it will complete the year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes and similar uncertainties. 36 Seasonality The business of the Company is highly seasonal, with the vast majority of its annual revenues expected to be generated between November and April of each fiscal year. Management considers it essential to achieve optimal operating results during key holidays and weekends during this period. During the off-season months of May through October, the Company's resorts typically experience a substantial reduction in labor and utility expense due to the absence of ski operations, but make significant expenditures for maintenance, expansion and capital improvement in preparation for the ensuing ski season. Item 7a. Quantitative and Qualitative Disclosures about Market Risk The Company's market risk sensitive instruments do not subject the Company to material market risk exposures, except for such risks related to interest rate fluctuations. As of October 30, 1998, the Company has debt outstanding (including the Senior Credit Facility) with a carrying value of $156.3 million and an estimated fair value of $146.9 million. Fixed interest rate debt outstanding as of October 30, 1998, which excludes the Senior Credit Facility, was $139.1 million, carries an average interest rate of approximately 12%, and matures as follows: 1999 2000 2001 2002 2003 Thereafter Total ---- ---- ---- ---- ---- ---------- ----- Senior Notes $ - $ - $ - $ - $ - $133,500,000 $133,500,000 ASC Seller Note 150,000 200,000 250,000 300,000 350,000 1,150,000 2,400,000 Other debt 1,635,000 907,000 101,000 88,000 90,000 416,000 3,237,000 ------------------------------------------------------------------------------------ $1,785,000 $1,107,000 $ 351,000 $ 388,000 $ 440,000 $135,066,000 $139,137,000 ====================================================================================
The amount of borrowings under the Senior Credit Facility as of October 30, 1998 was approximately $17.1 million. For purposes of calculating interest, borrowings under the Senior Credit Facility can be, at the election of the Company, Base Rate Loans or LIBOR Rate Loans or a combination thereof. Base Rate Loans bear interest at the sum of (a) a margin of between 0% and .5%, depending on the level of consolidated EBITDA of the Company and its subsidiaries (as determined pursuant to the Senior Credit Facility), plus (b) the higher of (i) the Agent's base rate or (ii) the federal funds rate plus .5%. LIBOR Rate Loans bear interest at the LIBOR rate plus a margin of between 2% and 3%, depending on the level of consolidated EBITDA. As of October 30, 1998 the borrowings outstanding bore interest at 8%, pursuant to the Base Rate Loans option. Item 8. Financial Statements and Supplementary Data The financial statements and supplementary financial information that are required to be included pursuant to this Item 8 are listed in Item 14 of this Report under the caption "(a)1." and follow Item 14. The financial statements and supplementary financial information specifically referenced in such list are incorporated in this Item 8 by reference. Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure None. 37 PART III Item 10. Directors and Executive Officers of the Registrant Directors, Executive Officers and Key Employees The following table sets forth information with respect to the directors, executive officers and other key employees of the Company and Booth Creek Ski Group, Inc., a Delaware corporation ("Parent"), of which the Company is a wholly-owned subsidiary. Name Age Position - ------------------------------------------ ---- ------------------------------------------ George N. Gillett, Jr..................... 60 Chairman of the Board of Directors; Chief Executive Officer; Assistant Secretary; Director of the Company and Parent Christopher P. Ryman...................... 44 Chief Operating Officer, President and Assistant Secretary of the Company; Director of Parent Jeffrey J. Joyce.......................... 37 Executive Vice President of Finance, Assistant Secretary of the Company; Director of Parent Elizabeth J. Cole......................... 38 Executive Vice President, Chief Financial Officer, Treasurer and Secretary of the Company Timothy M. Petrick........................ 43 Executive Vice President, Branding and Marketing of the Company; Director of Parent Timothy H. Beck........................... 48 Executive Vice President, Planning of the Company Brian J. Pope............................. 36 Vice President of Accounting and Finance, Assistant Treasurer and Assistant Secretary of the Company Julianne Maurer........................... 42 Vice President of Marketing and Sales of the Company Mark St. J. Petrozzi...................... 39 Vice President of Risk Management of the Company Laura B. Moriarty......................... 43 Vice President of Human Resources of the Company Alexander F. Gillett...................... 26 Assistant Vice President and Assistant Secretary of the Company George N. Gillett, III.................... 29 Assistant Vice President and Assistant Secretary of the Company Timothy Silva............................. 47 General Manager - Northstar John A. Rice.............................. 43 General Manager - Sierra Brent G. Tregaskis........................ 38 General Manager - Bear Mountain Thomas H. Day............................. 44 General Manager - Waterville Valley Ted M. Austin............................. 38 General Manager - Mt. Cranmore Larry H. Williamson....................... 57 General Manager - Grand Targhee Rick F. Kelley............................ 44 General Manager - Loon Mountain
George N. Gillett, Jr. Mr. Gillett has been the Chairman of the Board of Directors of the Company since its formation in October 1996 and Chief Executive Officer since February 1997. Mr. Gillett served as Chairman from 1977 until September 1996 of Gillett Holdings, Inc. (which was renamed Vail Resorts, Inc. in 1996). Gillett Holdings, Inc. owned Packerland Packing Company, Inc. until its sale in 1994, the Vail ski resort since its acquisition in 1985 and various media properties, including a controlling interest in SCI Television, Inc. from 1987 until 1993. Since August 1994 he has served as Chairman of Packerland Packing Company, Inc., a meatpacking company based in Green Bay, Wisconsin. From October 1987 until May 1993, Mr. Gillett served as Chairman and Chief Executive Officer of SCI Television, Inc. and from May 1993 until May 1996 as President of New World Television, Inc. (renamed from SCI Television Inc. in 1993). Mr. Gillett filed a petition of voluntary bankruptcy under Chapter 7 of the United States Bankruptcy Code on August 13, 1992 and was discharged from bankruptcy on 38 July 27, 1993. In addition, certain entities for which Mr. Gillett has served as an executive officer or director, including Gillett Holdings, Inc., SCI Television, Inc. and their respective subsidiaries, filed bankruptcy petitions, or had bankruptcy petitions filed against them, in 1991 and 1993 under Chapter 11 of the United States Bankruptcy Code. All of these entities have since been discharged from bankruptcy. Christopher P. Ryman. Mr. Ryman became Chief Operating Officer, President and Assistant Secretary of the Company in May 1998 and became a Director of Parent on September 15, 1998. Mr. Ryman was Chief Operating Officer and Senior Vice President of Vail Associates from 1995. Prior to that time, from 1992 to 1995, he was Senior Vice President of Mountain Operations at Vail Associates. Jeffrey J. Joyce. Mr. Joyce has held the position of Executive Vice President, Finance of the Company since October 1996. He also has served since August 1994 as a Vice President of Packerland Packing Company, Inc., which is indirectly controlled by George N. Gillett, Jr., Chairman of the Board of Directors and Chief Executive Officer of the Company. From July 1988 until July 1993, Mr. Joyce was employed by Gillett Holdings, Inc., an affiliate of George N. Gillett, Jr., in various financial management positions. Elizabeth J. Cole. Ms. Cole has held the positions of Executive Vice President, Chief Financial Officer, Treasurer and Secretary of the Company since May 1998. From May 1995 until May 1998, Ms. Cole worked at Vail Resorts with her most recent position there being that of Vice President, Business Development. Prior to this time, Ms. Cole was affiliated with Aurora Capital Partners. During her employment with Aurora Capital Partners, she served as the Chief Financial Officer of Petrowax PA, Inc., a manufacturer of petroleum waxes. Timothy M. Petrick. Mr. Petrick has held the position of Executive Vic President of the Company since May 1997. Prior to this time, he served as Vice President and General Manager of K2 North America since July 1992 and has been a Director of Parent since March 25, 1998. Timothy H. Beck. Mr. Beck has held the positions of Executive Vice President, Planning and President, Eastern Operations of the Company since July 1997. Prior to this time, he served as President of Sno-engineering, Inc. since January 1991. Brian J. Pope. Mr. Pope has held the position of Vice President of Accounting and Finance of the Company since August 1998. In December 1998, Mr. Pope was also named to the positions of Assistant Treasurer and Assistant Secretary of the Company. Prior to August 1998, he served as Senior Manager in the Assurance and Advisory Business Services unit of Ernst & Young LLP. Julianne Maurer. Ms. Maurer has held the position of Vice President of Marketing and Sales of the Company since December 1996. Prior to this time, she served as Director of Marketing of the Fibreboard Resort Group as well as Director of Marketing for Northstar. Mark St. J. Petrozzi. Mr. Petrozzi has held the position of Vice President of Risk Management of the Company since January 1998. Prior to this time, Mr. Petrozzi held various management positions with Willis Corroon. Laura B. Moriarty. Ms. Moriarty has held the position of Vice President of Human Resources of the Company since 1997. Prior to this time, Ms. Moriarty was the Training Development Director at Harvey's Resort Casino. Alexander F. Gillett. Mr. Gillett has held the positions of Assistant Vice President and Assistant Secretary since October 1996. Mr. Gillett is the son of George N. Gillett, Jr. George N. Gillett III. Mr. Gillett has held the positions of Assistant Vice President and Assistant Secretary since October 1996. Mr. Gillett is the son of George N. Gillett, Jr. Timothy Silva. Mr. Silva has been the General Manager of Northstar since January 1995. Prior to this time, he served as Director of Operations of Trimont Land Company, the owner and operator of Northstar, since February 1992. John A. Rice. Mr. Rice has been the General Manager of Sierra since July 1993. Prior to this time, he served as Vice President of Administration of Bear Mountain, Ltd. (the predecessor of Bear Mountain, Inc.) since July 1988. 39 Brent G. Tregaskis. Mr. Tregaskis became the General Manager of Bear Mountain in February 1998. Prior to this time, he served as Food and Beverage and Facilities Director of Jackson Hole Mountain Resort since July 1996. From 1985 until July 1996, he served in a variety of positions at Snow Summit Mountain Resort, including Profit Centers Manager and General Manager of the Food and Beverage Department. Thomas H. Day. Mr. Day has been the General Manager of Waterville Valley since May 1997. Prior to this time, he served as Mountain Manager of Waterville Valley since 1986. Ted M. Austin. Mr. Austin became the General Manager of Mt. Cranmore in September 1997. Prior to this time, he served as Director of Marketing at Sierra since August 1993. Larry H. Williamson. Mr. Williamson became the General Manager of Grand Targhee in March 1997. Mr. Williamson has held the position of General Manager of Grand Targhee Incorporated, the owner and operator of Grand Targhee, since March 1996. Prior to this time, he served as Director of Mountain Operations of Grand Targhee since 1989. Rick F. Kelley. Mr. Kelley became the General Manager of Loon Mountain in March 1998. Prior to this time, he served as Manager of Operations, Director of Mountain Operations, Director of Skiing Operations, Director of Technical Operations and Director of Maintenance Operations as well serving in a variety of other positions at Loon Mountain since 1978. Directors All directors of Booth Creek and Parent hold office until the respective annual meeting of stockholders next following their election, or until their successors are elected and qualified. George N. Gillett, Jr. is the sole director of Booth Creek. Pursuant to the Stockholders Agreement (as defined), (i) in June 1997 Dean C. Kehler and Gregg L. Engles, as the designees of John Hancock Mutual Life Insurance Company ("John Hancock"), and Jeffrey J. Joyce, as a designee of Booth Creek Partners Limited II, L.L.L.P. (the "Gillett Family Partnership"), became members of Parent's Board of Directors and George N. Gillett, Jr., as a designee of the Gillett Family Partnership, was re-appointed as Chairman of the Board of Directors of Parent, (ii) in March 1998, Timothy M. Petrick, as a designee of the Gillett Family Partnership, became a member of Parent's Board of Directors and (iii) in September 1998, Sandeep Alva, as a designee of John Hancock, and Christopher P. Ryman, as a designee of the Gillett Family Partnership became members of the Board of Directors. See Part III, Item 13. "Certain Relationships and Related Transactions - Stockholders Agreement." No directors of Booth Creek or Parent receives compensation for acting in such capacity. Since August 1985, Mr. Kehler has been a Managing Director of CIBC Oppenheimer Corp., an affiliate of CIBC WG Argosy Merchant Fund 2, L.L.C. (the "CIBC Merchant Fund"), and has investment responsibilities with respect to the CIBC Merchant Fund. See Part III, Item 13. "Certain Relationships and Related Transactions The Financing Transactions" and "- Stockholders Agreement." From February 1990 to August 1995, Mr. Kehler was a Managing Director of Argosy Group, L.P., an investment banking firm. Since March 1998, Mr. Alva has been the President of Hancock Mezzanine Investments LLC, a private investment fund established to provide subordinated debt and equity capital to middle market companies and an affiliate of John Hancock. Mr. Alva has been with John Hancock since 1985, except for 1990/91 when he was with Josephs, Littlejohn and Levy, and has previously served as a Senior Investment Officer. See Part III, Item 13. "Certain Relationships and Related Transactions" and - "Stockholders Agreement." Mr. Engles has served as the Chairman of the Board and Chief Executive Officer of Suiza Foods Corporation since October 1994. He has also served as the Chairman of the Board and Chief Executive Officer of Reddy Ice Corporation since May 1988, Chairman of the Board of Suiza Holdings, L.P. since December 1993, and Chairman of the Board of Velda Farms since April 1994. Item 11. Executive Compensation Compensation of Executive Officers The following table sets forth the compensation paid by Booth Creek to (i) its Chairman of the Board and Chief Executive Officer and (ii) each of the four most highly compensated individuals who served as executive officers of the Company during fiscal 1998 and 1997 and received salary and bonus in excess of $100,000 during such years (collectively, the "Named Executives"), for services rendered in all capacities to Booth Creek during the periods indicated. 40 SUMMARY COMPENSATION TABLE Annual Compensation ------------------------------------ Other All Annual Other Salary Bonus Compensation Compensation Name and Principal Position Year ($) ($) ($) ($) - -------------------------------------- ------ ---------- -------- ----------- ------------- George N. Gillett, Jr................ 1998 - - - - 1997 3,333(2) - - - Chairman of the Board, Chief Executive Officer and Director (1) Timothy M. Petrick................... 1998 175,000 45,000 - 4,192(3) Executive Vice President 1997 87,950 30,625 - 1,837(4) Timothy H. Beck...................... 1998 143,268 45,000 - 4,040(5) Executive Vice President Timothy Silva........................ 1998 120,000 60,000 - 2,908(6) General Manager - Northstar 1997 92,551 17,500 - 2,941(7) John A. Rice......................... 1998 110,000 55,000 - 5,048(8) General Manager - Sierra Nanci N. Northway.................... 1997 100,410 6,000 - 3,181 (9) Former Vice President, Treasurer, Chief Financial Officer and Secretary
(1) Mr. Gillett is the sole shareholder, sole director and Chief Executive Officer of Booth Creek, Inc., which, pursuant to the Management Agreement (as defined), provides the Company with management services in exchange for an annual management fee. See Part III, Item 13. "Certain Relationships and Related Transactions - Management Agreement with Booth Creek, Inc." (2) Mr. Gillett was only compensated by the Company during January and February of 1997. (3) Consists of a 401(k) matching contribution of $2,427 and term life insurance premiums of $1,765. (4) Consists of term life insurance premiums. (5) Consists of a 401(k) matching contribution of $2,275 and term life insuranc premiums of $1,765. (6) Consists of a 401(k) matching contribution. (7) Consists of a 401(k) matching contribution of $2,891 and term life insurance premiums of $50. (8) Consists of a 401(k) matching contribution. (9) Consists of a 401(k) matching contribution of $3,158 and term life insurance premiums of $23. 41 OPTIONS/SAR GRANTS IN FISCAL 1998 The following table sets forth certain information with respect to option grants made to the Named Executives for the fiscal year ended October 30, 1998.
Potential Realizable Value at Number of Percent of Total Assumed Annual Rates of Securities Options/SARs Stock Price Appreciation for Underlying Granted to Exercise Option Term Options/SARS Employees in Price Expiration -------------------------------- Name Granted Fiscal Year ($/Sh) Date 5% 10% ------ -------------- ------------ ------- ----------- -------- --------- Timothy H. Beck (1) 80 100% $500 October 1, 2007 $341,800 $568,000 Timothy Silva (2) 10 100% $500 October 1, 2007 $42,700 $71,000 John A. Rice (3) 10 100% $500 October 1, 2007 $42,700 $71,000
(1) Represents option to purchase Class A Common Stock of Parent pursuant to that certain Stock Option Agreement by and between Parent and Mr. Beck. See Part III, Item 11. "Executive Compensation - Parent Stock Options." (2) Represents option to purchase Class A Common Stock of Parent pursuant to that certain Stock Option Agreement by and between Parent and Mr. Silva. See Part III, Item 11. "Executive Compensation - Parent Stock Options." (3) Represents option to purchase Class A Common Stock of Parent pursuant to that certain Stock Option Agreement by and between Parent and Mr. Rice. See Part III, Item 11. "Executive Compensation - Parent Stock Options." AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1998 AND 1998 FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities Underlying Unexercised Value of Unexercised Shares Options/SARS at In-the-Money Acquired on Fiscal Year-End, Options/SARs at Exercise Value Exercisable/Unexercisable Fiscal Year-End, Name (#) (1) Realized ($) (#) Exercisable/Unexercisable --------- ----------- --------------- ----------------------------- --------------------------- Timothy M. Petrick - - 20/80 $48,600/$194,400 Timothy H. Beck - - 16/64 $38,900/$155,500 Timothy Silva - - 2/8 $4,900/$19,400 John A. Rice - - 2/8 $4,900/$19,400
(1) No options were exercised during the fiscal year ended October 30, 1998. Parent Stock Options Parent has established the Booth Creek Ski Group, Inc. 1997 Stock Option Plan (the "BCG Option Plan"), pursuant to which options with respect to a maximum of 400 shares of Parent's Class A Common Stock may be granted. Options may be granted under the BCG Option Plan to executive officers and key employees of the Company at the discretion of the Board of Directors of Parent. Under the BCG Option Plan, Parent has entered into several stock option agreements (each, a "Stock Option Agreement" and collectively, the "Stock Option Agreements") pursuant to which certain executive officers of the Company (each a "Holder") have been granted options, subject to vesting, to purchase from Parent a specified number of shares of Parent's Class A Common Stock at an exercise price of $500 per share, subject to adjustment under certain circumstances. Each Holder's option vested with respect to 20% of the related shares on the date of grant, and will vest with respect to an additional 20% of the related shares on each of the second, third, fourth and fifth anniversaries of such date. Upon the occurrence of certain events resulting in the termination of such Holder's 42 employment (for example, the Holder's death, disability or for reasons other than for "cause" (as defined in the Stock Option Agreement)) during a year in which vesting would have taken place, such vesting will occur on a monthly, pro rata basis. A Holder's option will become fully vested with respect to all of the related shares upon a "change of control" (as defined in the Stock Option Agreement) or if he terminates his employment within 45 days following certain occurrences relating to the continued control and ownership of Parent by George N. Gillett, Jr. and his family. Upon the termination of the Holder's employment, all of his unvested options will be canceled and, depending on the reason for such termination, certain percentages of his vested options will be canceled. Following any termination of his employment, the Holder must, subject to certain exceptions, exercise his option to purchase shares within 120 days following such termination. In addition, the Holder generally may not exercise his option after 10 years from the date of grant. Pursuant to each Stock Option Agreement, if the Holder's employment is terminated other than for "cause," he will have the right to require Parent to purchase any shares of stock issued or issuable pursuant to his option at the fair market value of such shares, as described therein. In addition, Parent will have the right following the termination of the Holder's employment for "cause" or his resignation without "good reason" to purchase all shares of stock acquired by him pursuant to an exercise of his option at the fair market value of such shares, as described in the Stock Option Agreement. Any shares of stock issued pursuant to the options granted under the Stock Option Agreements will be subject to the Stockholders Agreement (as defined). See "Certain Transactions - Stockholders Agreement." To date, Parent has entered into a Stock Option Agreement with and has granted options to purchase shares of Parent's Class A Common Stock to each of Timothy M. Petrick, Timothy H. Beck, Timothy Silva and John A. Rice, with respect to 100, 80, 10 and 10 shares, respectively. Employment and Other Agreements The Company is a party to an employment agreement with Timothy M. Petrick, Executive Vice President of the Company. Mr. Petrick's employment agreement commenced on May 5, 1997 and will expire on April 30, 2002, unless sooner terminated. Under such agreement, Mr. Petrick initially received a base salary of $175,000 per annum, subject to certain increases as Mr. Petrick and the Company may agree. Mr. Petrick will also be entitled to receive a bonus following an initial public offering by the Company and, beginning with the Company's fiscal year 1998, an annual incentive bonus of up to 50% of his base salary based upon the Company's attainment of certain targeted financial, business and personal goals. Under the terms of his employment agreement, Mr. Petrick is eligible to participate in the health, disability and retirement plans offered to other executives of the Company. In addition, pursuant to his agreement, the Company provides Mr. Petrick with a $1,000,000 term life insurance policy, reimburses him for all reasonable and necessary expenses incurred by him in the discharge of his duties and indemnifies him to the maximum extent permitted by Delaware law. In the event that Mr. Petrick is required to relocate his residence due to a relocation of the Company's executive offices (as described in his agreement), the Company shall reimburse Mr. Petrick for certain costs related to such relocation. Under the terms of his agreement, Mr. Petrick's employment may be terminated by the Company at any time, with or without cause, or upon his death or disability. In the event Mr. Petrick's employment agreement is terminated "without cause" or by Mr. Petrick for "good reason" (as described in his agreement), the Company will provide Mr. Petrick with salary continuation and continuation of health and disability insurance coverage for a period of 18 months or until Mr. Petrick is eligible for comparable benefits from another entity, whichever date is sooner. During the term of his employment and for a period of one year thereafter, Mr. Petrick will be subject to provisions prohibiting his competition with the Company, solicitation of certain of the Company's executives or diversion of the Company's customers. Mr. Petrick's employment agreement also contains provisions relating to non-disclosure of the Company's proprietary information. The Company is a party to an employment agreement with Timothy H. Beck, Executive Vice President, Planning of the Company. Mr. Beck's employment under such agreement commenced on July 1, 1997 and will expire on June 30, 2002, subject to automatic annual one-year extensions, unless sooner terminated. Under such agreement, Mr. Beck initially received a base salary of $137,500 per annum, subject to annual review and discretionary increase by the Company. Mr. Beck will also be entitled to receive a bonus following an initial public offering by the Company and, beginning with the Company's fiscal year 1998, an annual incentive bonus of up to 50% of his base salary based upon the Company's attainment of certain targeted financial, business and personal goals. Under the 43 terms of his employment agreement, Mr. Beck is entitled to four weeks paid vacation per year and is eligible to participate in the health, disability, retirement, profit sharing, equity award and savings plans offered to other executives of the Company. In addition, pursuant to his agreement, the Company provides Mr. Beck with a $1,000,000 term life insurance policy, reimburses him for all reasonable and necessary expenses incurred by him in the discharge of his duties and indemnifies him to the maximum extent permitted by Delaware law. In the event that the Company requires Mr. Beck to relocate his residence to the community in which the Company's executive offices are located (as described in his agreement), the Company shall reimburse Mr. Beck for certain costs related to such relocation. Under the terms of his employment agreement, Mr. Beck's employment may be terminated by the Company at any time, with or without cause, or upon his death, disability or resignation. In the event Mr. Beck's employment is terminated "without cause" or by Mr. Beck for "good reason" (as described in his agreement), the Company will provide Mr. Beck with salary continuation and continuation of health and disability insurance coverage for a period of 18 months or until such time as Mr. Beck is eligible for comparable benefits from another entity, whichever date is sooner. In the event Mr. Beck's employment is terminated "without cause" within six months of a "change of control" (as described in his agreement), the Company will provide Mr. Beck with salary continuation and continuation of health and disability insurance coverage until the earlier of (i) June 30, 2002 or (ii) the third anniversary of such termination, but at least for a period of 18 months. However, such salary continuation shall be reduced by any compensation received for services as an employee or independent contractor during such periods and such benefit continuation will cease at such time as Mr. Beck is eligible for comparable benefits from another entity. During the term of his employment and for a period of one year thereafter, Mr. Beck will be subject to provisions prohibiting his competition with the Company, solicitation of certain of the Company's executives or diversion of the Company's customers. Mr. Beck's employment agreement also contains provisions relating to non-disclosure of certain confidential information of the Company (as described in his agreement). Compensation Committee Interlocks and Insider Participation The Company's compensation policies are determined and executive officer compensation decisions are made by the Board of Directors. Mr. George N. Gillett, Jr. has been the sole director of the Company since its formation in October 1996. Item 12. Security Ownership of Certain Beneficial Owners and Management The Company is a wholly-owned subsidiary of Parent. The following table sets forth information concerning the beneficial ownership of Parent's Common Stock (including Class A Common Stock and Class B Common Stock) as of October 30, 1998 by (i) each person known to the Company to own beneficially more than 5% of the outstanding Common Stock of Parent, (ii) by each director of the Company and each Named Executive and (iii) all directors and executive officers of the Company as a group. Each share of Parent's Class B Common Stock is non-voting (except with respect to certain amendments to the certificate of incorporation and bylaws of Parent and as otherwise required by the General Corporation Law of the State of Delaware) and is convertible into one share of voting Class A Common Stock of Parent at any time, subject to applicable regulatory approvals. All shares are owned with sole voting and investment power, unless otherwise indicated.
Parent's Class A Parent's Class B Common Stock Common Stock Beneficially Owned Beneficially Owned ------------------- ---------------------- Beneficial Owner Shares % Shares % --------------------- ---------- ------ --------- -------- Booth Creek Partners Limited II, L.L.L.P.......... 4,763.4 (1) 34% 182.9 (2) 2% 6755 Granite Creek Road Teton Village, Wyoming 83025 John Hancock Mutual Life Insurance Company........ 6,192.9 (3) 44% 6,192.9 (3) 66% John Hancock Place 200 Clarendon Street Boston, Massachusetts 02117 CIBC WG Argosy Merchant Fund 2, L.L.C............. 2,664.3 (4) 19% 2,664.3 (4) 28% 425 Lexington Avenue, 3rd Floor New York, New York 10017 George N. Gillett, Jr............................. 4,763.4 (5) 34% Chairman of the Board of the Company Rose Gillett...................................... 4,763.4 (5) 34% 6755 Granite Creek Road Teton Village, Wyoming 83025 Jeffrey J. Joyce.................................. 687.1 (6) 5% Executive Vice President, Finance of the Company Hancock Mezzanine Partners L.P.................... 391.4 (7) 3% 391.4 (7) 4% John Hancock Place 200 Clarendon Street Boston, Massachusetts 02117 Timothy M. Petrick................................ 20 (8) * Executive Vice President of the Company Timothy H. Beck................................... 16 (9) * Executive Vice President, Planning of the Company Timothy Silva..................................... 2(10) * General Manager - Northstar John A. Rice...................................... 2(11) * General Manager - Sierra Total Executive Officers and Directors as a Group. 4,803.4(12) 34%
* Less than 1%. (1) Comprised of 4,580.5 shares of Class A Common Stock of Parent and Warrants to purchase 182.9 shares of Class B Common Stock of Parent. Each share of Parent's Class B Common Stock is convertible into one share of Class A Common Stock of Parent at any time, subject to applicable regulatory approvals. Each warrant may be exercised for one share of Parent's Class B Common Stock at an exercise price of $.01 per share. (2) Represents Warrants to purchase 182.9 shares of Class B Common Stock of Parent. (3) Comprised of 3,301 shares of Class B Common Stock of Parent and Warrants to purchase 2,891.9 shares of Class B Common Stock of Parent. Each Warrant may be exercised for one share of Parent's Class B Common Stock at an exercise price of $.01 per share. Each share of Parent's Class B Common Stock is convertible into one share of Class A Common Stock of Parent at any time, subject to applicable regulatory approvals. (4) Comprised of 1,642.7 shares of Class B Common Stock of Parent and Warrants to purchase 1,021.6 shares of Class B Common Stock of Parent. Each share of Parent's Class B Common Stock is convertible into one share of Class A 45 Common Stock of Parent at any time, subject to applicable regulatory approvals. Each Warrant may be exercised for one share of Parent's Class B Common Stock at an exercise price of $.01 per share. (5) Booth Creek Partners Limited II, L.L.L.P. owns directly 4,580.5 shares of Class A Common Stock of Parent and Warrants to purchase 182.9 shares of Class B Common Stock of Parent. Each share of Parent's Class B Common Stock is convertible into one share of Class A Common Stock of Parent at any time, subject to applicable regulatory approvals. Each warrant may be exercised for one share of Parent's Class B Common Stock at an exercise price of $.01 per share. George N. Gillett, Jr. is the managing general partner and Rose Gillett is a co-general partner of Booth Creek Partners Limited II, L.L.L.P. and each may be deemed to possess shared voting and/or investment power with respect to the interests held therein. Accordingly, the beneficial ownership of such interests may be attributed to George N. Gillett, Jr. and Rose Gillett. Rose Gillett is the wife of George N. Gillett, Jr. (6) Represents shares of Class A Common Stock of Parent that Mr. Joyce has an option to purchase from Booth Creek Partners Limited II, L.L.L.P. (the "Option") pursuant to that certain Option Letter Agreement dated December 3, 1996 which was amended in connection with the Equity Financing. The Option is exercisable, in whole or in part, at any time on or prior to December 1, 2006 at an initial exercise price equal to $2,066.12 per share, which exercise price shall increase by $55.10 on each December 1. The shares subject to the Option and the per share exercise price are subject to adjustment under certain circumstances, and the obligation of Booth Creek Partners Limited II, L.L.L.P. to sell shares of Class A Common Stock of Parent upon exercise of the Option is subject to compliance with applicable securities laws. (7) Comprised of 227.1 shares of Class B Common Stock of Parent and Warrants to purchase 164.3 shares of Class B Common Stock of Parent. Each share of Parent's Class B Common Stock is convertible into one share of Class A Common Stock of Parent at any time, subject to applicable regulatory approvals. Each Warrant may be exercised for one share of Parent's Class B Common Stock at an exercise price of $.01 per share. (8) Represents shares of Class A Common Stock of Parent that Mr. Petrick has an option to purchase from Parent pursuant to that certain Stock Option Agreement, by and between Parent and Mr. Petrick. See Part III, Item 11. "Executive Compensation - Parent Stock Options." (9) Represents shares of Class A Common Stock of Parent that Mr. Beck has an option to purchase from Parent pursuant to that certain Stock Option Agreement, by and between Parent and Mr. Beck. See Part III, Item 11. "Executive Compensation - Parent Stock Options." (10)Represents shares of Class A Common Stock of Parent that Mr. Silva has an option to purchase from Parent pursuant to that certain Stock Option Agreement, by and between Parent and Mr. Silva. See Part III, Item 11. "Executive Compensation - Parent Stock Options." (11)Represents shares of Class A Common Stock of Parent that Mr. Rice has an option to purchase from Parent pursuant to that certain Stock Option Agreement, by and between Parent and Mr. Rice. See Part III, Item 11. "Executive Compensation - Parent Stock Options." (12)Represents (i) 4,580.5 shares of Class A Common Stock of Parent and Warrants to purchase 182.9 shares of Class B Common Stock of Parent owned by Booth Creek Partners Limited II, L.L.L.P., of which George N. Gillett, Jr. may be deemed to be the beneficial owner. Each share of Parent's Class B Common Stock is convertible into one share of Class A Common Stock of Parent at any time, subject to applicable regulatory approvals. Each warrant may be exercised for one share of Parent's Class B Common Stock at an exercise price of $.01 per share, (ii) 20 shares of Class A Common Stock of Parent that Timothy M. Petrick has an option to purchase from Parent pursuant to the option described in note (8) above, (iii) 16 shares of Class A Common Stock of Parent that Timothy H. Beck has an option to purchase from Parent pursuant to the option described in note (9) above, (iv) 2 shares of Class A Common Stock of Parent that Timothy Silva has an option to purchase from Parent pursuant to the option described in note (10) above and (v) 2 shares of Class A Common Stock of Parent that John A. Rice has an option to purchase from Parent pursuant to the option described in note (11) above. Jeffrey J. Joyce may be deemed to be the beneficial owner of 687.1 of the shares owned by Booth Creek Partners Limited II, L.L.L.P. pursuant to the Option described in note (6) above. 46 Item 13. Certain Relationships and Related Transactions The Financing Transactions Since its formation in October 1996, the Company has engaged in a series of related transactions for the purpose of raising capital to finance the acquisitions of its resorts. As part of these transactions, (i) in November and December 1996, the Gillett Family Partnership contributed an aggregate of $7.5 million to Parent in exchange for 3,630 shares of Class A Common Stock of Parent; (ii) on November 27, 1996, Parent entered into a Securities Purchase Agreement as amended and restated on February 26, 1998 and further amended on September 14, 1998 (the "Hancock Securities Purchase Agreement") with John Hancock pursuant to which John Hancock purchased for an aggregate consideration of $42.5 million (a) 2,558 shares of Parent's Class B Common Stock (the "Hancock Purchased Common Shares"), (b) warrants (the "Hancock Warrants") to purchase an additional 2,500 shares of Parent's Class B Common Stock (the "Hancock Underlying Shares") and (c) $35.0 million aggregate principal amount of Parent's notes, including the Hancock Option Notes (the "Hancock Parent Financing Debt"); (iii) on November 27, 1996, Parent entered into a Securities Purchase Agreement (the "CIBC Merchant Fund Securities Purchase Agreement" and, together with the Hancock Securities Purchase Agreement, the "Securities Purchase Agreements") with the CIBC Merchant Fund pursuant to which the CIBC Merchant Fund purchased for an aggregate consideration of $6.5 million (a) 512 shares of Parent's Class B Common Stock (the "CIBC Merchant Fund Purchased Common Shares" and, together with the Hancock Purchased Common Shares, the "Purchased Common Shares"), (b) warrants (the "CIBC Merchant Fund Warrants" and, together with the Hancock Warrants, the "Warrants") to purchase an additional 400 shares of Parent's Class B Common Stock (the "CIBC Merchant Fund Underlying Shares" and, together with the Hancock Underlying Shares, the "Underlying Shares") and (c) $5.0 million aggregate principal amount of Parent's notes as amended and restated on February 26, 1998 and further amended on September 14, 1998 (the "CIBC Merchant Fund Parent Financing Debt"); and (iv) in December 1996, using the proceeds of the foregoing, Parent made an equity contribution of $40.0 million and a loan of $10.0 million to the Company, which was used to consummate the acquisitions of certain of the Company's resorts (the foregoing transactions are collectively referred to herein as the "Financing Transactions"). The loan from Parent to the Company had terms identical to the Hancock Option Notes and was repaid in connection with the consummation of the Company's offering of $110 million of its 12.5% Senior Notes in March 1997 (the "Note Offering"). In connection with the consummation of the Note Offering, the Hancock Option Notes were exchanged for notes of the Company with substantially identical terms and repaid with a portion of the proceeds of the Note Offering. The remaining portion of the Hancock Parent Financing Debt and the CIBC Merchant Fund Parent Financing Debt (collectively, the "Parent Financing Debt") matures on November 27, 2008 and bears interest at 12% per annum, if paid in cash, or 14% per annum, if paid in kind, payable semi-annually on each May 27 and November 27. In connection with the consummation of the Equity Financing, (i) the Gillett Family Partnership contributed an aggregate of $1.1 million to Parent in exchange for 536 shares of Class A Common Stock of Parent; (ii) John Hancock purchased for an aggregate consideration of $4.8 million (a) a senior note which has been converted into 378 shares of Parent's Class B Common Stock, (b) warrants to purchase an additional 295 shares of Parent's Class B Common Stock and (c) $3.7 million aggregate principal amount of Parent's notes (the "1998 Hancock Parent Financing Debt") and (iii) the CIBC Merchant Fund purchased for an aggregate consideration of $4.6 million (a) 361 shares of Parent's Class B Common Stock, (b) warrants to purchase an additional 282 shares of Parent's Class B Common Stock and (c) $3.5 million aggregate principal amount of Parent's notes (the "1998 CIBC Parent Financing Debt"). The Securities Purchase Agreements were each amended pursuant to a Securities Purchase and Amendment Agreement dated as of September 14, 1998 by and among Parent and the Gillett Family Partnership, John Hancock, CIBC Merchant Fund and Hancock Mezzanine Partners L.P. (an affiliate of John Hancock) whereby: (i) the Gillett Family Partnership contributed an aggregate of $3,500,000 to Parent in exchange for 414.5 shares of the Class A Common Stock of Parent, warrants to purchase an additional 182.9 shares of Class B Common stock of Parent and $2.3 million aggregate principal amount of Parent's notes, (ii) John Hancock contributed an aggregate of $4,789,898 to Parent in exchange for 554 shares of the Class B Common Stock of Parent, warrants to purchase an additional 244.4 shares of Class B Common Stock of Parent, and $3.1 million aggregate principal amount of Parent's notes, (iii) Hancock Mezzanine Partners L.P. contributed an aggregate of $210,102 to Parent in exchange for 38.1 shares of the Class B Common Stock of Parent, warrants to purchase an additional 16.8 shares of Class B Common Stock of Parent, and $210,102 aggregate principal amount of Parent's notes; and (iv) the CIBC Merchant Fund contributed an aggregate of $6,500,000 to Parent in exchange for 769.7 shares of the Class B 47 Common Stock of Parent, warrants to purchase an additional 339.6 shares of Class B Common Stock of Parent, and $4.2 million aggregate principal amount of Parent's notes. On August 11, 1998, John Hancock transferred ownership of 189 shares of Class B Common Stock of Parent and warrants to purchase an additional 147.5 shares of Class B Common Stock of Parent to Hancock Mezzanine Partners L.P., collectively (the "Additional Parent Financing Debt"). The Securities Purchase Agreements, which govern the Parent Financing Debt and the Additonal Parent Financing Debt, contain financial covenants relating to the maintenance of ratios of (a) consolidated total debt to consolidated cash flow, (b) consolidated cash flow to consolidated fixed charges and (c) consolidated cash flow to consolidated interest charges. The Securities Purchase Agreements also contain restrictive covenants pertaining to the management and operation of Parent and its subsidiaries, including the Company. The covenants include, among others, significant limitations on discounts or sales of receivables, funded debt and current debt, dividends and other stock payments, redemption, retirement, purchase or acquisition of equity interests in Parent and its subsidiaries, transactions with affiliates, investments, liens, issuances of stock, asset sales, acquisitions, mergers, fundamental corporate changes, tax consolidation, modifications of certain documents and leases. The Securities Purchase Agreements further required that all of the issued and outstanding common stock of Booth Creek be pledged upon consummation of the Note Offering to secure the Parent Financing Debt and provide that Parent shall cause Booth Creek to pay cash dividends to Parent in the maximum amount permitted by law, subject to restrictions contained in the Company's debt agreements, in order to satisfy Parent's interest payment obligations under the Parent Financing Debt and the Additional Parent Financing Debt. The Securities Purchase Agreements provide for events of default customary in agreements of this type, including: (i) failure to make payments when due; (ii) breach of covenants; (iii) bankruptcy defaults; (iv) breach of representations or warranties in any material respect when made; (v) default by Parent or any of its subsidiaries under any agreement relating to debt for borrowed money in excess of $1.0 million in the aggregate; (vi) final judgments for the payment of money against Parent or any of its subsidiaries in excess of $1.0 million in the aggregate; (vii) ERISA defaults; (viii) any operative document ceasing to be in full force and effect; (ix) any enforcement of liens against Parent or any of its subsidiaries; and (x) a change of control of Parent. The Securities Purchase Agreements contain financial and operating covenants, events of default and other provisions customary for agreements of this type. The Warrants are exercisable, subject to certain conditions, at a per share price of $0.01 (as adjusted by certain anti-dilution provisions) at any time prior to November 27, 2008, on which date all unexercised Warrants will be deemed automatically exercised. The Securities Purchase Agreements provide that the holders of at least two-thirds of the Purchased Common Shares and the Underlying Shares will each be entitled to require Parent to register their shares under the Securities Act for resale to the public. The holders of Registrable Shares (as defined in the Securities Purchase Agreements) are also entitled to certain piggyback and other registration rights, subject in all cases to certain qualifications. Stockholders Agreement In connection with the consummation of the Financing Transactions, Parent, the Gillett Family Partnership, John Hancock and the CIBC Merchant Fund entered into a Stockholders Agreement dated November 27, 1996, and which was amended and restated of February 26, 1998 and further amended on August 5, 1998 (the "Stockholders Agreement"). Pursuant to the Stockholders Agreement, the Board of Directors of Parent shall consist of seven directors, four of whom shall be designated by the Gillett Family Partnership and three of whom (the "Unaffiliated Directors") shall be designated by John Hancock. No transaction between Parent or any of its subsidiaries, including the Company, and George N. Gillett, Jr. or any of his affiliates may be approved by the Board of Directors of Parent unless such transaction is approved by all of the Unaffiliated Directors. Moreover, without the consent of John Hancock and the CIBC Merchant Fund (or their respective transferees) (collectively, the "Institutional Investors"), neither Parent nor any subsidiary of Parent, including the Company, may issue any equity securities except, in the case of Parent, for certain enumerated permitted issuances and, in the case of any subsidiary of Parent, issuances to Parent or to any wholly-owned subsidiary of Parent. With respect to issuance of equity securities of Parent requiring the approval of the Institutional Investors, the Institutional Investors also are entitled to certain preemptive rights. In addition, the Stockholders Agreement provides that neither Parent nor any of its subsidiaries, including the Company, may acquire any assets or business from any other person (other than inventory and equipment in the ordinary course of business) without the consent of the Required Institutional Investors (as defined in the Stockholders Agreement). 48 The Stockholders Agreement further provides that, subject to certain exceptions, the Gillett Family Partnership may not sell, assign, gift, pledge or otherwise transfer any equity securities of Parent beneficially owned by it (other than to an affiliate of the Gillett Family Partnership that becomes a party to the Stockholders Agreement) prior to November 27, 1999. In the event that at any time after such date, the Gillett Family Partnership shall not hold a majority of the outstanding Class A Common Stock of Parent as a result of the conversion of shares of Class B Common Stock into Class A Common Stock, the Stockholders Agreement requires that Parent grant to the Gillett Family Partnership registration rights with respect to its equity securities which are in all material respects the same as those provided to the Institutional Investors under the Securities Purchase Agreements. In addition to the foregoing, the Stockholders Agreement gives each party thereto certain co-sale rights and rights of first offer upon the sale or other transfer of any equity securities of Parent by any other party, and requires that, as a condition to the issuance or transfer of any equity securities of Parent to any third party (other than a person who acquires such securities pursuant to an effective registration statement under the Securities Act) that such person become a party to the Stockholders Agreement and agree to be bound by all the terms and conditions thereof. The provisions of the Stockholders Agreement relating to the composition of the Board of Directors of Parent terminate following any transfer or transfers of equity securities of Parent by the Gillett Family Partnership, John Hancock and the CIBC Merchant Fund (other than a transfer by any of them to any of their respective affiliates) if after giving effect to any such transfer or transfers the Gillett Family Partnership, John Hancock and the CIBC Merchant Fund have transferred in the aggregate 20% or more of the equity securities of Parent, as calculated in the Stockholders Agreement. The Stockholders Agreement shall terminate, and be of no force or effect, upon the consummation of a Qualified Public Offering (as defined in the Stockholders Agreement). Pursuant to the Stockholders Agreement, (i) in June 1997 Dean C. Kehler and Gregg L. Engles, as the designees of John Hancock, and Jeffrey J. Joyce, as a designee of the Gillett Family Partnership, became members of Parent's Board of Directors and George N. Gillett, Jr., as a designee of the Gillett Family Partnership, was re-appointed as Chairman of the Board of Directors of Parent; (ii) in March 1998, Timothy M. Petrick, as a designee of the Gillett Family Partnership, became a member of Parent's Board of Directors and (iii) in September 1998, Sandeep Alva, as a designee of John Hancock, and Christopher P. Ryman, as a designee of the Gillett Family Partnership became members of the Board of Directors. George N. Gillett, Jr., Chairman and Chief Executive Officer of the Company, is the managing general partner of the Gillett Family Partnership. See Part III, Item 10. "Directors and Executive Officers of the Registrant - Directors." Initial Offering CIBC Oppenheimer Corp. was the Initial Purchaser in the Initial Offering and in the Note Offering and received customary compensation in such capacity. In addition, CIBC Oppenheimer Corp. acted as a financial advisor to the Company with respect to the Consent Solicitation in conjunction with the Loon Mountain acquisition. In connection therewith, the Company reimbursed CIBC Oppenheimer Corp. for its out-of-pocket expenses and provided customary indemnification. The Initial Purchaser is an affiliate of Canadian Imperial Bank of Commerce, which was the lender under the Bridge Notes, and is an affiliate of the CIBC Merchant Fund, which owns 1,642.7 shares, and Warrants to acquire an additional 1,021.6 shares, of Class B Common Stock of Parent and $12.8 million aggregate principal amount of notes issued by Parent. Dean C. Kehler, who has been a Managing Director of the Initial Purchaser since August 1995 and has investment responsibilities with respect to the CIBC Merchant Fund, serves on Parent's Board of Directors. Management Agreement with Booth Creek, Inc. Booth Creek has in effect a management agreement with Booth Creek, Inc. (the "Management Company") dated November 27, 1996 (the "Management Agreement") pursuant to which the Management Company provides Parent, Booth Creek and its subsidiaries with financial advice with respect to, among other matters, cash management, accounting and data processing systems and procedures, budgeting, equipment purchases, business forecasts, treasury functions and investor relations. The Management Company also provides general supervision and 49 management advice concerning tax, legal and corporate finance matters, administration and operation, personnel matters, business insurance and the employment of consultants, contractors and agents. Under the terms of the Management Agreement, Booth Creek provides customary indemnification, reimburses certain costs and pays the Management Company an annual management fee of $350,000 plus an operating bonus (the "Operating Bonus") (not to exceed $400,000) equal to 2.5% of the excess of Consolidated EBITDA (as defined below) for such year over $25 million. The Operating Bonus for each fiscal year must be paid within 15 days after Parent receives its fiscal year-end audited financial statements for that year. Booth Creek pays the Management Company amounts necessary to cover operations costs (other than office operations costs but including, without limitation, reasonable travel and entertainment costs) and reimburses certain costs and expenses, of the Management Company attributable to, arising out of, in connection with, or related to management services rendered by the Management Company. The term "Consolidated EBITDA," as used in the Management Agreement, means the EBITDA of Booth Creek and its subsidiaries consolidated in accordance with GAAP, and after giving appropriate effect to outside minority interests, if any, in subsidiaries, and taking into account certain exclusions, including without limitation (a) the net income of any person (other than a subsidiary of Booth Creek) in which Booth Creek or any such subsidiary has an ownership interest; (b) any undistributed net income of a subsidiary of Booth Creek which for any reason is unavailable for distribution to Booth Creek or any other subsidiary; (c) the net income of any person accrued prior to the date it becomes a subsidiary of Booth Creek or is merged into or consolidated with Booth Creek or a subsidiary; (d) in the case of a successor to Booth Creek by consolidation, merger or transfer of assets, the net income of such successor accrued prior to such consolidation, merger or transfer; (e) any deferred or other credit representing the excess of the equity in any subsidiary of Booth Creek at the date of acquisition thereof over the cost of the investment in such subsidiary; (f) any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of income accrued during the same period; (g) any aggregate net gain and any aggregate net loss arising from the sale, conversion, exchange or other disposition of capital assets; (h) any gains resulting from any write-up of any assets (but not any loss resulting from any write-down); (i) any net gain from the collection of any proceeds of life insurance policies; (j) any gain arising from the acquisition of any shares or other securities or the extinguishment, under GAAP, of any indebtedness, of Booth Creek or any subsidiary of Booth Creek; (k) any net income or gain (but not any net loss) from (1) any change in accounting principles in accordance with GAAP, (2) any prior period adjustments resulting from any change in accounting principles in accordance with GAAP and (3) any discontinued operations or the disposition thereof; and (l) any portion of net income that cannot be freely converted into United States Dollars. In determining Consolidated EBITDA, the net income of any person for any period shall be (x) increased by the amount deducted therefrom in respect of "noncash costs of real estate sales" incurred during such period and (y) decreased by the amount of "cash real estate development costs" to the extent capitalized during such period. Certain obligations of Booth Creek to make payments under the Management Agreement are subject to the provisions of the following securities purchase agreements that have been entered into by Parent (a) an agreement entered into with John Hancock dated November 27, 1996 as amended and restated on February 26, 1998 and further amended on September 14, 1998, and (ii) an agreement entered into with CIBC Merchant Fund dated November 27, 1996 as amended and restated on February 26, 1998 and further amended on September 14, 1998 (collectively, referred to herein as the "Securities Purchase Agreements"). Booth Creek may make payments under the Management Agreement so long as (i) both at the time of making such payments and after giving effect thereto, no default or event of default shall have occurred and be continuing under the Securities Purchase Agreements and (ii) the aggregate amount of such management fees paid during any fiscal year of the Parent shall not exceed the lesser of (1) $750,000 and (2) the sum of (x) $350,000 plus (y) 2.5% of Consolidating EBITDA in excess of $25,000,000 for the then most recently completed fiscal year of Parent. Management fees that are not permitted to be paid due to the creation of a default or event of default under the Securities Purchase Agreements will accrue without interest and may be paid at such time as no default or event of default shall exist. The management fees and the calculation of the Operating Bonus may be amended only by the mutual consent of both Booth Creek and the Management Company. To the fullest extent permitted by law, with certain limitations, the Management Company and any officer, director, employee, agent or attorney of the Management Company (collectively, the "Indemnities") shall not have any liability to any of the Parent, Booth Creek or any of their subsidiaries for any loss, damage, cost or expense (including, without limitation, any court costs, attorneys' fees and any special, indirect, consequential or punitive damages) allegedly arising out of the Management Company's management services rendered 50 to the Parent, Booth Creek or any of their subsidiaries or Indemnities' acts, conduct or omissions in connection with the Management Company's management services rendered to Booth Creek or any of their subsidiaries. In addition, to the fullest extent permitted by law, Booth Creek indemnifies the Indemnitees and holds the Indemnitees harmless against, any loss, damage, cost or expense (including, without limitation, court costs and reasonable attorneys' fees) which the Indemnitees may sustain or incur by reason of any threatened, pending or completed investigation, action, claim, demand, suit, proceeding or recovery by any person (other than the Indemnitees) allegedly arising out of the Management Company's management services rendered to the Parent, Booth Creek or any of their subsidiaries or the Indemnitees' acts, conduct or omissions in connection with the Management Company's management services rendered to the Parent, Booth Creek or any of their subsidiaries. Since the formation of Booth Creek, the Management Company and certain of its affiliates have made advances and deposits, and have incurred fees and expenses, in connection with certain of the acquisitions of Booth Creek's resorts for which they were later reimbursed by Booth Creek pursuant to the Management Agreement. The Management Agreement will terminate automatically upon consummation of a sale of all or substantially all of the assets or stock of Parent and its subsidiaries on a consolidated basis, and may be terminated earlier for certain cause by either Booth Creek or the Management Company. 51 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) List of Documents Filed as Part of This Report: 1. The financial statements listed on page F-1 are filed as part of this Report. 2. Financial Statement Schedules: All schedules are omitted because they are not applicable, not required or the information is included elsewhere in the Consolidated Financial Statements or Notes thereto. 3. List of Exhibits: +2.1 Agreement and Plan of Merger dated as of September 18, 1997 by and among Booth Creek Ski Group, Inc., LMRC Acquisition Corp. and Loon Mountain Recreation Corporation. +2.2 First Amendment to Merger Agreement, dated December 22, 1997, by and among Booth Creek Ski Group, Inc., LMRC Acquisition Corp. and Loon Mountain Recreation Corporation. ++++2.3 Agreement of Merger dated as of August 28, 1998 by and among Booth Creek Ski Holdings, Inc., Booth Creek Ski Acquisition, Inc. and Seven Springs Farm, Inc. *3.1 Certificate of Incorporation of Booth Creek Ski Holdings, Inc. *3.2 Bylaws of Booth Creek Ski Holdings, Inc. *3.3 Restated Articles of Incorporation of Trimont Land Company. *3.4 Bylaws of Trimont Land Company. *3.5 Certificate of Incorporation of Sierra-at-Tahoe, Inc. *3.6 Bylaws of Sierra-at-Tahoe, Inc. *3.7 Certificate of Incorporation of Bear Mountain, Inc. *3.8 Bylaws of Bear Mountain, Inc. *3.9 Certificate of Incorporation of Booth Creek Ski Acquisition Corp. *3.10 Bylaws of Booth Creek Ski Acquisition Corp. *3.11Amended and Restated Certificate of Incorporation of Waterville Valley Ski Resort, Inc. *3.12 Bylaws of Waterville Valley Ski Resort, Inc. *3.13Amended and Restated Certificate of Incorporation of Mount Cranmore Ski Resort, Inc. *3.14 Bylaws of Mount Cranmore Ski Resort, Inc. *3.15 Amended and Restated Articles of Incorporation of Ski Lifts, Inc. 52 *3.16 Bylaws of Ski Lifts, Inc. *3.17 Certificate of Incorporation of Grand Targhee Incorporated. *3.18 Bylaws of Grand Targhee Incorporated. *3.19 Articles of Incorporation of B-V Corporation. *3.20 Bylaws of B-V Corporation. *3.21 Certificate of Incorporation of Targhee Company. *3.22 Bylaws of Targhee Company. *3.23 Certificate of Incorporation of Targhee Ski Corp. *3.24 Bylaws of Targhee Ski Corp. ****3.25 Articles of Incorporation of LMRC Holding Corp. ****3.26 Amended and Restated Articles of Incorporation of Loon Mountain Recreation Corporation. ****3.27 Amended and Restated Bylaws of Loon Mountain Recreation Corporation. ****3.28 Amended and Restated Articles of Incorporation of Loon Realty Corp. ****3.29 Amended and Restated Bylaws of Loon Realty Corp. ****3.30 Bylaws of LMRC Holding Corp. *4.1 Indenture dated as of March 18, 1997 by and among Booth Creek Ski Holdings, Inc., as Issuer, Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Booth Creek Ski Acquisition Corp., Ski Lifts, Inc., Grand Targhee Incorporated, B-V Corporation, Targhee Company and Targhee Ski Corp., as Subsidiary Guarantors, and Marine Midland Bank, as trustee (including the form of 12 1/2% Senior Note due 2007 and the form of Guarantee). *4.2 Supplemental Indenture No. 1 to Indenture dated as of April 25, 1997 by and among Booth Creek Ski Holdings, Inc., as Issuer, Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Booth Creek Ski Acquisition Corp., Ski Lifts, Inc., Grand Targhee Incorporated, B-V Corporation, Targhee Company and Targhee Ski Corp., as Subsidiary Guarantors, and Marine Midland Bank, as trustee. +4.3 Supplemental Indenture No. 2 to Indenture dated as of February 20, 1998 by and among Booth Creek Ski Holdings, Inc., as Issuer, Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Booth Creek Ski Acquisition Corp., Ski Lifts, Inc, Grand Targhee Incorporated, B-V Corporation, Targhee Company and Targhee Ski Corp, as Subsidiary Guarantors, and Marine Midland Bank, as Trustee. +4.4 Supplemental Indenture No. 3 to Indenture dated as of February 26, 1998, by and among Booth Creek Ski Holdings, Inc., as Issuer, LMRC Holding Corp., Loon Mountain Recreation Corporation and Loon Realty Corp., as Subsidiary Guarantors, and Marine Midland Bank, as Trustee. 53 +++++ 4.5 Supplemental Indenture No. 4 to Indenture dated as of October 8, 1998 by and between Booth Creek Ski Holdings, Inc., as Issuer, Booth Creek Ski Acquistion, Inc. and Marine Midland Bank, as Trustee. +4.6 Registration Rights Agreement, dated as of February 26, 1998 by and among the Booth Creek Ski Holdings, Inc., as Issuer, Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Booth Creek Ski Acquisition Corp., Ski Lifts, Inc, Grand Targhee Incorporated, B-V Corporation, Targhee Company, Targhee Ski Corp, LMRC Holding Corp, Loon Mountain Recreation Corporation and Loon Realty Corp., as Subsidiary Guarantors and CIBC Oppenheimer Corp. +4.7 Securities Purchase Agreement, dated as of February 23, 1998, by and among the Booth Creek Ski Holdings, Inc., Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Booth Creek Ski Acquisition Corp., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Ski Lifts, Inc., Grand Targhee Incorporated, B-V Corporation, Targhee Company, Targhee Ski Corp., LMRC Holding Corp., Loon Mountain Recreation Corporation and Loon Realty Corp and CIBC Oppenheimer Corp. +++++4.8 Amended and Restated Securities Purchase Agreement, dated as of September 14, 1998, among Booth Creek Ski Group, Inc., Booth Creek Ski Holdings, Inc., the Subsidiary Guarantors as defined therein and each of John Hancock Mutual Life Insurance Company, CIBC WG Argosy Merchant Fund 2, L.L.C. and Hancock Mezzanine Partners L.P. ++5.1 Opinion of Winston & Strawn. +++++10.1 Amended and Restated Credit Agreement dated as of October 30, 1998 among Booth Creek Ski Holdings, Inc., Booth Creek Ski Acquisition Corp., Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Ski Lifts, Inc., Grand Targhee Incorporated, LMRC Holding Corp., Loon Mountain Recreation Corporation, Loon Realty Corp. and BankBoston, N.A. 54 *10.2Purchase and Sale Agreement dated as of August 30, 1996 by and between Waterville Valley Ski Area, Ltd., Cranmore, Inc., American Skiing Company and Booth Creek Ski Acquisition Corp. *10.3Subordinated Promissory Note dated November 27, 1996 issued by Booth Creek Ski Acquisition Corp., Waterville Valley Ski Resort, Inc. and Mount Cranmore Ski Resort, Inc. to American Skiing Company. *10.4Stock Purchase and Indemnification Agreement dated as of November 26, 1996 among Booth Creek Ski Holdings, Inc., Fibreboard Corporation, Trimont Land Company, Sierra-at-Tahoe, Inc. and Bear Mountain, Inc. *10.5Escrow Agreement dated December 3, 1996 by and among Fibreboard Corporation, Booth Creek Ski Holdings, Inc. and First Trust of California. *10.6 Purchase Agreement dated February 11, 1997 among Booth Creek Ski Holdings, Inc., Grand Targhee Incorporated, Moritz O. Bergmeyer and Carol Mann Bergmeyer. *10.7 Promissory Note dated February 11, 1997 issued by Grand Targhee Incorporated to Booth Creek Ski Holdings, Inc. *10.8 Stock Purchase Agreement dated as of February 21, 1997 by and between Booth Creek Ski Holdings, Inc., William W. Moffett, Jr., David R. Moffett, Laurie M. Padden, individually and as custodian for Christina Padden, Jennifer Padden and Mary M. Padden, Stephen R. Moffett, Katharine E. Moffett, Frances J. DeBruler, individually and as representative of the Estate of Jean S. DeBruler, Jr., deceased, and Peggy Westerlund, and David R. Moffett, as representative. *10.9 Preferred Stock Purchase Agreement dated as of February 21, 1997 by and between DRE, L.L.C., William W. Moffett, Jr., David R. Moffett, Laurie M. Padden, individually and as custodian for Christina Padden, Jennifer Padden and Mary M. Padden, Stephen R. Moffett, Katharine E. Moffett, Frances J. DeBruler, individually and as representative of the Estate of Jean S. DeBruler, Jr., deceased, and Peggy Westerlund and David R. Moffett, as representative. *10.10 Management Agreement dated as of November 27, 1996 by and between Booth Creek Ski Holdings, Inc. and Booth Creek, Inc. *10.11Ski Area Term Special Use Permit No. 4002/01 issued by the United States Forest Service to Waterville Valley Ski Resort, Inc. *10.12 Ski Area Term Special Use Permit No. 5123/01 issued by the United States Forest Service to Bear Mountain, Inc. *10.13 Ski Area Term Special Use Permit No. 4186/01 issued by the United States Forest Service to Sierra-at-Tahoe, Inc. *10.14 Ski Area Term Special Use Permit No. 4033/01 issued by the United States Forest Service to Grand Targhee Incorporated. *10.15 Ski Area Term Special Use Permit No. 4127/09 issued by the United States Forest Service to Ski Lifts, Inc. 55 *10.16 Annual Special Use Permit Nos. 4127/19 & 4127/19 issued by the United States Forest Service to Ski Lifts, Inc. ++10.17 Ski Area Term Special Use Permit No. 4031/01 issued by the United States Forest Service to Loon Mountain Recreation Corporation. ++10.18 Amendment Number 2 for Special Use Permit No. 4008/1 issued by the United States Forest Service to Loon Mountain Recreation Corporation. ++10.19 Amendment Number 5 for Special Use Permit No. 4008/1 issued by the United States Forest Service to Loon Mountain Recreation Corporation. ****10.20 Employment Agreement dated as of July 1, 1997, by and between Booth Creek Ski Holdings, Inc. and Timothy H. Beck. ***10.21 Employment Agreement dated May 5, 1997 by and between Booth Creek Ski Holdings, Inc. and Timothy M. Petrick. ***10.22 Stock Option Agreement dated as of October 1, 1997 between Booth Creek Ski Group, Inc. and Timothy M. Petrick. 56 +++10.23 Stock Option Agreement by and between Booth Creek Ski Group, Inc. and Timothy Silva. +++++10.24 Stock Option Agreement by and between Booth Creek Ski Group, Inc. and Timothy H. Beck. +++++10.25 Stock Option Agreement by and between Booth Creek Ski Group, Inc. and John A. Rice. +++++ 21.1 Subsidiaries of the Registrant. 27.1 Financial Data Schedule. * Filed with Registration Statement No. 333-26091 and incorporated herein by reference. ** Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly Period Ended August 1, 1997 and incorporated herein by reference. *** Filed with the Company's Annual Report on Form 10-K for the Fiscal Year Ended October 31, 1997 and incorporated herein by reference. **** Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly Period Ended January 30, 1998 and incorporated herein by reference. + Filed with the Company's Current Report on Form 8-K dated February 26, 1998 and incorporated herein by reference. ++ Filed with Registration Statement No. 333-48619 and incorporated herein by reference. +++ Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly Period Ended May 1, 1998 and incorporated herein by reference. ++++ Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly Period Ended July 31, 1998 and incorporated herein by reference. +++++ Filed herewith as an Exhibit to this Form 10-K. (b) Reports on Form 8-K: None (c) Exhibits: See (a)(3) above for a listing of Exhibits filed as a part of this Report. (d) Additional Financial Statement Schedules: None. Supplemental Information to be Furnished with Reports Filed Pursuant to Section 15(D) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act Neither an annual report covering the Registrant's last fiscal year nor proxy materials with respect to any annual or other meeting of security holders have been sent to security holders. F-1 BOOTH CREEK SKI HOLDINGS, INC. ANNUAL REPORT ON FORM 10-K INDEX OF FINANCIAL STATEMENTS
Page Page Booth Creek Ski Holdings, Inc. Financial Statements - October 30, 1998 and October 31, 1997 Report of Independent Auditors....................................................... F-2 Consolidated Balance Sheets.......................................................... F-3 Consolidated Statements of Operations................................................ F-4 Consolidated Statements of Shareholder's Equity...................................... F-5 Consolidated Statements of Cash Flows................................................ F-6 Notes to Consolidated Financial Statements........................................... F-7 The Resort Group of Fibreboard Corporation Combined Financial Statements - December 2, 1996 Report of Independent Auditors....................................................... F-21 Combined Balance Sheet............................................................... F-22 Combined Statement of Operations..................................................... F-23 Combined Statement of Cash Flows..................................................... F-24 Notes to Combined Financial Statements............................................... F-25 Combined Financial Statements - October 31, 1996 and October 31, 1995 (unaudited) and December 31, 1995 and 1994 Report of Independent Public Accountants............................................. F-30 Combined Balance Sheets.............................................................. F-31 Combined Statements of Operations.................................................... F-32 Combined Statements of Cash Flows.................................................... F-33 Notes to Financial Statements........................................................ F-34
F-2 REPORT OF INDEPENDENT AUDITORS Booth Creek Ski Holdings, Inc. We have audited the accompanying consolidated balance sheets of Booth Creek Ski Holdings, Inc. as of October 30, 1998 and October 31, 1997, and the related consolidated statements of operations, shareholder's equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Booth Creek Ski Holdings, Inc. at October 30, 1998 and October 31, 1997, and the consolidated results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Sacramento, California December 18, 1998, except for the first paragraph of Note 5 for which the date is January 28, 1999 F-3 BOOTH CREEK SKI HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) October 30, October 31, 1998 1997 ------------ ----------- ASSETS Assets Current assets: Cash ................................................. $ 625 $ 462 Accounts receivable, net of allowance of $54 and $35, respectively................................... 1,573 1,528 Inventories........................................... 4,370 3,059 Prepaid expenses and other current assets............. 1,377 1,396 ------------- ---------- Total current assets.................................... 7,945 6,445 Property and equipment, net............................. 156,469 123,639 Deferred financing costs, net of accumulated amortization of $1,985 and $782, respectively...................... 6,649 6,229 Timber rights and other assets.......................... 7,428 7,402 Goodwill, net of accumulated amortization of $4,190 and $1,953, respectively.................................. 29,900 31,851 ------------ --------- Total assets............................................ $ 218,546 $ 186,416 ============ ========= LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities: Senior credit facility................................ $ 17,143 $ 15,000 Current portion of long-term debt..................... 1,785 947 Accounts payable and accrued liabilities.............. 22,110 17,132 ----------- ----------- Total current liabilities............................... 41,038 33,079 Long-term debt.......................................... 137,352 120,380 Other long-term liabilities............................. 145 196 Commitments and contingencies Preferred stock of subsidiary; 28,000 shares authorized, 21,000 shares issued and outstanding at October 30, 1998 (25,000 shares at October 31, 1997); liquidation preference and redemption value of $2,634 at October 30, 1998...................................... 2,634 3,354 Shareholder's equity: Common stock, $.01 par value; 1,000 shares authorized, issued and outstanding.............................. - - Additional paid-in capital............................ 72,000 46,500 Accumulated deficit................................... (34,623) (17,093) ------------ ----------- Total shareholder's equity.............................. 37,377 29,407 ------------ ----------- Total liabilities and shareholder's equity.............. $ 218,546 $ 186,416 ============ ===========
See accompanying notes. F-4 BOOTH CREEK SKI HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands) Year Ended ---------------------------- October 30, October 31, 1998 1997 ------------- ------------ Revenue: Resort operations.................................... $ 97,248 $ 68,136 Real estate and other................................ 7,608 3,671 ------------ ---------- Total revenue.......................................... 104,856 71,807 Operating expenses: Cost of sales - resort operations.................... 61,325 44,624 Cost of sales - real estate and other................ 4,671 2,799 Depreciation and depletion........................... 15,515 9,728 Amortization of goodwill............................. 2,237 1,953 Selling, general and administrative expense.......... 19,645 13,719 ----------- --------- Total operating expenses............................... 103,393 72,823 ----------- --------- Operating income (loss)................................ 1,463 (1,016) Other income (expense): Interest expense..................................... (17,510) (13,269) Amortization of deferred financing costs............. (1,203) (1,809) Other income (expense)............................... (20) 166 ------------ --------- Other income (expense), net.......................... (18,733) (14,912) ------------ --------- Loss before income taxes, minority interest and extraordinary item................................... (17,270) (15,928) ------------ --------- Income tax benefit..................................... - 1,728 ------------ --------- Loss before minority interest and extraordinary item... (17,270) (14,200) Minority interest...................................... (260) (229) ------------ ---------- Loss before extraordinary item......................... (17,530) (14,429) Extraordinary loss on early retirement of debt......... - (2,664) ------------ ---------- Net loss............................................... $ (17,530) $ (17,093) ============ ==========
See accompanying notes. F-5 BOOTH CREEK SKI HOLDINGS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY YEARS ENDED OCTOBER 30, 1998 AND OCTOBER 31, 1997 (In thousands, except shares) Note Common Stock Additional Receivable ----------------- Paid-in from Accumulated Shares Amount Capital Shareholder Deficit Total ------- ------- ------------ ------------- ---------- --------- Initial capitalization and balance at October 31, 1996.. 1,000 $ - $ 2 $ (2) $ - $ - Payment received on shareholder note receivable............... - - - 2 - 2 Capital contributions.......... - - 46,498 - - 46,498 Net loss....................... - - - - (17,093) (17,093) ------- ------ ---------- ------------ ----------- ------- Balance at October 31, 1997.... 1,000 - 46,500 - (17,093) 29,407 Capital contributions.......... - - 25,500 - - 25,500 Net loss....................... - - - - (17,530) (17,530) ------- ------ ---------- ------------ ---------- ---------- Balance at October 30, 1998.... 1,000 $ - $ 72,000 $ - $ (34,623) $ 37,377 ======== ======= ========== ============= ========== ==========
See accompanying notes. F-6 BOOTH CREEK SKI HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended --------------------------- October 30, October 31, 1998 1997 ------------ -------------- Cash flows from operating activities: Net loss.............................................. $ (17,530) $ (17,093) Adjustment to reconcile net loss to net cash provided by operating activities: Depreciation and depletion........................ 15,515 9,728 Amortization of goodwill.......................... 2,237 1,953 Noncash cost of real estate sales................. 3,721 2,237 Amortization of deferred financing costs.......... 1,203 1,809 Deferred income tax benefit....................... - (1,548) Minority interest................................. 260 229 Extraordinary loss on early retirement of debt.... - 2,664 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable............................. 279 (914) Inventories..................................... (785) 1,115 Prepaid expenses and other current assets....... 103 303 Accounts payable and accrued liabilities........ 2,707 1,003 Other long-term liabilities..................... (151) 66 ------------ --------- Net cash provided by operating activities............. 7,559 1,552 Cash flows from investing activities: Acquisition of ski resorts, net of cash acquired...... (30,211) (142,028) Capital expenditures for property and equipment....... (15,500) (9,459) Capital expenditures for real estate held for development and sale................................ (1,717) (72) Other assets.......................................... (290) (1,126) ------------ --------- Net cash used in investing activities................. (47,718) (152,685) Cash flows from financing activities: Net borrowings under senior credit facility........... 2,143 15,000 Proceeds of long-term debt............................ 17,500 216,000 Principal payments of long-term debt.................. (2,218) (114,827) Deferred financing costs.............................. (1,623) (10,703) Purchase of preferred stock of subsidiary and payment of dividends........................................ (980) (375) Payment received on shareholder note receivable....... - 2 Capital contributions................................. 25,500 46,498 ------------ --------- Net cash provided by financing activities............. 40,322 151,595 ------------ --------- Increase in cash...................................... 163 462 Cash at beginning of year............................. 462 - ------------ ---------- Cash at end of year................................... $ 625 $ 462 ============ ==========
See accompanying notes. F-7 BOOTH CREEK SKI HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS October 30, 1998 1. Organization, Basis of Presentation and Summary of Significant Accounting Policies Booth Creek Ski Holdings, Inc. ("Booth Creek") was organized on October 8, 1996 in the State of Delaware for the purpose of acquiring and operating various ski resorts, including Northstar-at-Tahoe ("Northstar"), Sierra-at-Tahoe ("Sierra"), Bear Mountain, Waterville Valley, Mt. Cranmore, the Summit at Snoqualmie Pass (the "Summit"), Grand Targhee and Loon Mountain as described more fully in Note 2. The consolidated financial statements include the accounts of Booth Creek and its subsidiaries (collectively referred to as the "Company"). Booth Creek owns all of the common stock of its subsidiaries. Ski Lifts, Inc. (the operator of the Summit) has shares of preferred stock owned by a third party. All significant intercompany transactions and balances have been eliminated. Booth Creek is a wholly-owned subsidiary of Booth Creek Ski Group, Inc. ("Parent"). Reporting Periods The Company's reporting periods end on the Friday closest to the end of each month. Fiscal 1998 and 1997 were both 52 week years. Business and Principal Markets Northstar is a year-round destination resort including ski and golf facilities. Sierra is a day ski area. Both Northstar and Sierra are located near Lake Tahoe, California. Bear Mountain is a day ski area located approximately two hours from Los Angeles, California. Waterville Valley, a destination resort, and Mt. Cranmore, a day ski area, are located in New Hampshire. Loon Mountain is a day ski area with other outdoor recreational activities located in Lincoln, New Hampshire. The Summit is located in Northwest Washington and is a day ski area. Grand Targhee is a destination ski resort located in Wyoming. Operations are highly seasonal at all locations with the majority of revenues realized during the ski season from late November through early April. The length of the ski season and the profitability of operations are significantly impacted by weather conditions. Although Northstar, Bear Mountain, Waterville Valley, Loon Mountain and Mt. Cranmore have snowmaking capacity to mitigate some of the effects of adverse weather conditions, abnormally warm weather or lack of adequate snowfall can materially affect revenues. Sierra, the Summit and Grand Targhee lack significant snowmaking capability but generally benefit from higher annual snowfall. Other operational risks and uncertainties that face the Company include competitive pressures affecting the number of skier visits and ticket prices; the success of marketing efforts to maintain and increase skier visits; the possibility of equipment failure; and continued access to water supplies for snowmaking. Cash Included in cash at October 30, 1998 and October 31, 1997 is restricted cash of $533,000 and $344,000, respectively, relating to advance deposits and rental fees due to property owners for lodging and property rentals. F-8 BOOTH CREEK SKI HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued) 1. Organization, Basis of Presentation and Summary of Significant Accounting Policies - (Continued) Inventories Inventories are valued at the lower of cost (first-in, first-out method) or market. The components of inventories are as follows: October 30, October 31, 1998 1997 ------------ ---------- (In thousands) Retail products........................... $ 3,199 $ 2,560 Supplies.................................. 916 314 Food and beverage......................... 255 185 ----------- ---------- $ 4,370 $ 3,059 =========== ========== Property and Equipment Property and equipment are stated at cost. Depreciation is provided on the straight-line method based upon the estimated service lives, which are as follows: Land improvements........................................ 20 years Buildings and improvements............................... 20 years Lift equipment........................................... 15 years Other machinery and equipment............................ 3 to 15 years Amortization of assets recorded under capital leases is included in depreciation expense. Real Estate Activities The Company capitalizes as real estate held for development and sale the original acquisition cost (or appraised value in connection with purchase business combinations), direct construction and development costs, and other related costs. Property taxes, insurance and interest incurred on costs related to real estate under development are capitalized during periods in which activities necessary to get the property ready for its intended use are in progress. Land costs and other common costs incurred prior to construction are allocated to each land parcel benefited. Construction related costs are allocated to individual units in each development phase using the relative sales value method. Selling expenses are charged against income in the period incurred. Interest capitalized on real estate development projects for the year ended October 30, 1998 was $162,000 (none for the year ended October 31, 1997). Sales and profits on real estate sales are recognized using the full accrual method at the point that the Company's receivables from land sales are deemed collectible and the Company has no significant remaining obligations for construction or development, which typically occurs upon transfer of title. If such conditions are not met, the recognition of all or part of the sales and profit is postponed. Long-Lived Assets The Company evaluates potential impairment of long-lived assets and long-lived assets to be disposed of in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121"). SFAS No. 121 establishes F-9 BOOTH CREEK SKI HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued) 1. Organization, Basis of Presentation and Summary of Significant Accounting Policies - (Continued) Long-Lived Assets - (Continued) procedures for review of recoverability, and measurement of impairment if necessary, of long-lived assets, goodwill and certain identifiable intangibles held and used by an entity. SFAS No. 121 requires that those assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. SFAS No. 121 also requires that long-lived assets and certain identifiable intangibles to be disposed of be reported at the lower of carrying amount or fair value less estimated selling costs. As of October 30, 1998 and October 31, 1997, management believes that there has not been any impairment of the Company's long-lived assets or goodwill. Fair Value of Financial Instruments The fair value of amounts outstanding under the Company's Senior Credit Facility approximates book value, as the interest rate on such debt generally varies with changes in market interest rates. The fair value of the Company's Senior Notes was approximately $124 and $114 million at October 30, 1998 and October 31, 1997, respectively, which is based on the market price of such debt. Revenue Recognition Revenues are recognized as services are provided and products are sold. Sales of season passes are initially deferred in unearned income and recognized ratably over the ski season. Amortization The excess of the purchase price over the fair values of the net assets acquired (goodwill) is being amortized using the straight-line method over a period of 15 years. Deferred financing costs are being amortized over the lives of the related obligations. Advertising Costs The cost of advertisements is expensed when the advertisement is initially released. The cost of professional services for advertisements, sales campaigns, promotion, and public relations is expensed when the services are rendered. The cost of brochures is expensed over the ski season. Advertising expenses for the years ended October 30, 1998 and October 31, 1997 were $3,193,000 and $1,983,000, respectively. Income Taxes Deferred income taxes are provided for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company is included in the federal and state tax returns of Parent. The provision for federal and state income tax is computed as if the Company filed separate consolidated tax returns. Comprehensive Income Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") requires that comprehensive income and its components, as defined in the pronouncement, be reported within the F-10 BOOTH CREEK SKI HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued) 1. Organization, Basis of Presentation and Summary of Significant Accounting Policies - (Continued) Comprehensive Income - (Continued) consolidated financial statements of the Company. The Company adopted SFAS No. 130 during the year ended October 30, 1998. The Company currently does not have any transactions that would necessitate disclosure of comprehensive income; however, the Company will continue to evaluate the impact of SFAS No. 130. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Pending Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 is required to be adopted by the Company during fiscal 1999. SFAS No. 131 requires that annual and interim financial and descriptive information about reportable operating segments be reported on the same basis used internally for evaluating segment performance and the allocation of resources. The Company anticipates providing segment disclosures for its resort operations and real estate and other segments. However, the Company does not expect any change to its primary financial statements. The Accounting Standards Executive Committee recently issued Statement of Position ("SOP") 98-1 providing guidance on accounting for the costs of computer software developed or obtained for internal use. The effective date for SOP 98-1 is for fiscal years beginning after December 15, 1998. Currently, the Company capitalizes purchased software above its capitalization threshold, and expenses development, production and maintenance costs associated with computer software developed for internal use. The Company is in the process of reviewing its current policies for accounting for costs associated with internal use software and how they may be affected by SOP 98-1. Reclassifications Certain amounts in the 1997 consolidated financial statements have been reclassified to conform with the current year's presentation. 2. Acquisitions As described below, Booth Creek consummated the Waterville Valley, Mt. Cranmore, California, Summit and Grand Targhee acquisitions prior to October 31, 1997, and the Loon Mountain acquisition prior to October 30, 1998. These acquisitions have been accounted for using the purchase method of accounting. The results of operations of the resorts have been included in the accompanying consolidated statements of operations since the effective dates of such acquisitions. The Waterville Valley and Mt. Cranmore Acquisitions On November 27, 1996, Booth Creek purchased the assets of the Waterville Valley and Mt. Cranmore resorts from subsidiaries of American Skiing Company ("ASC") for an aggregate purchase price of $17.5 million. The purchase price was paid with $14.75 million in cash, before giving effect to normal working capital adjustments for current assets acquired and current liabilities assumed, and the $2.75 million ASC Seller Note (Note 5). F-11 BOOTH CREEK SKI HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued) 2. Acquisitions - (Continued) The California Acquisitions On December 3, 1996, Booth Creek purchased from Fibreboard Corporation all of the issued and outstanding capital stock of Trimont Land Company, which operates Northstar, Sierra-at-Tahoe, Inc., which operates Sierra, and Bear Mountain, Inc., which operates Bear Mountain. The aggregate purchase price was $121.5 million in cash, before giving effect to normal working capital adjustments for current assets acquired and current liabilities assumed. The Summit Acquisition Effective January 15, 1997, Booth Creek purchased all of the issued and outstanding common stock of Ski Lifts, Inc. ("Ski Lifts"), the owner and operator of the ski resort assets of the Summit for an aggregate purchase price of approximately $14 million, which included the assumption of approximately $3.6 million of indebtedness, the issuance by Ski Lifts of the approximately $9.8 million Summit Seller Note, and other obligations to the selling shareholders of approximately $600,000. In connection with the consummation of the Summit acquisition, Ski Lifts transferred certain owned real estate held for development purposes and related buildings into a Delaware limited liability company (the "Real Estate LLC"), of which Ski Lifts is a member and 99% equity interest holder and Booth Creek is the other member and 1% equity interest holder. In addition, Ski Lifts granted the Real Estate LLC an option (the "Real Estate Option") to purchase acreage of developmental real estate for nominal consideration. Ski Lifts also issued 28,000 shares of non-voting preferred stock (the "Ski Lifts Preferred Stock") to its prior owners having an aggregate liquidation preference equal to $3.5 million, the aggregate estimated fair market value of the real estate transferred to the Real Estate LLC and the real estate subject to the Real Estate Option. Concurrently with these transactions, the Real Estate LLC entered into an agreement to purchase (the "Preferred Stock Purchase Agreement") the Ski Lifts Preferred Stock, on a quarterly basis over the five years following the date of the Summit Acquisition, at a purchase price equal to the liquidation preference thereof plus accrued dividends to the date of purchase. Through October 30, 1998, the Company has paid $875,000 under the Preferred Stock Purchase Agreement. The Real Estate LLC's obligations under the Preferred Stock Purchase Agreement are secured by a first priority lien on the developmental real estate held by the Real Estate LLC and substantially all of its other assets. The Ski Lifts Preferred Stock provides for a 9% cumulative dividend and is redeemable at the option of Ski Lifts without premium. In addition, pursuant to the terms of the Ski Lifts Preferred Stock, the holders thereof have no redemption rights. The Grand Targhee Acquisition On March 18, 1997, Booth Creek acquired all the issued and outstanding capital stock of Grand Targhee Incorporated, the owner of the ski resort assets of Grand Targhee, for an aggregate purchase price of approximately $7.9 million plus contingent payments of up to $1.5 million based on the performance of Grand Targhee during the 1998/99 ski season and additional commissions based on the number of dwelling units developed at the resort through 2012. The Loon Mountain Acquisition On February 26, 1998, the Company acquired Loon Mountain Recreation Corporation ("LMRC"), the owner and operator of the Loon Mountain ski resort. The aggregate net purchase price for the Loon Mountain acquisition was approximately $30.2 million (including the assumption of debt which was repaid in connection with the acquisition and acquisition costs). F-12 BOOTH CREEK SKI HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued) 2. Acquisitions - (Continued) Summary of Purchase Price Allocations Summary information regarding the purchase price allocations to the assets acquired and liabilities assumed in each of the acquisitions described above is as follows: Waterville Valley and Grand Loon Mt. Cranmore California Summit Targhee Mountain Acquisitions Acquisitions Acquisition Acquisition Acquisition ------------ ------------- ----------- ----------- ----------- (In thousands) Net working capital........ $ (714) $ (5,206) $ (5,822) $ (752) $ (1,339) Property and equipment..... 17,500 86,078 9,148 8,837 30,045 Real estate and other long- term assets.............. - 15,608 4,189 26 1,319 Goodwill................... 1,931 22,318 9,655 - 186 Long-term debt............. (3,172) (796) (9,880) (80) - Deferred income taxes and other long-term liabilities - - (6,782) (58) - --------- ---------- ---------- --------- --------- $ 15,545 $ 118,002 $ 508 $ 7,973 $ 30,211 ========= ========== ========== ========= =========
Pro Forma Financial Information The following table represents unaudited pro forma financial information which presents the Company's consolidated results of operations for the years ended October 30, 1998 and October 31, 1997 as if the acquisitions and related financing transactions occurred on November 1, 1996. 1998 1997 (In thousands) Statement of operations data: Revenues................................. $ 115,495 $ 97,825 Income (loss) from operations............ $ 5,114 $ (3,929) Net loss................................. $ (14,758) $ (21,241) Other data: EBITDA................................... $ 27,382 $ 14,236 Noncash cost of real estate sales........ $ 3,721 $ 2,370 EBITDA represents income from operations before depreciation, depletion and amortization expense and the noncash cost of real estate sales. The pro forma information does not purport to be indicative of results that actually would have occurred had the acquisitions been made on the date indicated or of results which may occur in the future. Proposed Seven Springs Acquisition (continued) On August 28, 1998 the Company, Booth Creek Ski Acquisition, Inc., a wholly owned subsidiary of Booth Creek ("Aquisition Sub"), and Seven Srings Farm, Inc. ("Seven Springs"), the owner and operator of the Seven Springs Mountain Resort, a ski resort and conference center, entered into an Agreement of Merger (the "Merger Agreement"), pursuant to which the Company would acquire Seven Springs through the merger of Acquistion Sub with and into Seven Springs. The aggregate merger consideration and related payments will be approxmimately $83.0 F-13 BOOTH CREEK SKI HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued) 2. Acquisitons - (Continued) Proposed Seven Springs Acquisition (continued) million plus certain deferred payments, subject to certain price adjustments. The proposed acquisition is conditioned on the receipt of a judicial determination that the terms of a certain shareholders' agreement among Seven Springs and its shareholders (the "Seven Springs Shareholder Agreement") does not apply to the transactions contemplated by the Merger Agreement, as well as customary closing conditions. In connection with the proposed acquisition, certain shareholders of Seven Springs filed a lawsuit in the Court of Common Pleas of Somerset County, Pennsylvania against the Company, Acquisition Sub, and Seven Springs and certain of its directors, seeking a declaratory judgment, along with other relief including the rescission of the Merger Agreement. Plaintiffs allege that the terms of the Seven Springs Shareholder Agreement ban the consummation of the proposed acquisition. On October 29, 1998, the Court entered a final judgment denying Plaintiff's motion and has permitted the consummation of the transactions contemplated by the Merger Agreement. On December 28, 1998, the Plaintiff's filed an amended notice of appeal which is currently pending. While the Company believes that Seven Springs will prevail with its position that the Seven Springs Shareholders Agreement does not apply to the transactions contemplated by the Merger Agreement, no assurance can be made regarding the timing or the outcome of this litigation. 3. Property and Equipment Property and equipment consist of the following: October 30, October 31, 1998 1997 ------------- ------------ (In thousands) Land and improvements.............. $ 36,933 $ 28,791 Buildings and improvements......... 45,309 34,624 Lift equipment..................... 42,807 32,998 Other machinery and equipment...... 45,099 29,008 Construction in progress........... 10,670 7,491 ----------- ----------- 180,818 132,912 Less accumulated depreciation..... 24,349 9,273 ----------- ----------- $ 156,469 $ 123,639 =========== =========== 4. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities consist of the following: October 30, October 31, 1998 1997 ------------ ----------- (In thousands) Accounts payable..................... $ 10,652 $ 7,618 Accrued compensation and benefits.... 3,164 1,575 Taxes other than income.............. 973 545 Unearned income and deposits......... 4,017 3,341 Interest............................. 2,349 2,027 Other................................ 955 2,026 ----------- ----------- $ 22,110 $ 17,132 =========== =========== F-14 BOOTH CREEK SKI HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued) 5. Financing Arrangements Senior Credit Facility The following is a summary of certain provisions of the Amended and Restated Credit Agreement (the "Senior Credit Facility"), as amended and restated on January 28, 1999 and effective beginning October 30, 1998, among Booth Creek, its subsidiaries, the financial institutions party thereto and BankBoston, N.A., as administrative agent ("Agent"). General - The Senior Credit Facility provides for borrowing availability of up to $25 million. The Senior Credit Facility requires that the Company not have borrowings thereunder in excess of $8.0 million in addition to certain amounts maintained by the Company in certain depository accounts with the Agent for a period of 60 consecutive days each year commencing sometime between February 1 and Feburary 28. Borrowings under the Senior Credit Facility are collectively referred to herein as the "Loans." Total borrowings outstanding under the Senior Credit Facility at October 30, 1998 was $17,143,000. Interest - For purposes of calculating interest, the Loans can be, at the election of the Company, Base Rate Loans or LIBOR Rate Loans or a combination thereof. Base Rate Loans bear interest at the sum of (a) a margin of between 0% and .5%, depending on the level of consolidated EBITDA of the Company and its subsidiaries (as determined pursuant to the Senior Credit Facility), plus (b) the higher of (i) the Agent's base rate or (ii) the federal funds rate plus .5%. LIBOR Rate Loans bear interest at the LIBOR rate plus a margin of between 2% and 3%, depending on the level of consolidated EBITDA. The Senior Credit Facility also requires a commitment fee of .375% based on the unused borrowing base. As of October 30, 1998 the borrowings outstanding bore interest at 8%, pursuant to the Base Rate Loans option. Repayment - Subject to the provisions of the Senior Credit Facility, the Company may, from time to time, borrow, repay and reborrow under the Senior Credit Facility. The entire unpaid balance under the Senior Credit Facility is due and payable on November 15, 1999. Security - Borrowings under the Senior Credit Facility are secured by (i) a pledge of the Agent for the ratable benefit of the financial institutions party to the Senior Credit Facility of all of the capital stock of Booth Creek's principal subsidiaries and (ii) a grant of a security interest in substantially all of the consolidated assets of Booth Creek and its subsidiaries (excluding the Real Estate LLC). Covenants - The Senior Credit Facility contains financial covenants relating to the maintenance of (i) ratios of (a) financing debt to consolidated cash flow, (b) adjusted consolidated cash flow to consolidated debt service and (c) consolidated cash flow to consolidated interest expense, (ii) consolidated net worth, and (iii) consolidated cash flow. The Senior Credit Facility also contains restrictive covenants pertaining to the management and operation of Booth Creek and its subsidiaries. The covenants include, among others, significant limitations on indebtedness, guarantees, mergers, acquisitions, fundamental corporate changes, capital expenditures, asset sales, leases, investments, loans and advances, liens, dividends and other stock payments, transactions with affiliates, optional payments and modification of debt instruments and issuances of stock. F-15 BOOTH CREEK SKI HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued) 5. Financing Arrangements - (Continued) Long-Term Debt Long-term debt consists of the following instruments, which are described below: October 30, October 31, 1998 1997 ------------ ----------- (In thousands) Senior Notes........................ $ 133,500 $ 116,000 ASC Seller Note..................... 2,400 2,500 Other debt.......................... 3,237 2,827 ------------ ----------- 139,137 121,327 Less current portion............... 1,785 947 ------------- ----------- $ 137,352 $ 120,380 ============= =========== Senior Notes As of October 30, 1998, the Company had outstanding $133.5 million aggregate amount of its senior debt securities (the "Senior Notes"). The Senior Notes mature on March 15, 2007, and bear interest at 12.5% per annum, payable semi-annually on March 15 and September 15. The Senior Notes are redeemable at the option of the Company, in whole or in part, at any time after March 15, 2002, with an initial redemption price of 106.25% declining through maturity, plus accrued and unpaid interest to the redemption date. The Senior Notes are unconditionally guaranteed, on an unsecured senior basis, as to the payment of principal, premium, if any, and interest, jointly and severally (the "Guarantees"), by all Restricted Subsidiaries of the Company (as defined in the Indenture) having either assets or shareholders' equity in excess of $20,000 (the "Guarantors"). All of the Company's direct and indirect subsidiaries are Restricted Subsidiaries, except the Real Estate LLC. Each Guarantee is effectively subordinated to all secured indebtedness of such Guarantor. The Senior Notes are general senior unsecured obligations of the Company ranking equally in right of payment with all other existing and future senior indebtedness of the Company and senior in right of payment to any subordinated indebtedness of the Company. The Senior Notes are effectively subordinated in right of payment to all secured indebtedness of the Company and the Guarantors, including indebtedness under the Senior Credit Facility. In addition, the Senior Notes are structurally subordinated to any indebtedness of the Company's subsidiaries that are not Guarantors. The indenture for the Senior Notes (the "Indenture") contains covenants for the benefit of the holders of the Senior Notes that, among other things, restrict the ability of the Company and any Restricted Subsidiaries to: (i) incur additional indebtedness; (ii) pay dividends and make distributions; (iii) issue stock of subsidiaries; (iv) make certain investments; (v) repurchase stock; (vi) create liens; (vii) enter into transactions with affiliates, (viii) enter into sale and leaseback transactions, (ix) create dividend or other payment restrictions affecting Restricted Subsidiaries; (x) merge or consolidate the Company or any Guarantors; and (xi) transfer and sell assets. The Guarantors are wholly-owned subsidiaries of Booth Creek and have fully and unconditionally guaranteed the Senior Notes on a joint and several basis. Booth Creek is a holding company and has no operations, assets or cash flows separate from its investments in its subsidiaries. In addition, the assets, equity, income and cash flow of the Real Estate LLC, Booth Creek's only non-guarantor subsidiary, are inconsequential and the common stock of the Real Estate LLC is entirely owned by Booth Creek. Accordingly, Booth Creek has not presented separate financial statements and other disclosures concerning the Guarantors or its non-guarantor subsidiary because management has determined that such information is not material to investors. F-16 BOOTH CREEK SKI HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued) 5. Financing Arrangements - (Continued) Long-Term Debt (continued) On March 18, 1997, the Company consummated an offering of $110 million in Senior Notes. A portion of the proceeds from the offering were used to repay $90 million in bridge notes bearing interest at approximately 11%. Existing deferred financing costs at March 18, 1997 of $2,664,000 relating principally to the bridge notes repaid, were charged off in connection with the early extinguishment of debt, and have been reflected as an extraordinary item in the accompanying statement of operations for the year ended October 31, 1997. ASC Seller Note As part of the purchase price for the acquisitions of Waterville Valley and Mt. Cranmore, Booth Creek issued a promissory note to American Skiing Company in the aggregate principal amount of $2.75 million. The ASC Seller Note requires annual principal payments at an initial level of $100,000 per year and increasing to $350,000 by January 31, 2003, with the remaining principal balance of $1,150,000 due on June 30, 2004. The ASC Seller Note bears interest at 12% per annum payable semi-annually on each June 30 and December 31. Other Debt Other debt of $3,237,000 and $2,827,000 at October 30, 1998 and October 31, 1997, respectively, consists of various capital lease obligations, notes payables and improvement bond obligations. For the year ended October 30, 1998, the Company entered into long-term debt and capital lease obligations of approximately $2.5 million for the purchase of equipment. During the years ended October 30, 1998 and October 31, 1997, the Company paid cash for interest costs (net of amounts capitalized) of $17,176,000 and $11,243,000, respectively. 6. Commitments and Contingencies Lease Commitments The Company leases certain machinery, equipment and facilities under operating leases. Aggregate future minimum lease payments as of October 30, 1998 are as follows: Year Ending October (In thousands) ------- -------------- 1999.................................. $ 2,713 2000.................................. 1,888 2001.................................. 1,619 2002.................................. 1,427 2003.................................. 1,421 Thereafter............................ 284 ----------- $ 9,352 =========== Total rent expense for all operating leases amounted to $2,675,000 and $2,882,000 for the years ended October 30, 1998 and October 31, 1997, respectively. F-17 BOOTH CREEK SKI HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued) 6. Commitments and Contingencies - (Continued) Lease Commitments (continued) The Company leases certain machinery and equipment under capital leases. Aggregate future minimum lease payments as of October 30, 1998 for years ending October 1999 and October 2000 were $783,000 and $823,000, respectively. The cost and accumulated depreciation of equipment recorded under capital leases at October 30, 1998 were $2,511,000 and $791,000, respectively. In addition, the Company leases property from the U.S. Forest Service under Special Use Permits for all or certain portions of the operations of Sierra, Bear Mountain, Waterville Valley, Loon Mountain, the Summit and Grand Targhee. These leases are effective through 2008, 2020, 2034, 2006, 2032 and 2034, respectively. Lease payments are based on a percentage of revenues, and were $1,014,000 and $665,000 for the years ended October 30, 1998 and October 31, 1997, respectively. Other Commitments Commitments for future capital expenditures totaled approximately $4.4 million at October 30, 1998. In September 1997, the Company acquired a two year land purchase option for $500,000. The land purchase option permits the Company to acquire certain land for additional consideration of approximately $3.2 million. If the land purchase option is not exercised due to certain events, $250,000 of the option price is refundable. Litigation The nature of the ski industry includes the risk of skier injuries. Generally, the Company has insurance to cover potential claims; in some cases the amounts of the claims may be substantial. The Company is also involved in a number of other claims arising from its operations. Management, in consultation with legal counsel, believes resolution of these claims will not have a material adverse impact on the Company's consolidated financial condition or results of operations. Pledge of Stock The stock of the Company is pledged to secure $54.0 million of indebtedness of the Parent. 7. Income Taxes The income tax benefit (provision) consists of the following: Year Ended October 30, October 31, ----------- ----------- 1998 1997 (In thousands) Current: Federal.............................. $ - $ 200 State................................ $ - (20) --------- ----------- - 180 ========= ============ Deferred: Federal............................. - 1,442 State............................... - 106 --------- ----------- $ - $ 1,548 --------- ----------- - 1,728 ========= =========== F-18 BOOTH CREEK SKI HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued) 7. Income Taxes - (Continued) The difference between the statutory federal income tax rate and the effective tax rate is attributable to the following: Year Ended --------------------------- October 30, October 31, 1998 1997 --------------------------- (In thousands) Tax benefit computed at federal statutory rate of 35% of pre-tax loss..................... $ 6,045 $ 5,575 Net change in valuation allowance........... (6,073) $ (3,691) Other, net................................... 28 (156) ------------ ---------- $ - $ 1,728 ============ ========== As all of the income tax benefit for the year ended October 31, 1997 was attributable to the losses from continuing operations, none of the benefit was allocated to the extraordinary loss on early retirement of debt (Note 5). Accordingly, the extraordinary loss increased the Company's net operating losses by $2,664,000 and the valuation allowance by $972,000. In connection with the purchase accounting for the Loon Mountain acquisition, approximately $13 million of the Company's existing net operating losses were used to offset net taxable temporary differences relating principally to Loon Mountain's long-term assets. Accordingly, the Company's valuation allowance for net deferred tax assets was reduced by $4,639,000. After consideration for the Loon Mountain acquisition, the net increase in the Company's valuation allowance for the year ended October 30, 1998 was $826,000, which included the effect of adjustments to the prior year's estimated net operating loss. At October 30, 1998, the Company has net operating loss carryforwards of approximately $43 million for federal income tax reporting purposes, which expire in 2012 and 2018. Significant components of the Company's deferred tax assets and liabilities are as follows: October 30, October 31, 1998 1997 ------------ ----------- (In thousands) Deferred tax assets: Accruals and reserves.................. $ 1,216 $ 754 Alternative minimum tax credit carryforwards.......... 545 130 Net operating loss carryforwards....... 15,806 5,909 ------------ --------- Total deferred tax assets.......... 17,567 6,793 Deferred tax liabilities: Property and equipment................. (10,514) (2,000) ------------ -------- Total deferred tax liabilities......... (10,514) (2,000) ------------ -------- Net deferred tax assets................. 7,053 4,793 Valuation allowance..................... (7,053) (4,793) ------------ -------- Net deferred tax assets reflected in the accompanying consolidated balance sheet.................................. $ - $ - ============= ========= 8. Management Agreement and Related Party Transactions Booth Creek has in effect a management agreement with Booth Creek, Inc. (the "Management Company") dated November 27, 1996 (the "Management Agreement") pursuant to which the Management Company provides Parent, Booth Creek and its subsidiaries with financial advice with respect to, among other matters, cash 19 BOOTH CREEK SKI HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued) 8. Management Agreement and Related Party Transactions - (Continued) management, accounting and data processing systems and procedures, budgeting, equipment purchases, business forecasts, treasury functions and investor relations. The Management Company also provides general supervision and management advice concerning tax, legal and corporate finance matters, administration and operation, personnel matters, business insurance and the employment of consultants, contractors and agents. Under the terms of the Management Agreement, the Company provides customary indemnification, reimburses certain costs and pays the Management Company an annual management fee of $350,000 plus an operating bonus (the "Operating Bonus"), not to exceed $400,000, equal to 2.5% of the excess of Consolidated EBITDA (as defined in the Management Agreement) for such year over $25 million. The Operating Bonus for each fiscal year must be paid within 15 days after Parent receives its fiscal year-end audited financial statements for that year. Booth Creek pays the Management Company amounts necessary to cover operations costs (other than office operations cost but including, without limitation, reasonable travel and entertainment costs) and reimburse certain costs and expenses, of the Management Company attributable to, arising out of, in connection with, or related to management services rendered by the Management Company. Management fees and reimbursable operating expenses during the years ended October 30, 1998 and October 31, 1997 were $646,000 and $350,000, respectively. During the year ended October 30, 1998, the Management Company incurred fees and expenses of approximately $119,000 in connection with certain of the acquisitions. For the year ended October 31, 1997, the Management Company and certain of its affiliates made advances and deposits of approximately $1,400,000, and incurred expenses of approximately $1,000,000, in connection with certain of the acquisitions. All of these costs were later reimbursed by the Company pursuant to the Management Agreement. At October 31, 1997, the Company had a receivable of $331,000 from Parent which is included in other current assets in the accompanying consolidated balance sheet at October 31, 1997 (none at October 30, 1998). 9. Employee Benefit Plan The Company maintains a defined contribution retirement plan (the "Plan"), qualified under Section 401(k) of the Internal Revenue Code, for certain eligible employees. Pursuant to the Plan, eligible employees may contribute a portion of their compensation, subject to a maximum amount per year as specified by law. The Company provides a matching contribution based on specified percentages of amounts contributed by participants. The Company's contribution expense for the years ended October 30, 1998 and October 31, 1997 was $490,000 and $215,000, respectively. 10. Business Segments The Company currently operates in two business segments, Resorts and Real Estate and other. Data by segment is as follows: October 30, October 31, 1998 --------------- ------------- (In Thousands) Revenue: Resorts......................... $ 97,248 $ 68,136 Real estate and other........... 7,608 3,671 --------------- ------------ $ 104,856 $ 71,807 =============== ============ Operating income (loss): Resorts............................. $ (1,201) $ (1,628) Real estate and other............... 2,664 612 -------------- ------------- $ 1,463 $ (1,016) ============== ============ F-20 BOOTH CREEK SKI HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued) 10. Business Segments - (Continued) October 30, October 31, 1998 1997 ----------- ---------- (In thousands) Depreciation, depletion and amortization: Resorts.............................. $ 17,479 $ 11,421 Real estate and other................ 273 260 ----------- ---------- $ 17,752 $ 11,681 =========== ========== Capital expenditures: Resorts.............................. $ 15,042 $ 8,918 Real estate and other................ 1,717 72 ----------- ---------- $ 16,759 $ 8,990 =========== ========== Identifiable assets: Resorts.............................. $ 162,796 $ 127,709 Real estate and other................ 15,240 16,559 ----------- ---------- $ 178,036 $ 144,268 =========== ========== F-21 REPORT OF INDEPENDENT AUDITORS Fibreboard Corporation We have audited the accompanying combined balance sheet of The Resort Group of Fibreboard Corporation (wholly-owned subsidiaries of Fibreboard Corporation) as of December 2, 1996, and the related combined statements of operations and cash flows for the period from November 1, 1996 to December 2, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Resort Group of Fibreboard Corporation at December 2, 1996, and the results of its operations and its cash flows for the period from November 1, 1996 to December 2, 1996, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Milwaukee, Wisconsin September 30, 1997 F-22 THE RESORT GROUP OF FIBREBOARD CORPORATION (Wholly-owned subsidiaries of Fibreboard Corporation) COMBINED BALANCE SHEET December 2, 1996 (Dollar amounts in thousands) ASSETS Current assets: Cash and cash equivalents..................................... $ 2,232 Accounts receivable, net of allowance for doubtful accounts of $10..................................... 661 Current portion of notes receivable........................... 343 Inventories................................................... 2,910 Prepaid expenses.............................................. 987 Current portion of real estate held for resale................ 1,554 --------- Total current assets............................................ 8,687 Property and equipment: Land and improvements......................................... 26,491 Buildings..................................................... 15,479 Machinery and equipment....................................... 44,838 Construction in progress...................................... 3,557 --------- 90,365 Less accumulated depreciation................................. 26,461 --------- Property and equipment, net................................... 63,904 Timber rights, net of accumulated depletion of $16.............. 1,484 Notes receivable, net of current portion........................ 1,260 Real estate held for resale, net of current portion............. 726 Other assets.................................................... 1,258 --------- Total assets.................................................... $ 77,319 ========= LIABILITIES AND NET ASSETS Current liabilities: Accounts payable and accrued liabilities...................... $ 12,962 Intercompany payable to Fibreboard Corporation................ 39,829 --------- Total current liabilities....................................... 52,791 ========= Commitments and contingencies (Notes 8 and 9) Net assets...................................................... 24,528 --------- Total liabilities and net assets................................ $ 77,319 ========= See accompanying notes. F-23 THE RESORT GROUP OF FIBREBOARD CORPORATION (Wholly-owned subsidiaries of Fibreboard Corporation) COMBINED STATEMENT OF OPERATIONS For the Period from November 1, 1996 to December 2, 1996 (Dollar amounts in thousands) Revenue: Resort operations............................................ $ 1,395 Real estate and other........................................ 304 -------- Total revenue.................................................. 1,699 Cost of sales: Resort operations............................................ 2,890 Real estate and other........................................ 161 -------- Total cost of sales............................................ 3,051 -------- Gross margin................................................... (1,352) Sales, general and administrative expense...................... 1,766 Management fee................................................. 70 -------- Operating loss................................................. (3,188) Interest expense............................................... (3) Interest and other income...................................... 14 Intercompany interest expense, net............................. (217) --------- Loss before income taxes....................................... (3,394) Income tax benefit............................................. 1,358 --------- Net loss....................................................... $ (2,036) ========= See accompanying notes. F-24 THE RESORT GROUP OF FIBREBOARD CORPORATION (Wholly-owned subsidiaries of Fibreboard Corporation) COMBINED STATEMENT OF CASH FLOWS For the Period from November 1, 1996 to December 2, 1996 (Dollar amounts in thousands) Cash flows from operating activities: Net loss................................................. $ (2,036) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization........................... 6 Noncash cost of real estate sales....................... 133 Net changes in operating assets and liabilities: Accounts receivable................................... 138 Inventories........................................... (804) Prepaid expenses...................................... (306) Accounts payable and accrued liabilities.............. 8,638 ---------- Net cash provided by operating activities................. 5,769 Cash flows from investing activities: Purchase of other assets.................................. (488) Capital expenditures - property and equipment............. (5,587) Development expenditures - real estate held for resale.... (191) Principal payments received on notes receivable........... 115 ---------- Net cash used in investing activities..................... (6,151) Cash flows from financing activities: Increase in intercompany payable to Fibreboard Corporation.............................................. 1,115 ---------- Net cash provided by financing activities................. 1,115 ---------- Net increase in cash and cash equivalents................. 733 Cash and cash equivalents, beginning of period............ 1,499 --------- Cash and cash equivalents, end of period.................. $ 2,232 ========= Supplemental cash flow information: Cash paid for interest to third parties................. $ 53 ========= Noncash investing and financing activities: Exchange of old lift for new lift....................... $ 2,000 ========= See accompanying notes. F-25 THE RESORT GROUP OF FIBREBOARD CORPORATION (Wholly-owned subsidiaries of Fibreboard Corporation) NOTES TO COMBINED FINANCIAL STATEMENTS December 2, 1996 1. Organization Basis of Presentation The Resort Group of Fibreboard Corporation (the "Resort Group") includes the following wholly-owned subsidiaries of Fibreboard Corporation, a Delaware corporation ("Fibreboard"): Trimont Land Company, d.b.a., Northstar-at-Tahoe ("Northstar"), Sierra-at-Tahoe, Inc. ("Sierra"), and Bear Mountain, Inc. ("Bear"). Business Northstar is a year-round destination resort including ski and golf facilities. Northstar also has real estate operations. Sierra is a day ski area. Both Northstar and Sierra are located near Lake Tahoe, California. Bear is a day ski area located approximately two hours from Los Angeles, California. Operations are highly seasonal at all locations with the majority of revenues realized during the ski season from late November through early April. The length of the ski season and the profitability of operations are significantly impacted by weather conditions. Although Northstar and Bear have snowmaking capacity to mitigate some of the effects of adverse weather conditions, abnormally warm weather or lack of adequate snowfall can materially affect revenues. Sierra lacks significant snowmaking capability but generally benefits from higher annual snowfall. Other operational risks and uncertainties that face the Resort Group include competitive pressures affecting the number of skier visits and ticket prices; the success of marketing efforts to maintain and increase skier visits; the possibility of equipment failure; and continued access to water supplies for snowmaking. 2. Summary of Significant Accounting Policies Cash and Cash Equivalents The Resort Group participates in Fibreboard's centralized cash management system to minimize the amount of cash on deposit with banks and to maximize interest income. Cash includes cash on hand or in banks available for immediate disbursal. The Resort Group considers all highly-liquid investments with an original maturity of three months or less to be cash equivalents. Included in cash at December 2, 1996 is restricted cash of $526,000 relating to advance deposits and rental fees due to property owners for lodging and property rentals. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. The components of inventories at December 2, 1996 are as follows (in thousands): Retail products........................................ $ 1,732 Supplies............................................... 1,003 Food and beverage...................................... 175 -------- Total inventories....................................... $ 2,910 ======== F-26 THE RESORT GROUP OF FIBREBOARD CORPORATION (Wholly-owned subsidiaries of Fibreboard Corporation) NOTES TO COMBINED FINANCIAL STATEMENTS -(Continued) 2. Summary of Significant Accounting Policies - (Continued) Property And Equipment Property and equipment are stated at cost. Depreciation is provided on the straight-line method based upon the estimated service lives of the property, ranging from 3 to 20 years. The Resort Group recognizes depreciation expense on substantially all resort related assets over the operating ski season, which is presumed to be the months of December through March. Accordingly, depreciation expense of approximately $6,000 was recorded in the period from November 1, 1996 to December 2, 1996 and is not reflective of the Resort Group's annual depreciation charges. The Resort Group capitalizes interest on borrowed funds during construction periods. Capitalized interest is amortized over the lives of the related assets. Interest capitalized for the period from November 1, 1996 to December 2, 1996 was $80,000. Advertising Costs The cost of advertising is expensed when the advertisement is released. The cost of professional services for advertising, sales campaigns, promotions, and public relations is expensed when the services are rendered. The cost of brochures is expensed over the ski season. Advertising expenses were approximately $259,000 for the period from November 1, 1996 to December 2, 1996. Income Taxes The Resort Group accounts for income taxes under the liability method. Deferred taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of the enacted tax laws. Deferred taxes primarily consist of the basis differences associated with property and equipment and certain liabilities as of December 2, 1996. The Resort Group is included in the federal and state consolidated tax returns of Fibreboard. The Resort Group computes its tax liability as if it had filed a separate tax return and accrues such amount to Fibreboard. Accordingly, all current and deferred tax balances, which are provided for in total at the statutory rate, are included in the intercompany payable to Fibreboard Corporation. The following table summarizes the differences between the statutory federal and the effective rate at December 2, 1996 (in thousands): Income taxes at statutory federal rate................... $ 1,188 State taxes, net of federal tax benefit.................. 170 -------- Income tax benefit....................................... $ 1,358 ======== Use Of Estimates In The Preparation Of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-27 THE RESORT GROUP OF FIBREBOARD CORPORATION (Wholly-owned subsidiaries of Fibreboard Corporation) NOTES TO COMBINED FINANCIAL STATEMENTS -(Continued) 3. Real Estate Operations Revenues and profits on real estate sales at Northstar are recognized using the full accrual method at the point that the Resort Group's receivables from land sales are deemed collectible and the Resort Group has no significant remaining obligations for construction or development. If such conditions are not met, the recognition of all or part of the revenues and profit is postponed. Real estate held for resale includes the initial development expenditures (e.g., roads, sewage systems, engineering fees, and capitalized interest) for a new residential development at Northstar. The costs have been allocated to the individual lots based on the development phase in which the lot is located. The current portion of these costs relates to lots which the Resort Group expects to sell within one year. These costs are recognized as noncash cost of real estate sales upon the sale of the lot. Notes receivable relate to these real estate sales and equipment sales and consist of the following as of December 2, 1996 (in thousands): Secured notes receivable bearing interest at 9% to 10.5%; payments of interest and principal are due monthly and the notes mature between 1997 and 2011... $ 1,469 Notes receivable for sale of equipment; payable in full in April 1997................................... 134 --------- 1,603 Less current portion.................................. 343 --------- Long-term notes receivable............................ $ 1,260 ========= Future maturities of these notes are as follows (in thousands): 1996 (one month)....................................... $ 5 1997................................................... 343 1998................................................... 782 1999................................................... 26 2000................................................... 28 2001................................................... 30 Thereafter............................................. 389 -------- $ 1,603 ======== F-28 THE RESORT GROUP OF FIBREBOARD CORPORATION (Wholly-owned subsidiaries of Fibreboard Corporation) NOTES TO COMBINED FINANCIAL STATEMENTS -(Continued) 4. Accounts Payable And Accrued Liabilities Accounts payable and accrued liabilities consist of the following at December 2, 1996 (in thousands): Accounts payable....................................... $ 8,585 Unearned income........................................ 2,020 Payroll related........................................ 1,501 Taxes other than income................................ 622 Other.................................................. 234 -------- $ 12,962 ======== Unearned income relates primarily to season ski passes, coupon and ticket voucher sales and customer deposits. Revenue from season passes is recognized ratably over the ski season. 5. Employee Benefit Plans The Resort Group's employees are eligible to participate in a 401(k) plan sponsored by Fibreboard. The Resort Group contributed $35,000 as a result of these plans in the period from November 1, 1996 to December 2, 1996. Certain current and former Resort Group employees have vested benefits in Fibreboard's defined benefit pension plan, which was frozen in 1993. All pension liabilities and expenses are funded directly by Fibreboard. 6. Credit Facility The Resort Group has a reducing revolving credit facility which provided for maximum borrowing of $34,043,940 at December 2, 1996. At December 2, 1996, no amounts were outstanding under the credit facility, which was subsequently terminated as a result of the sale of the Resort Group (Note 10). 7. Intercompany Transactions The Resort Group is charged a management fee by Fibreboard based on services rendered by Fibreboard for the benefit of the Resort Group. These services primarily relate to legal, accounting, cash management, human resources, tax consultation and filings, management information systems (MIS), and overall corporate strategy and direction. The fee for the above services and others is based on a percentage of income, headcount, and estimated time spent by the legal and MIS staff on the Group's behalf. This fee was $70,000 for the period from November 1, 1996 to December 2, 1996. The Resort Group was charged interest of approximately $297,000, including $80,000 which was capitalized by the Resort Group (Note 2), by Fibreboard for the period from November 1, 1996 to December 2, 1996, based on outstanding intercompany amounts. All of the above transactions are accounted for through the intercompany payable to Fibreboard Corporation account, which totaled $39,829,335 at December 2, 1996. In addition, all excess cash is remitted to and checks are covered by Fibreboard. Allocations for payroll and related taxes, workers' compensation and income taxes are also accounted for through this account. F-29 THE RESORT GROUP OF FIBREBOARD CORPORATION (Wholly-owned subsidiaries of Fibreboard Corporation) NOTES TO COMBINED FINANCIAL STATEMENTS -(Continued) 8. Litigation The nature of the ski industry includes the risk of skier injuries. The Resort Group is involved in a number of claims arising from its operations. Generally, the Resort Group has insurance to cover potential claims; in some cases the amounts of the claims may be substantial. Management, in consultation with legal counsel, believes resolution of these claims will not have a material adverse impact on the Resort Group's combined financial condition or results of operations. 9. Commitments The Resort Group leases certain machinery and equipment under operating leases. Remaining minimum lease payments for the balance of 1996 and the calendar years following are as follows (in thousands): 1996 (one month)....................................... $ 154 1997................................................... 973 1998................................................... 504 1999................................................... 224 2000................................................... 84 -------- $ 1,939 In addition, the Resort Group leases property from the U.S. Forest Service for Sierra and Bear. These leases are effective through 2008 and 2020, respectively. Lease payments are based on a percentage of revenues. Total rent expense for all operating leases amounted to $103,000 for the period from November 1, 1996 to December 2, 1996. 10. Subsequent Event On December 3, 1996, Booth Creek Ski Holdings, Inc. purchased from Fibreboard all of the issued and outstanding capital stock of the companies comprising the Resort Group. The aggregate purchase price was $121.5 million in cash, before giving effect to normal working capital adjustments for current assets acquired and current liabilities assumed. F-30 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Fibreboard Corporation and Mr. George N. Gillett, Jr.: We have audited the accompanying combined balance sheets of The Resort Group of Fibreboard Corporation (wholly-owned subsidiaries of Fibreboard Corporation, a Delaware corporation) as of October 31, 1996, December 31, 1995, and 1994, and the related combined statements of income, and cash flows for the ten months ended October 31, 1996, and each of the three years ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of The Resort Group of Fibreboard Corporation as of October 31, 1996, December 31, 1995, and 1994, and the results of its operations and its cash flows for the ten months ended October 31, 1996, and each of the three years ended December 31, 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP San Francisco, California November 22, 1996 F-31 THE RESORT GROUP OF FIBREBOARD CORPORATION COMBINED BALANCE SHEETS As of October 31, 1996, December 31, 1995, and 1994 (Dollar amounts in thousands) October 31, December 31, ------------------------ 1996 1995 1994 ----------- ----------- ----------- ASSETS Current assets: Cash and cash equivalents..................... $ 1,499 $ 7,821 $ 3,319 Accounts receivable, net of allowance for doubtful accounts of $10, $12, and $11, 799 853 537 respectively................................ Current portion of notes receivable........... 350 78 24 Inventories................................... 2,106 3,267 1,468 Prepaid expenses.............................. 681 545 502 Current portion of real estate held for resale 1,416 1,105 208 --------- --------- -------- Total current assets........................ 6,851 13,669 6,058 --------- --------- -------- Property and equipment, at cost: Land and improvements......................... 26,500 26,500 12,469 Buildings..................................... 15,309 14,914 10,907 Machinery and equipment....................... 38,415 38,923 31,820 Construction in progress...................... 5,384 - - --------- --------- -------- 85,608 80,337 55,196 Less: Accumulated depreciation................ (27,285) (23,261) (19,447) ----------- --------- -------- Net property and equipment.................. 58,323 57,076 35,749 Timber rights, net of accumulated depletion of 1,484 - - $16........................................... Notes receivable, net of current portion........ 1,368 752 554 Real estate held for resale, net of current 806 1,162 303 portion....................................... Other assets.................................... 770 657 401 ---------- ---------- ---------- Total assets................................ $ 69,602 $ 73,316 $ 43,065 ========== ========== ========== LIABILITIES AND NET ASSETS Current liabilities: Current portion of long-term debt............. $ - $ - $ 1,000 Accounts payable and accrued liabilities...... 4,323 8,156 7,391 Intercompany payable to Fibreboard Corporation 38,715 41,493 4,222 ---------- ---------- ---------- Total current liabilities..................... 43,038 49,649 12,613 Long-term debt.................................. - - 10,200 Other long-term liabilities..................... - - 500 ---------- ---------- ---------- Total liabilities........................... 43,038 49,649 23,313 Commitments (Note 11) Net assets.................................... 26,564 23,667 19,752 ---------- ---------- ---------- Total liabilities and net assets.............. $ 69,602 $ 73,316 $ 43,065 ========== ========== ==========
The accompanying notes are an integral part of these financial statements. F-32 THE RESORT GROUP OF FIBREBOARD CORPORATION COMBINED STATEMENTS OF OPERATIONS For the Ten Months Ended October 31, 1996 and 1995 and the Years Ended December 31, 1995, 1994, and 1993 (Dollar amounts in thousands) October October December 31, 31, 31, --------------------------- 1996 1995 1995 1994 1993 -------- -------- ------ ------- ------- (Unaudited) Revenue: Resort..................................... $ 36,829 $ 32,072 $ 39,823 $40,810 $ 25,528 Real estate................................ 3,595 4,659 5,028 610 - Timber..................................... 693 - 185 - - --------- --------- -------- -------- ------- Total revenue............................ 41,117 36,731 45,036 41,420 25,528 --------- --------- -------- -------- ------- Cost of Sales: Resort..................................... 26,950 21,536 28,569 26,920 18,117 Real estate (including $1,461, $1,488, $1,618, $0, and $0, respectively, of non-cash cost of sales) (Note 3)......... 1,739 1,780 1,928 280 - Timber..................................... 403 - 61 - - -------- --------- -------- -------- -------- Total cost of sales...................... 29,092 23,316 30,558 27,200 18,117 -------- --------- -------- -------- -------- Gross margin............................... 12,025 13,415 14,478 14,220 7,411 Sales, General, and Administrative Expense... 5,220 4,399 5,871 5,545 4,579 Management Fee (Note 8)...................... 701 513 1,247 655 507 ------- --------- ------- -------- ------- Operating income......................... 6,104 8,503 7,360 8,020 2,325 Interest expense............................. 100 418 439 741 326 Interest and other income.................... (350) (84) (106) (75) (140) Intercompany interest expense, net........... 1,439 - 488 - - -------- ------- ------- -------- ------- Income before income taxes............... 4,915 8,169 6,539 7,354 2,139 Provision for Income Taxes................... 2,018 3,308 2,624 2,979 876 -------- --------- --------- -------- -------- Net income................................... $ 2,897 $ 4,861 $ 3,915 $ 4,375 $ 1,263 ========= ========= ========== ======== ========
The accompanying notes are an integral part of these financial statements. F-33 THE RESORT GROUP OF FIBREBOARD CORPORATION COMBINED STATEMENTS OF CASH FLOWS For the Ten Months Ended October 31, 1996 and 1995 and the Years Ended December 31, 1995, 1994, and 1993 (Dollar amounts in thousands) October October December 31, 31, 31, --------------------------- 1996 1995 1995 1994 1993 --------- --------- ---------- --------- --------- (Unaudited) Cash flows from operating activities: Net income............................... $ 2,897 $ 4,861 $ 3,915 $ 4,375 $ 1,263 Adjustments to reconcile to cash provided by operating activities - Depreciation, amortization, and 4,354 2,989 4,024 3,449 2,514 depletion.......................... Non-cash cost of real estate sales 1,461 1,488 1,618 - - (Note 3)........................... Gain on sale of assets............... (147) (20) (342) (326) - Changes in assets and liabilities - Decrease (increase) in accounts 54 242 (286) (107) (161) receivable......................... Decrease (increase) in inventories... 1,161 (427) (1,427) (9) (308) (Increase) decrease in prepaid (136) (116) 56 106 (479) expenses........................... (Increase) decrease in notes (888) (150) (252) 116 66 receivable......................... (Decrease) increase in accounts payable and accrued liabilities..... (3,833) (1,361) 555 1,878 1,317 Net cash provided by operating -------- -------- ------- -------- -------- activities........................ 4,923 7,506 7,861 9,482 4,212 -------- -------- ------- -------- -------- Cash flows from investing activities: Non-cash assets of acquired operations... - (20,604) (20,604) - (13,054) Proceeds from property and equipment 361 - - - - sales.................................. Development expenditures - real estate held for resale........................ (1,297) (3,443) (3,374) (198) - Capital expenditures - property and (5,761) (3,786) (5,226) (6,199) (4,619) equipment.............................. Capitalized interest..................... (157) - - - (183) Acquisition of timber rights............. (1,500) - - - - (Increase) decrease in other assets...... (113) (488) (226) 110 (480) Net cash used by investing -------- -------- -------- ------- -------- activities............................ (8,467) (28,321) (29,430) (6,287) (18,336) Cash flows from financing activities: New borrowings........................... - - - - 15,000 Repayment of long-term debt.............. - (11,200) (11,200) (3,798) (24) (Decrease) increase in intercompany payable to Fibreboard Corporation...... (2,778) 29,259 37,271 1,134 (5,949) -------- --------- --------- -------- ------- Net cash (used) provided by financing activities.............. (2,778) 18,059 26,071 (2,664) 9,027 -------- --------- -------- -------- ------- Net increase (decrease) in cash and cash equivalents.............................. (6,322) (2,756) 4,502 531 (5,097) Cash and cash equivalents, beginning of year..................................... 7,821 3,319 3,319 2,788 7,885 Cash and cash equivalents, end of year..... $ 1,499 $ 563 $ 7,821 $ 3,319 $ 2,788 ========= ========= ========= ======== ========= Supplemental cash flow information: Cash paid for interest to third parties.. $ 55 $ 590 $ 590 $ 810 $ 186 ========= ========= ========= ======== =========
The accompanying notes are an integral part of these financial statements. F-34 THE RESORT GROUP OF FIBREBOARD CORPORATION NOTES TO FINANCIAL STATEMENTS (Dollar amounts in thousands) 1. Organization Basis Of Presentation The Resort Group of Fibreboard Corporation (the Group) includes the following wholly-owned subsidiaries of Fibreboard Corporation, a Delaware corporation (Fibreboard): Trimont Land Company, d.b.a. Northstar-at-Tahoe (Northstar), Sierra-at-Tahoe, Inc. (Sierra), and Bear Mountain, Inc. (Bear), from the date of acquisition by Fibreboard. Although for presentation purposes the Group's fiscal years and months are on a calendar basis, these fiscal periods actually end on the last Saturday of the period. Fiscal year 1995 and 1993 each contained 52 weeks; fiscal year 1994 contained 53 weeks. The impact of the additional week in 1994 resulted in increased revenue and income as the additional week was a peak holiday week. Business Northstar is a year-round destination resort including ski and golf facilities. Northstar also has real estate operations. Sierra is a day ski area. Both Northstar and Sierra are located near Lake Tahoe, California. Bear is a day ski area located approximately two hours from Los Angeles, California. Operations are highly seasonal at all locations with more than 75% of revenues realized during the ski season from late November through early April. The length of the ski season and the profitability of operations are impacted by weather. Although Northstar and Bear have snowmaking capacity to mitigate some of the effects of adverse weather conditions, abnormally warm weather or lack of adequate snowfall can materially affect revenues. Sierra lacks significant snowmaking capability but generally benefits from higher annual snowfall. Depending on the weather and other factors, annual skier visits have varied from 300,000 to 500,000 at Northstar, 230,000 to 350,000 at Sierra and 230,000 to 360,000 at Bear over the last decade. In 1993 and 1994, Northstar's real estate activities consisted primarily of property management services for the homeowners at the resort. Beginning in 1995, the Group began also developing and selling residential lots. Other risks and uncertainties that face the resort group include competitive pressures affecting the number of skier visits and ticket prices; the success of marketing efforts to maintain and increase skier visits; the possibility of equipment failure; and continued access to water for snowmaking. On August 29, 1996, Fibreboard entered into a letter of intent to sell the assets of the Group to Booth Creek, Inc., for $121.5 million in cash. The transaction is expected to close in December 1996. 2. Summary Of Significant Accounting Policies Cash And Cash Equivalents The Group participates in Fibreboard's centralized cash management system to minimize the amount of cash on deposit with banks and to maximize interest income. Cash includes cash on hand or in banks available for immediate disbursal. The Group considers all highly-liquid investments with an original maturity of three months or less to be cash equivalents. F-35 THE RESORT GROUP OF FIBREBOARD CORPORATION NOTES TO FINANCIAL STATEMENTS - (Continued) 2. Summary Of Significant Accounting Policies - (Continued) Inventories Inventories are valued at the lower of cost (first-in, first-out) or market. The components of inventories are as follows: October 31, December 31, ------------------- 1996 1995 1994 --------- ---------- ----------- Retail Products............... $ 1,186 $ 1,851 $ 756 Supplies...................... 805 1,141 424 Food and Beverage............ 115 275 288 --------- --------- -------- Total inventories......... $ 2,106 $ 3,267 $ 1,468 ========= ========= ======== Property And Equipment Property and equipment are stated at cost. Depreciation is provided on the straight-line method based upon the estimated service lives of the property, ranging from 3 to 20 years. Annual depreciation on most property and equipment is recognized from December 1 to March 31, consistent with the ski season. Therefore, the accompanying statement of operations for the ten month period ended October 31, 1996 includes 75% of annual depreciation. Depreciation expense for the ten month period ended October 31, 1996 and the years ended December 31, 1995, 1994, and 1993 was $4,338, $4,024, $3,449, and $2,514, respectively. The Group capitalizes interest on borrowed funds during construction periods. Capitalized interest is amortized over the lives of the related assets. Interest capitalized in the ten month period ended October 31, 1996 and the years ended December 31, 1995, 1994, and 1993 was $64, $0, $0, and $183, respectively. Advertising Costs The cost of advertising is expensed when the advertisement is released. The cost of professional services for advertising, sales campaigns, promotion, and public relations is expensed when the services are rendered. The cost of brochures is expensed over the ski season. Income Taxes The Group accounts for income taxes according to the provisions of Statement of Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS No. 109 utilizes the liability method and deferred taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of the enacted tax laws. Deferred taxes primarily consist of the basis differences associated with property and equipment and certain liabilities as of October 31, 1996 and December 31, 1995 and 1994. The Group is included in the federal and state consolidated tax returns of Fibreboard. The Group computes its tax liability as if it had filed a separate tax return and accrues such amount to Fibreboard. Accordingly, all current and deferred taxes, which are provided for in total at the statutory rate, are included in the intercompany payable to Fibreboard Corporation. F-36 THE RESORT GROUP OF FIBREBOARD CORPORATION NOTES TO FINANCIAL STATEMENTS - (Continued) 2. Summary Of Significant Accounting Policies - (Continued) The following table summarizes the differences between the statutory federal and the effective rate: October December 31, 31, ------------------------------- 1996 1995 1994 1993 --------- --------- ---------- --------- Tax at statutory federal rate........ $ 1,721 $ 2,289 $ 2,574 $ 749 State taxes, net of federal tax benefit 297 395 445 129 Other................................ - (60) (40) (2) -------- --------- -------- --------- Tax provision........................ $ 2,018 $ 2,624 $ 2,979 $ 876 ======== ========= ======== =========
Use Of Estimates In The Preparation Of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain reclassifications have been made to the prior year's financial statements to be consistent with the current year presentation. 3. Real Estate Operations Revenues and profits on the sales of real estate at Northstar are recognized in accordance with SFAS No. 66, "Accounting for the Sales of Real Estate." Real estate held for resale includes the initial development expenditures (e.g., roads, sewage systems, engineering fees, and capitalized interest) for a new residential development at Northstar. The costs have been allocated to the individual lots based on the development phase in which the lot is located. The current portion of these costs relates to lots which the Group expects to sell within one year. These costs are recognized as non-cash cost of sales upon the sale of the lot. Effective January 1, 1996, the Group capitalized interest applicable to real estate development. In the ten months ended October 31, 1996, approximately $119 was capitalized. Of that amount, $26 was applicable to lots sold in 1996. Such amount is reflected in cost of sales in the accompanying statement of operations. Notes receivable relate to these real estate sales and equipment sales and consist of the following as of October 31, 1996 and December 31, 1995 and 1994: F-37 3. Real Estate Operations - (Continued) October 31, December 31, -------------------- 1996 1995 1994 ------------ ------- -------- Secured notes receivable bearing interest at 7.75% to 10.5%; payments of interest and principal are due monthly and the notes mature between 1997 and 2011............. $ 1,584 $ 830 $ 578 Notes receivable for sale of equipment; payable in full in April 1997............ 134 - - --------- --------- ---------- 1,718 830 578 Less: current portion..................... (350) (78) (24) --------- --------- ---------- Long-term notes receivable................ $ 1,368 $ 752 $ 554 ========= ========= ========= Future maturities of these notes are as follows: 1996 (two months).................................................... $ 11 1997................................................................. 454 1998................................................................. 784 1999................................................................. 29 2000................................................................. 32 2001................................................................. 34 Thereafter........................................................... 374 -------- $ 1,718 ======== 4. Accounts Payable and Accrued Liabilities October 31, December 31, ------------------ 1996 1995 1994 ----------- ----------- --------- Accounts payable.......................... $ 1,176 $ 3,396 $ 2,885 Payroll related........................... 1,076 1,640 1,362 Taxes other than income................... 945 647 541 Unearned income........................... 880 2,177 2,153 Interest.................................. 50 5 155 Other..................................... 196 291 295 ---------- -------- -------- Long-term notes receivable................ $ 4,323 $ 8,156 $ 7,391 ========== ======== ========
Unearned income relates primarily to season ski passes and customer deposits. Revenue from season passes is recognized ratably over the ski season. F-38 5. Employee Benefit Plans The Group's employees are eligible to participate in a 401(k) plan. The Group contributed $226, $288, $246, and $207 as a result of these plans in the ten month period ended October 31, 1996 and the years ended December 31, 1995, 1994, and 1993, respectively. Certain current and former group employees have vested benefits in Fibreboard's defined benefit plan which was frozen in 1993. All pension liabilities and expenses are funded directly by Fibreboard. Certain Group officers and key employees participate in the Fibreboard stock option, rights, and long-term equity incentive plans. Stock options are generally granted at the then market value of Fibreboard stock. If the option price is less than the market price, compensation expense is recognized over the vesting period. Compensation related to restricted stock awards, rights, and incentive compensation is recognized over the related term of the award. 6. Credit Facility The Group's long-term debt consisted of the following as of December 31, 1994: Reducing revolving credit facility, interest at LIBOR plus 1.0% to 1.375%, secured by the assets of the Group........ $ 6,700 Term loan, interest at prime plus 0.5%, secured by the assets of Northstar....................................... 4,500 --------- 11,200 Less current portion....................................... (1,000) --------- $ 10,200 ========= The group has a reducing revolving credit facility which provides for maximum borrowings of $34,686. Maximum availability reduces to $28,657 on April 30, 1997, $22,628 on April 30, 1998, and $16,600 on April 30, 1999, with any remaining outstanding amounts due on May 31, 2000. Borrowings against the line are secured by all of the stock and assets of the Group. As of October 31, 1996, no amounts were borrowed against this facility. The Company pays a fee of 0.375% of the unused amount; such fees were $81, $85, $33, and $9 for the ten months ended October 31, 1996, and each of the years ended December 31, 1995, 1994, and 1993, respectively, and are included in interest expense. The amount of credit available to the Group is reduced by $1,207 of letters of credit outstanding as of October 31, 1996. The Group's loan agreements contain various financial covenants, the most restrictive of which impose limitations on dividends and other distributions and require the maintenance of minimum levels of net worth and certain coverage ratios. As of September 30, 1996, the most recent reporting date for the bank, the Group was not in compliance with certain covenants. The Group obtained a waiver from the bank and was therefore able to draw on the line of credit through the next reporting date for the bank, December 31, 1996. At that time, the compliance with covenants will again be reviewed. F-39 7. Acquisitions Sierra-At-Tahoe In July 1993, the Group acquired the net assets of Sierra Ski Ranch for $13,054 in cash. The acquisition was accounted for as a purchase of assets. The ski area was subsequently renamed Sierra-at-Tahoe. Bear Mountain In October 1995, the Group acquired the net assets of Bear for $20,604 in cash. The acquisition was accounted for as a purchase of assets. The Group's acquisition of Bear was financed by a loan from Fibreboard, which has been recorded at the Group level and is included in the intercompany payable balance as of October 31, 1996 and December 31, 1995. The table below presents the unaudited revenues and net income of the Group as if Sierra and Bear had been a member of the Group since January 1, 1994, and had been charged intercompany interest from that date. December 31, ---------------------------- 1995 1994 1993 ------ ----- ------ Revenue: Resort........................... $ 48,304 $ 56,891 $ 44,302 Real estate...................... 5,028 610 - Timber........................... 185 - - -------- -------- --------- $ 53,517 $ 57,501 $ 44,302 ======== ======== ========= Net Income....................... $ 3,672 $ 5,065 $ 1,737 ======== ======== ======== The pro forma information does not purport to be indicative of results that actually would have occurred had the acquisitions been made on the dates indicated or of results which may occur in the future. 8. Intercompany Transactions The Group is charged a management fee by Fibreboard based on services rendered at Fibreboard for the benefit of the Group. These services primarily relate to legal, accounting, cash management, human resources, tax consultation and filings, management information systems (MIS), and overall corporate strategy and direction. The fee for the above services and others is based on a percentage of income, headcount, and estimated time spent by the legal and MIS staff on the Group's behalf. This fee was $701, $1,247, $655, and $507, for the ten month period ended October 31, 1996 and the years ended December 31, 1995, 1994, and 1993, respectively. The Group was charged interest of $1,622, including $183 which was capitalized by the Group (Notes 2 and 3), and $488 by Fibreboard for the ten months ended October 31, 1996, and for the year ended December 31, 1995, respectively, based on outstanding intercompany amounts. In 1996, Fibreboard transferred timber rights of $1.5 million to the Group. F-40 THE RESORT GROUP OF FIBREBOARD CORPORATION NOTES TO FINANCIAL STATEMENTS - (Continued) 8. Intercompany Transactions - (Continued) All of the above transactions are accounted for through the Intercompany payable to Fibreboard Corporation account. In addition, all excess cash is remitted to and checks are covered by Fibreboard. Allocations for payroll, taxes, workers' compensation and income taxes are also accounted for through this account. The most significant activity, which occurred during 1995, related to the acquisition of Bear Mountain ($20,604) which was funded by Fibreboard and the refinancing of separate Group debt ($11,200) by Fibreboard. Intercompany payable to Fibreboard Corporation Balance, December 31, 1994............................ $ 4,222 Bear Mountain Acquisition............................. 20,604 Debt Refinancing...................................... 11,200 Other, net............................................ 5,467 --------- Balance, December 31, 1995............................ 41,493 Other, net............................................ (2,778) --------- Balance, October 31, 1996.............................. $ 38,715 ========= 9. Litigation The nature of the ski industry includes the risk of skier injuries. Generally, the Group has insurance to cover potential claims; in some cases the amounts of the claims are very substantial. Also, a case involving a fatality in 1994 may subject the Group to punitive damages which are not included in the Group's insurance coverage. The Group is also involved in a number of other claims arising from its operations. Management, in consultation with legal counsel, believes resolution of these claims will not have a material adverse impact on its financial condition or results of operations. F-41 10. Business Segments The Company operates is three business segments - resorts, real estate, and timber. Data by segment is as follows: October 31, December 31, --------------------------------------------- 1996 1995 1994 1993 ------------ --------- --------- -------- Revenue: Resort........................... $ 36,829 $ 39,823 $ 40,810 $ 25,528 Real estate...................... 3,595 5,028 610 - Timber........................... 693 185 - - -------- -------- -------- ------- 41,117 45,036 41,420 25,528 ======== ======== ======== ====== Operating income: Resort........................... 5,014 5,721 7,834 2,325 Real estate...................... 943 1,576 186 - Timber........................... 147 63 - - --------- ------- ------ ------ 6,104 7,360 8,020 2,325 ========= ====== ====== ====== Depreciation, amortization, and depletion: Resort........................... 4,338 4,024 3,449 2,514 Real estate...................... - - - - Timber........................... 16 - - - --------- ------- ------- ------- 4,354 4,024 3,449 2,514 ========== ======= ======= ======= Capital expenditures, exclusive of acquisitions: Resort........................... 5,761 5,226 6,199 4,619 Real estate...................... 1,297 3,374 198 - Timber........................... 1,500 - - - --------- -------- ------- ------ 8,558 8,600 6,397 4,619 ========= ======== ======= ======= Identifiable assets: Resorts.......................... 58,323 57,076 35,749 Real estate...................... 3,806 3,097 1,089 Timber........................... 1,484 - - Corporate........................ 5,989 13,143 6,227 ---------- -------- --------- $ 69,602 $ 73,316 $ 43,065 ========== ======== =========
F-42 THE RESORT GROUP OF FIBREBOARD CORPORATION NOTES TO FINANCIAL STATEMENTS - (Continued) 11. Commitments The Group leases certain machinery and equipment under operating leases. Minimum lease payments for the remainder of 1996 and the next five years are as follows: 1996 (two month)....................................... $ 307 1997................................................... 973 1998................................................... 504 1999................................................... 224 2000................................................... 84 2001................................................... - -------- $ 2,092 ========= In addition, the Group leases property from the U.S. Forest Service for Sierra and Bear. These leases are effective through 2008 and 2020, respectively. Lease payments are based on a percentage of revenues. Total rent expense for all operating leases amounted to $1,842, $1,411, $1,216, and $550, in the ten months ended October 31, 1996 and the years ended December 31, 1995, 1994, and 1993, respectively. During 1996, the Group entered into a contract to replace certain lift equipment at Sierra. The total cost of the new equipment is approximately $8.4 million of which the Group will receive a vendor's credit for $2 million related to the equipment being replaced. As of October 31, 1996, the Group had incurred approximately $2.3 million toward this commitment. F-43 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Truckee, State of California, as of January 28, 1999. BOOTH CREEK SKI HOLDINGS, INC. (Registrant) By: /s/ GEORGE N. GILLETT ---------------------- George N. Gillett Chairman of the Board of Directors and Chief Executive Officer By: /s/ ELIZABETH J. COLE ---------------------------------- Elizabeth J. Cole Executive Vice President and Chief Financial Officer By: /s/ BRIAN J. POPE ----------------------------------- Brian J. Pope Vice President of Accounting and Finance Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed by the following persons in the capacities and as of the dates indicated. Signature Title Date - --------- ------ ---- /s/ GEORGE N. GILLETT Chairman of the Board January 28, 1999 - ------------------------------- of Directors and Chief George N. Gillett Executive Officer /s/ ELIZABETH J. COLE Executive Vice President January 28, 1999 - -------------------------------- and Chief Financial Elizabeth J. Cole Officer /s/ BRIAN J. POPE Vice President of Accounting January 28, 1999 - ------------------------------ and Finance (Chief Accounting Brian J. Pope Officer) F-44 Exhibit Index EXHIBIT NUMBER DESCRIPTION ------------ --------------- +2.1 Agreement and Plan of Merger dated as of September 18, 1997 by and among Booth Creek Ski Group, Inc., LMRC Acquisition Corp. and Loon Mountain Recreation Corporation. +2.2 First Amendment to Merger Agreement, dated December 22, 1997, by and among Booth Creek Ski Group, Inc., LMRC Acquisition Corp. and Loon Mountain Recreation Corporation. ++++2.3 Agreement of Merger dated as of August 28, 1998 by and among Booth Creek Ski Holdings, Inc., Booth Creek Ski Acquisition, Inc. and Seven Springs Farm, Inc. *3.1 Certificate of Incorporation of Booth Creek Ski Holdings, Inc. *3.2 Bylaws of Booth Creek Ski Holdings, Inc. *3.3 Restated Articles of Incorporation of Trimont Land Company. *3.4 Bylaws of Trimont Land Company. *3.5 Certificate of Incorporation of Sierra-at-Tahoe, Inc. *3.6 Bylaws of Sierra-at-Tahoe, Inc. *3.7 Certificate of Incorporation of Bear Mountain, Inc. *3.8 Bylaws of Bear Mountain, Inc. *3.9 Certificate of Incorporation of Booth Creek Ski Acquisition Corp. *3.10 Bylaws of Booth Creek Ski Acquisition Corp. *3.11 Amended and Restated Certificate of Incorporation of Waterville Valley Ski Resort, Inc. *3.12 Bylaws of Waterville Valley Ski Resort, Inc. *3.13 Amended and Restated Certificate of Incorporation of Mount Cranmore Ski Resort, Inc. *3.14 Bylaws of Mount Cranmore Ski Resort, Inc. *3.15 Amended and Restated Articles of Incorporation of Ski Lifts, Inc. *3.16 Bylaws of Ski Lifts, Inc. *3.17 Certificate of Incorporation of Grand Targhee Incorporated. *3.18 Bylaws of Grand Targhee Incorporated. *3.19 Articles of Incorporation of B-V Corporation. *3.20 Bylaws of B-V Corporation. F-45 EXHIBIT NUMBER DESCRIPTION --------- --------------- *3.21 Certificate of Incorporation of Targhee Company. *3.22 Bylaws of Targhee Company. *3.23 Certificate of Incorporation of Targhee Ski Corp. *3.24 Bylaws of Targhee Ski Corp. ****3.25 Articles of Incorporation of LMRC Holding Corp. ****3.26 Amended and Restated Articles of Incorporation of Loon Mountain Recreation Corporation. ****3.27 Amended and Restated Bylaws of Loon Mountain Recreation Corporation. ****3.28 Amended and Restated Articles of Incorporation of Loon Realty Corp. ****3.29 Amended and Restated Bylaws of Loon Realty Corp. ****3.30 Bylaws of LMRC Holding Corp.
*4.1 Indenture dated as of March 18, 1997 by and among Booth Creek Ski Holdings, Inc., as Issuer, Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Booth Creek Ski Acquisition Corp., Ski Lifts, Inc., Grand Targhee Incorporated, B-V Corporation, Targhee Company and Targhee Ski Corp., as Subsidiary Guarantors, and Marine Midland Bank, as trustee (including the form of 12 1/2% Senior Note due 2007 and the form of Guarantee). *4.2 Supplemental Indenture No. 1 to Indenture dated as of April 25, 1997 by and among Booth Creek Ski Holdings, Inc., as Issuer, Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Booth Creek Ski Acquisition Corp., Ski Lifts, Inc., Grand Targhee Incorporated, B-V Corporation, Targhee Company and Targhee Ski Corp., as Subsidiary Guarantors, and Marine Midland Bank, as trustee. +4.3 Supplemental Indenture No. 2 to Indenture dated as of February 20, 1998 by and among Booth Creek Ski Holdings, Inc., as Issuer, Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Booth Creek Ski Acquisition Corp., Ski Lifts, Inc, Grand Targhee Incorporated, B-V Corporation, Targhee Company and Targhee Ski Corp, as Subsidiary Guarantors, and Marine Midland Bank, as Trustee. +4.4 Supplemental Indenture No. 3 to Indenture dated as of February 26, 1998, by and among Booth Creek Ski Holdings, Inc., as Issuer, LMRC Holding Corp., Loon Mountain Recreation Corporation and Loon Realty Corp., as Subsidiary Guarantors, and Marine Midland Bank, as Trustee. +++++4.5 Supplemental Indenture No. 4 to Indenture dated as of October 8, 1998 by and among Booth Creek Ski Holdings, Inc. as Issuer, Booth Creek Ski Acquisiton, Inc. and Marine Midland Bank, as Trustee. +4.6 Registration Rights Agreement, dated as of February 26, 1998 by and among the Booth Creek Ski Holdings, Inc., as Issuer, Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Booth Creek Ski Acquisition Corp., Ski Lifts, Inc, Grand Targhee Incorporated, B-V Corporation, Targhee Company, Targhee Ski Corp, LMRC Holding Corp, Loon Mountain Recreation Corporation and Loon Realty Corp., as Subsidiary Guarantors and CIBC Oppenheimer Corp. F-46 EXHIBIT NUMBER DESCRIPTION +4.7 Securities Purchase Agreement, dated as of February 23, 1998, by and among the Booth Creek Ski Holdings, Inc., Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Booth Creek Ski Acquisition Corp., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Ski Lifts, Inc., Grand Targhee Incorporated, B-V Corporation, Targhee Company, Targhee Ski Corp., LMRC Holding Corp., Loon Mountain Recreation Corporation and Loon Realty Corp and CIBC Oppenheimer Corp. +++++4.8 Amended and Restated Securities Purchase Agreement, dated as of September 14, 1998, among Booth Creek Ski Group, Inc., Booth Creek Ski Holdings, Inc., the Subsidiary Guarantors as defined therein and each of John Hancock Mutual Life Insurance Company, CIBC WG Argosy Merchant Fund 2, L.L.C. and Hancock Mezzanine Partners L.P. ++5.1 Opinion of Winston & Strawn. +++++10.1 Amended and Restated Credit Agreement dated as of October 30, 1998 among Booth Creek Ski Holdings, Inc., Booth Creek Ski Acquisition Corp., Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Ski Lifts, Inc., Grand Targhee Incorporated, LMRC Holding Corp. Loon Mountain Recreation Corporation, Loon Realty Corp. and BankBoston, N.A. *10.2 Purchase and Sale Agreement dated as of August 30, 1996 by and between Waterville Valley Ski Area, Ltd., Cranmore, Inc., American Skiing Company and Booth Creek Ski Acquisition Corp. *10.3 Subordinated Promissory Note dated November 27, 1996 issued by Booth Creek Ski Acquisition Corp., Waterville Valley Ski Resort, Inc. and Mount Cranmore Ski Resort, Inc. to American Skiing Company, LMRC Holding Corp., Loon Mountain Recreation Corporation, Loon Realty Corp. and BankBoston, N.A. F-47 EXHIBIT NUMBER DESCRIPTION ---------- --------------- *10.4 Stock Purchase and Indemnification Agreement dated as of November 26, 1996 among Booth Creek Ski Holdings, Inc., Fibreboard Corporation, Trimont Land Company, Sierra-at-Tahoe, Inc. and Bear Mountain, Inc. *10.5 Escrow Agreement dated December 3, 1996 by and among Fibreboard Corporation, Booth Creek Ski Holdings, Inc. and First Trust of California. *10.6 Purchase Agreement dated February 11, 1997 among Booth Creek Ski Holdings, Inc., Grand Targhee Incorporated, Moritz O. Bergmeyer and Carol Mann Bergmeyer. *10.7 Promissory Note dated February 11, 1997 issued by Grand Targhee Incorporated to Booth Creek Ski Holdings, Inc. *10.8 Stock Purchase Agreement dated as of February 21, 1997 by and between Booth Creek Ski Holdings, Inc., William W. Moffett, Jr., David R. Moffett, Laurie M. Padden, individually and as custodian for Christina Padden, Jennifer Padden and Mary M. Padden, Stephen R. Moffett, Katharine E. Moffett, Frances J. DeBruler, individually and as representative of the Estate of Jean S. DeBruler, Jr., deceased, and Peggy Westerlund, and David R. Moffett, as representative. *10.9 Preferred Stock Purchase Agreement dated as of February 21, 1997 by and between DRE, L.L.C., William W. Moffett, Jr., David R. Moffett, Laurie M. Padden, individually and as custodian for Christina Padden, Jennifer Padden and Mary M. Padden, Stephen R. Moffett, Katharine E. Moffett, Frances J. DeBruler, individually and as representative of the Estate of Jean S. DeBruler, Jr., deceased, and Peggy Westerlund and David R. Moffett, as representative. *10.10 Management Agreement dated as of November 27, 1996 by and between Booth Creek Ski Holdings, Inc. and Booth Creek, Inc. *10.11 Ski Area Term Special Use Permit No. 4002/01 issued by the United States Forest Service to Waterville Valley Ski Resort, Inc. *10.12 Ski Area Term Special Use Permit No. 5123/01 issued by the United States Forest Service to Bear Mountain, Inc. *10.13 Ski Area Term Special Use Permit No. 4186/01 issued by the United States Forest Service to Sierra-at-Tahoe, Inc. *10.14 Ski Area Term Special Use Permit No. 4033/01 issued by the United States Forest Service to Grand Targhee Incorporated. *10.15 Ski Area Term Special Use Permit No. 4127/09 issued by the United States Forest Service to Ski Lifts, Inc. *10.16 Annual Special Use Permit Nos. 4127/19 & 4127/19 issued by the United States Forest Service to Ski Lifts, Inc. ++10.17 Ski Area Term Special Use Permit No. 4031/01 issued by the United States Forest Service to Loon Mountain Recreation Corporation. ++10.18 Amendment Number 2 for Special Use Permit No. 4008/1 issued by the United States Forest Service to Loon Mountain Recreation Corporation.
F-48 EXHIBIT NUMBER DESCRIPTION ++10.19 Amendment Number 5 for Special Use Permit No. 4008/1 issued by the United States Forest Service to Loon Mountain Recreation Corporation. ****10.20 Employment Agreement dated as of July 1, 1997, by and between Booth Creek Ski Holdings, Inc. and Timothy H. Beck. ***10.21 Employment Agreement dated May 5, 1997 by and between Booth Creek Ski Holdings, Inc. and Timothy M. Petrick. ***10.22 Stock Option Agreement dated as of October 1, 1997 between Booth Creek Ski Group, Inc. and Timothy M. Petrick. +++10.23 Stock Option Agreement by and between Booth Creek Ski Group, Inc. and Timothy Silva. ++++10.24 Stock Option Agreement by and between Booth Creek Ski Group, Inc. and Timothy H. Beck. ++++10.25 Stock Option Agreement by and between Booth Creek Ski Group, Inc. and John A. Rice. +++++21.1 Subsidiaries of the Registrant. 27.1 Financial Data Schedule. F-49 * Filed with Registration Statement No. 333-26091 and incorporated herein by reference. ** Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly Period Ended August 1, 1997 and incorporated herein by reference. *** Filed with the Company's Annual Report on Form 10-K for the Fiscal Year Ended October 31, 1997 and incorporated herein by reference. **** Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly Period Ended January 30, 1998 and incorporated herein by reference. + Filed with the Company's Current Report on Form 8-K dated February 26, 1998 and incorporated herein by reference. ++ Filed with Registration Statement No. 333-48619 and incorporated herein by reference. +++ Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly Period Ended May 1, 1998 and incorporated herein by reference. ++++ Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly Period Ended July 31, 1998 and incorporated herein by reference. +++++ Filed herewith as an Exhibit to this Form 10-K. EX-4 2 4.8 AMENDED AND RESTATED SECURITIES PURCHASE AGMT. ORIGINAL - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- BOOTH CREEK SKI GROUP, INC. SECURITIES PURCHASE AND AMENDMENT AGREEMENT Relating to the Issuance of $9,796,014 Notes due November 27, 2008 414.5 Shares of Class A Common Stock 1,361.8 Shares of Class B Common Stock Warrants for 783.7 Shares of Class B Common Stock (subject to adjustment) and to Certain Amendments to Those Certain Amended and Restated Securities Purchase Agreements dated February 26, 1998 and to Certain Waivers and Consents under Certain of the Operative Documents September 14, 1998 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS Page 1. Authorization of New Securities; etc................................1 2. Sale and Purchase of New Securities.................................2 3. Closing.............................................................2 4. Conditions to Closing...............................................3 4.1. Representations and Warranties Correct.......................3 4.2. Performance; No Default......................................3 4.3. Amendment to Stockholders Agreement..........................3 4.4. Compliance Certificate.......................................3 4.5. Opinion of Counsel for the Company...........................3 4.6. Certain Additional Documents to be Delivered at or Prior to the Closing..................................................4 4.7. Payment of Transactions Costs................................4 4.8. Proceedings and Documents....................................4 5. Representations and Warranties......................................4 5.1. Organization, Standing, etc. of the Company..................4 5.2. Names; Jurisdictions of Incorporation; Subsidiaries, etc.....4 5.3. Qualification................................................5 5.4. Business, etc................................................5 5.5. Shares; Stockholders.........................................5 5.6. Financial Statements.........................................7 5.7. Changes; Solvency, etc.......................................7 5.8. Tax Returns and Payments.....................................7 5.9. Funded Debt, Current Debt, Liens, Investments, Transactions with Affiliates, Leases and Derivative Transactions..............................................8 5.10. Title to Properties; Liens; Leases...........................9 5.11. Litigation, etc..............................................9 5.12. Valid and Binding Obligations; Compliance with Other Instruments, Borrowing Restrictions, etc....................9 5.13. ERISA.......................................................11 5.14. Consents, etc...............................................12 5.15. Proprietary Rights; Licenses................................12 5.16. Offer of Securities; Investment Bankers.....................12 5.17. Government Regulation.......................................13 5.18. Labor Relations.............................................13 5.19. Disclosure..................................................13 6. Use of Proceeds...................................................13 7. Covenants of the Company..........................................14 8. Certain Defined Terms.............................................14 9. Waiver and Consent of Institutional Investors.....................14 10. Ratification of Operative Documents...............................14 11. Further Assurances................................................15 12. Expenses; Indemnity...............................................15 13. Communications; Amendments........................................15 14. Survival of Agreements, Representations and Warranties, etc.......15 15. Successors and Assigns; Rights of Other Holders...................16 16. Purchase for Investment...........................................16 17. Governing Law.....................................................16 18. Miscellaneous.....................................................16 Schedule I Schedule of Purchasers Exhibit I (a) Form of New Note Exhibit l(b)(i Form of Certificate for Class A Common Stock Exhibit l(b)(ii) Form of Certificate for Class B Common stock Exhibit l(d) Form of New Warrant Exhibit 3 Wire Instructions Exhibit 4.5 Opinion of Winston & Strawn Exhibit 5.2 Names; Jurisdictions of Incorporation; Subsidiaries, etc. Exhibit 5.5(a) Shares; Stockholders Exhibit 5.5(b) Other Securities; Commitments; Preemptive and Registration Rights Exhibit 5.9 Funded Debt, Current Debt, Liens, Investments, Transactions with Affiliates and Leases Exhibit 5.11 Litigation, etc. Exhibit 6(a) Use of Proceeds BOOTH CREEK SKI GROUP, INC. 1000 South Frontage Road Vail, Colorado 81657 September 14, 1998 To each of the purchasers named on Schedule I attached hereto (the "Purchasers") and to each of the holders (the "Holders") (collectively the Purchasers and the Holders are referred to herein as the "Investors") of the Securities issued pursuant to (and as defined in) the Existing Securities Purchase Agreements (as hereinafter defined) Ladies and Gentlemen: BOOTH CREEK SKI GROUP, INC., a Delaware corporation (the "Company"), agrees with you as follows. Background A. Reference is made to those certain Amended and Restated Securities Purchase Agreements dated February 26, 1998 (the "Existing Securities Purchase Agreements") by and between the Company and each of John Hancock and CIBC Fund. Capitalized terms used herein without definition have the meanings ascribed to them in the Existing Securities Purchase Agreements. B. The purpose of this Agreement is to provide for the issue and sale of certain additional Securities described below and to amend, modify and supplement the Existing Securities Purchase Agreements and the other Operative Documents in connection therewith, all as further provided herein. 1. Authorization of New Securities: etc. The Company has authorized the ------------------------------------- issue and sale of: (a) its Notes due November 27, 2008 (herein, together with any notes issued in exchange therefor or replacement thereof, called the "New Notes") in the aggregate principal amount of $9,796,014. The New Notes are to be substantially in the form of Exhibit 1 (a) attached hereto; ------------- (b) 1,361.8 shares of its Class B Common Stock (herein, such 1,361.8 shares, together with any Shares issued in exchange therefor or replacement thereof, called the "New Purchased Class B Common Shares"). The certificates for the Class A Common Stock and Class B Common Stock are to be substantially in the forms of Exhibit l(b)(i) and l(b)(ii) attached hereto; ------------------------------ (c) 414.5 shares of Class A Common Stock (herein, such 414.5 shares, together with any Shares issued and in exchange therefor or replacement thereof, called the "New Purchased Class A Common Shares", and together with the New Purchased Class B Common Shares, the "New Purchased Common Shares"); and (d) its warrants evidencing rights to purchase 783.7 shares of Class B Common Stock (subject to adjustment) (herein, together with any warrants issued in exchange therefor or replacement thereof, collectively called the "New Warrants"). The New Warrants are to be substantially in the form of Exhibit I (d) attached hereto. The New Notes, the New Purchased Common Shares and the New Warrants are herein called the "New Securities." 2. Sale and Purchase of New Securities. The Company will issue and sell to each of the Purchasers and, subject to the terms and conditions hereof and in reliance upon the representations and warranties of the Company contained herein and in the other Operative Documents, each of the Purchasers will purchase from the Company, at the Closing, as specified in section 3, such New Securities as are specified on that portion of Schedule I attached hereto as is applicable to such Purchaser. The aggregate purchase price of the New Notes and New Warrants shall be $9,796,014 which shall be allocated (a) $9,293,698.62 to the New Notes and (b) $502,315.38 to the New Warrants. The aggregate purchase price of the New Purchased Common Shares shall be $5,203,986 (or approximately $2,929.68 per share). The Company and each of the Investors agree that the values ascribed to the New Securities (which values shall be used by the Company and the Investors, as well as any subsequent holder of any of the Securities, for all purposes, including the preparation of tax returns) shall be determined in accordance with the foregoing. 3. Closing. (a) The closing of the sale and purchase of the New Securities hereunder (the "Closing") shall take place at the office of Messrs. Choate, Hall & Stewart, Exchange Place, 53 State Street, Boston, Massachusetts 02109, on September 14, 1998 (or on such other date, not later than September 14, 1998, to which the Purchasers may agree) (the "Closing Date") not later than 11:00 A.M. Boston time. (b) At the Closing, the Company will deliver to the Purchasers the New Securities against payment of the purchase price thereof to (or for the benefit of) the Company in immediately available funds in accordance with the instructions set forth on Exhibit 3 attached hereto. Delivery of the New Securities shall be made in the form of one or more New Notes, certificates for New Purchased Common Shares and New Warrants in such denominations and registered in such names as are specified on Schedule I attached hereto and in each case dated and, in the case of each New Note, bearing interest from, the Closing Date. (c) If at the Closing the Company shall fail to tender the New Securities to be delivered thereat as provided herein, or if at the Closing any of the conditions specified in section 4 shall not have been fulfilled to the satisfaction of each of the Investors, each Investor shall, at its election, be relieved of all further obligations under this Agreement, without thereby waiving any other rights it may have by reason of such failure or such non-fulfillment. 4. Conditions to Closing. Each Purchaser's obligation to purchase and pay for the New Securities to be purchased by it hereunder at the Closing, and the effectiveness of the amendments to the Existing Securities Purchase Agreements and the other Operative Documents pursuant hereto, are subject to the fulfillment to the satisfaction of each of the Investors, prior to or at the Closing, of the following conditions: 4.1. Representations and Warranties Correct. The representations and warranties made by the Company herein and in the other Operative Documents shall have been correct when made and shall be correct at and as of the time of the Closing (both before and after giving effect to the transactions consummated at the Closing). 4.2. Performance: No Default. The Company shall have performed all agreements and complied with all conditions contained herein and in the other Operative Documents required to be performed or complied with by it prior to or at the Closing, and at the time of the Closing, no Default or Event of Default shall exist and no condition shall exist which has resulted in, or could reasonably be expected to result in, a Material Adverse Change. 4.3. Amendment to Stockholders Agreement. CIBC Fund shall have executed and delivered the Amendment Agreement dated as of February 26, 1998 by which the Stockholders Agreement was amended. 4.4. Compliance Certificate. At the Closing, the Investors shall have received an Officers' Certificate, dated the Closing Date, certifying that the conditions specified in sections 4.1 and 4.2 have been fulfilled. 4.5. Opinion of Counsel for the Company. At the Closing, the Investors shall have received an opinion, dated the Closing Date, from Messrs. Winston & Strawn, counsel for the Company, substantially in the form of Exhibit 4.5 attached hereto. 4.6. Certain Additional Documents to be Delivered at or Prior to the Closing. The Investors shall have received a letter from George N. Gillett, Jr. concerning the offering of the Securities. 4.7. Payment of Transactions Costs. Without limiting the generality of the provisions of section 21 of the Existing Securities Purchase Agreements, the Company shall have paid in immediately available funds all fees, expenses and disbursements incurred by the Investors at or prior to the time of the Closing in connection with the transactions contemplated by the Operative Documents, including, without limitation, the reasonable fees, expenses and disbursements of their special counsel. 4.8. Proceedings and Documents. All proceedings in connection with the transactions contemplated by the Operative Documents and all agreements, documents and instruments incident to such transactions shall be satisfactory in substance and form to the Investors and their special counsel, and the Investors and their special counsel shall have received all such counterpart originals or copies of such agreements, documents and instruments as they may reasonably request. 5. Representations and Warranties. The Company represents and warrants that as of the date hereof and as of the Closing Date (both before and after giving effect to the transactions Documents (or any of them) shall include this Agreement, the New Securities and/or the other agreements, documents and instruments, as applicable, executed (or to be executed) in connection herewith): 5.1. Organization. Standing, etc. of the Company. The Company and each of its Subsidiaries is a corporation or limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization and has all requisite power and authority to own, lease and operate its properties, to carry on its business as now conducted, and now proposed to be conducted as described in the Disclosure Documents referred to in section 5.4, to execute, deliver and perform each of the Operative Documents to which it is (or is to be) a party and to consummate the transactions contemplated by the Operative Documents. No approval of the stockholders or members of the Company or any of its Subsidiaries or any class thereof is required in connection therewith which has not previously been obtained. 5.2. Names: Jurisdictions of Incorporation: Subsidiaries, etc. Exhibit 5.2 attached hereto correctly specifies as to the Company and each of its Subsidiaries (a) its legal name, (b) the jurisdiction of its incorporation or organization, (c) each jurisdiction (other than its jurisdiction of incorporation or organization) in which it is qualified to do business and (d) each jurisdiction in which any of its material properties are (or are to be) located. The Company does not have any Subsidiary that is not named on Exhibit 5.2 attached hereto. 5.3. Qualification. The Company and each of its Subsidiaries is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the character of the properties owned or leased or the nature of the activities conducted makes such qualification or licensing necessary, except for those jurisdictions in which the failure to be so qualified or licensed or to be in good standing has not resulted in, and could not reasonably be expected to result in, a Material Adverse Change. 5.4. Business, etc. The Company and its Subsidiaries are engaged in the business of owning and operating ski resorts and related activities (the "Business"), as further described in the Disclosure Documents. 5.5. Shares: Stockholders. (a) Exhibit 5.5(a) attached hereto correctly and fully specifies as to the Company and each of its Subsidiaries (after giving effect to the transactions consummated at the Closing) (i) its authorized and outstanding Shares and (ii) the name of each record and beneficial owner of such Shares (and, with respect to each holder of Shares of the Company, clearly indicates if such Person is a member of the Gillett Family), together with the number (and class, if any) of such Shares held by each such Person. All of the outstanding Shares of the Company and each of its Subsidiaries are, and all Underlying Securities issued upon exercise of the Warrants in accordance with the terms thereof will be, duly authorized, validly issued, fully paid and non-assessable and, except as provided in the Stockholders Agreement, not subject to any preemptive right, right of first refusal or similar right on the part of any other Person, and all of such Shares have been (or will have been) offered, issued and sold in accordance with all applicable laws. Except as set forth on Exhibit 5.5(a) attached hereto, the owners of the Shares indicated on Exhibit 5.5(a) attached hereto own the Shares indicated on such exhibit free of any Lien, proxy, voting agreement, voting trust, stockholders agreement or similar agreement or restriction (other than as provided in the Stockholders Agreement). Except as provided by the Stockholders Agreement and except as set forth on Exhibit 5.5(a) attached hereto, neither the Organizational Documents nor any other agreement, document or instrument binding on or applicable to the Company or any of its Subsidiaries or any of its stockholders contains any provision requiring a higher voting requirement with respect to action taken (and/or to be taken) by its board of directors or stockholders than that which would apply in the absence of such provision. Except for the Stockholders Agreement, The Gillett Family Partnership has the right (by virtue of its ownership of the Shares of the Company as shown on Exhibit 5.5(a) attached hereto) to elect or designate for election all of the members of the board of directors of the Company (and thereby to direct or cause the direction of the management and policies of the Company and each of its Subsidiaries), and, except for the Stockholders Agreement and except as set forth on Exhibit 5.5(a) attached hereto. The Gillett Family Partnership is not subject to any agreement or any legal or contractual restriction that affects its right to vote such Shares or to exercise any other incident of ownership of such Shares. The only partners and beneficial owners of Shares of The Gillett Family Partnership are (and at all times shall be) George N. Gillett, Jr. and other members of his Family. (b) Except as provided in section 11 of the Existing Securities Purchase Agreements, except for the Warrants (including the New Warrants) and the Management Options and except as set forth on Exhibit 5.5 (b) attached hereto (after giving effect to the consummation of the transactions consummated at the Closing), (i) there are no outstanding rights, options, warrants or agreements for the purchase from, or sale or issuance by, the Company or any of its Subsidiaries of any of its Shares or any securities convertible into or exercisable or exchangeable for such Shares; (ii) there are no agreements on the part of the Company or any of its Subsidiaries to issue, sell or distribute any of its Shares, other securities or assets; (iii) neither the Company nor any of its Subsidiaries has any obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any of its Shares or any interest therein or to pay any dividend or make any distribution in respect thereof; and (iv) no Person is entitled to any rights with respect to the registration of any Shares of the Company or any of its Subsidiaries under the Securities Act (or the securities laws of any other jurisdiction). (c) The aggregate number of shares of Class B Common Stock issuable upon exercise in full of the Warrants (including the New Warrants) is 4,260.7, which, if such shares were issued immediately following the Closing, would constitute 29.56% of the Common Stock calculated on a fully-diluted basis assuming (x) the conversion, exercise and exchange of all outstanding securities convertible into and exercisable or exchangeable for shares of Common Stock of the Company, including, without limitation, the Warrants then outstanding and (y) the issuance of 400 shares of Class A Common Stock upon the exercise of the Management Options. The Company has reserved 4,260.7 shares of Class B Common Stock solely for issuance upon exercise of the Warrants and 4,260.7 shares of Class A Common Stock solely for issuance upon conversion of the shares of Class B Common Stock issued upon exercise of the Warrants. Each share of each class of Common Stock is and shall at all times be convertible into one share of duly authorized, validly issued, fully paid and non-assessable Common Stock of the other class. (d) The aggregate number of the Purchased Common Shares (including the New Purchased Class B Common Shares (but excluding the New Purchased Class A Common Shares) and the 378 shares of Class B Common Stock issued to John Hancock upon the conversion of the Convertible John Hancock Notes) is 5,170.8 which will constitute (i) approximately 53.03% of the outstanding Common Stock and (ii) approximately 35.88% of the Common Stock calculated on a fully-diluted basis (as aforesaid in section 5.5(c)). The Company has reserved 5,170.8 shares of Class A Common Stock solely for issuance upon conversion of the Purchased Common Shares (exclusive of the New Purchased Class A Common Shares). (e) Since February 26, 1998, no event or transaction has occurred which, under the terms of the Warrants, requires any adjustment to the Exercise Price or to the number or kind of securities or other property deliverable upon exercise of the Warrants. 5.6. Financial Statements. You have been furnished with: (a) the financial statements required to be delivered pursuant to the Existing Securities Purchase Agreements, which financial statements (subject, in the case of any unaudited financial statements, to the absence of footnote disclosure and normal year-end and audit adjustments) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby and present fairly in all material respects the financial position and the results of operations and cash flows of the Person(s) purported to be covered thereby as at the respective dates and for the respective periods indicated in conformity with GAAP (subject, in the case of any unaudited financial statements, to the absence of footnote disclosure and normal year-end and audit adjustments); and (b) the projections referred to on Exhibit 5.6(b) attached to the Existing Securities Purchase Agreements, which projections were prepared in good faith, are based upon assumptions that the Company believes are reasonable and take into account all material information regarding the matters set forth therein. Such projections represent a reasonable estimate by the Company of the future financial performance of the Company and its Subsidiaries. The Company does not presently anticipate any material deviation from such projections and the Company reasonably believes that the results of operations reflected therein are attainable, provided that the Company does not represent that the projected results of operations will be achieved. 5.7. Changes: Solvency, etc. Since February 26, 1998: (a) there has been no change in the assets, liabilities or financial condition of the Company or any of its Subsidiaries, other than changes in the ordinary course of business which have not been, either in any case or in the aggregate, materially adverse; and (b) no condition or event has occurred which has resulted in, or could reasonably be expected to result in, a Material Adverse Change. The Company and its Subsidiaries are Solvent. 5.8. Tax Returns and Payments. The Company and its Subsidiaries have filed all tax returns required by law to be filed and have paid all taxes, assessments and other governmental charges levied upon their respective properties, assets, income, receipts, franchises or sales, other than those not yet delinquent and those, not substantial in aggregate amount, being or about to be contested as provided in section 14.2(a) of the Existing Securities Purchase Agreements. The income tax liability of the Company and its Subsidiaries (other than the Bear Mountain Subsidiary, the Northstar Subsidiary and the Sierra Subsidiary) is not currently being audited. The Company and its Subsidiaries (other than the Bear Mountain Subsidiary, the Northstar Subsidiary and the Sierra Subsidiary) have not executed any waiver or waivers that would have the effect of extending the applicable statute of limitations in respect of income tax liabilities. The charges, accruals and reserves in the financial statements of the Company and its Subsidiaries in respect of taxes for all fiscal periods are adequate in the opinion of the Company, and the Company knows of no unpaid assessments for additional taxes for any fiscal period or of any basis therefor. The Company and its Subsidiaries are indemnified under the Loon Mountain Acquisition Agreement by the Merger Consideration Recipients (as such term is defined in the Loon Mountain Acquisition Agreement) for certain liabilities in respect of taxes (and all related penalties and other amounts) of the Loon Mountain Subsidiary. 5.9. Funded Debt, Current Debt, Liens, Investments, Transactions with Affiliates, Leases and Derivative Transactions. Exhibit 5.9 attached hereto correctly describes as to the Company and each of its Subsidiaries (after giving effect to the transactions consummated at the Closing): (a) all of its Funded Debt and/or Current Debt to be outstanding immediately following the Closing (other than that evidenced by the Notes); (b) all Liens to which any of its properties and assets will be subject immediately following the Closing (other than those arising under the Pledge Agreement and those of the character described in section 14.9(c) of the Existing Securities Purchase Agreements); (c) all of its Investments (and all agreements and commitments to make Investments) to be owned or held (or in effect) immediately following the Closing (other than Investments of the character described in clauses (a), (b), (c), (e), (f), (g), (i), (j) and(k) of the definition of Restricted Investments contained in the Existing Securities Purchase Agreements); (d) all transactions with Affiliates of the Company and its Subsidiaries which were consummated during the 12-month period ended on the date hereof or which it is now obligated or now intends to consummate at any time in the future (including, without limitation, all transactions involving consulting or management services provided (or to be provided) to the Company or any of its Subsidiaries by any of their respective Affiliates, other than the Gillett Management Agreement); and (e) each lease, other than Capital Leases, under which it is lessee or sublessee and is or shall be obligated to pay $50,000 or more during any period of twelve consecutive months after the date hereof, and, with respect to each such lease, the name of the lessor, the lessee or sublessee, a general description of the property leased, the annual Rental Obligations payable thereunder and the term thereof. The Company is not a party to any Derivative Transaction. 5.10. Title to Properties: Liens; Leases. The Company and its Subsidiaries have good and marketable title to all of their respective properties and assets, free of all Liens (other than the Liens permitted under section 14.9 of the Existing Securities Purchase Agreements), including, without limitation, the properties and assets reflected in the financial statements delivered pursuant to the Existing Securities Purchase Agreements, except for the properties and assets disposed of in the ordinary course of business. The Company and its Subsidiaries enjoy peaceful and undisturbed possession under all material leases under which they operate, and all of such leases are valid, subsisting and in full force and effect. None of such leases contains any unusual or burdensome provision, which, in either case, has resulted in, or could reasonably be expected to result in, a Material Adverse Change. 5.11. Litigation, etc. There is no action, proceeding or investigation pending or, to the best knowledge of the Company, threatened (or any basis therefor known to the Company), including, without limitation, those referred to on Exhibit 5.11 attached to the Existing Securities Purchase Agreements and Exhibit 5.11 attached hereto, which questions the validity of any of the Operative Documents or any action taken or to be taken pursuant thereto or which has resulted in, or could reasonably be expected to result in, a Material Adverse Change. There is no outstanding judgment, decree or order, including, without limitation, those referred to on Exhibit 5.11 attached to the Existing Securities Purchase Agreements and Exhibit 5.11 attached hereto, which has resulted in, or could reasonably be expected to result in, a Material Adverse Change. Exhibit 5.11 attached to the Existing Securities Purchase Agreements and Exhibit 5.11 attached hereto set forth a complete list of all material pending and, to the best knowledge of the Company, threatened actions, proceedings and investigations and all outstanding judgments, decrees and orders against or affecting the Company and/or any of its Subsidiaries. 5.12. Valid and Binding Obligations; Compliance with Other Instruments, Borrowing Restrictions, etc. (a) This Agreement has been duly authorized, executed and delivered by the Company and constitutes the valid and legally binding obligation of the Company enforceable against the Company in accordance with its terms (subject, as to enforcement, to bankruptcy, insolvency, reorganization and other similar laws affecting the enforcement of creditors' rights generally and general equitable principles which may limit the right to obtain the remedy of specific performance of executory covenants and other equitable remedies). Each of the other Operative Documents to which the Company is a party has been duly authorized by the Company and, when executed and delivered, will constitute the valid and legally binding obligation of the Company, enforceable against it in accordance with its terms (subject, as to enforcement, to bankruptcy, insolvency, reorganization and other similar laws affecting the enforcement of creditors' rights generally and general equitable principles which may limit the right to obtain the remedy of specific performance of executory covenants and other equitable remedies). (b) Neither the Company nor any of its Subsidiaries is in violation of or in default under any term of its Organizational Documents, or of any agreement, document, instrument, judgment, decree, order, law, statute, rule or regulation applicable to it or any of its properties and assets, in any way which has resulted in, or could reasonably be expected to result in, a Material Adverse Change. Without limiting the generality of the foregoing, the Company and each of its Subsidiaries is in compliance with (and neither it nor any of its predecessors in interest has received any notice to the contrary) and there is no reasonable possibility of any liability of or any judgment, decree or order binding upon or applicable to the Company and/or any of its Subsidiaries or any of their respective properties and assets under or on account of any Environmental Laws, except where the same has not resulted in, and could not reasonably be expected to result in, a Material Adverse Change. (c) The execution, delivery and performance of and the consummation of the transactions contemplated by the Operative Documents will not violate or constitute a default under, or permit any Person to accelerate or to require the prepayment of any Indebtedness of or the repurchase or redemption of any securities issued by the Company or any of its Subsidiaries or to terminate any lease or agreement of the Company or any of its Subsidiaries pursuant to, or result in the creation of any Lien (other than the Liens created by the Permitted Debt Documents and by the Security Documents) upon any of the properties or assets of the Company or any of its Subsidiaries pursuant to, any term of its Organizational Documents or of any agreement, document, instrument, judgment, decree, order, law, statute, rule or regulation applicable to any of them or any of their respective properties and assets. (d) Neither the Company nor any of its Subsidiaries is a party to or bound by or subject to any agreement, document, instrument, judgment, decree, order, law, statute, rule or regulation (other than the Operative Documents, the Permitted Debt Documents and laws, statutes, rules or regulations affecting creditors or businesses generally(i) which restricts its right or ability to incur Indebtedness, to issue securities or to consummate the transactions contemplated hereby; (ii) under the terms of or pursuant to which its obligation to pay all amounts due from it and/or to perform all obligations imposed on it and/or to comply with the terms applicable to it under any of the Operative Documents is in any way restricted; (iii) which contains Restricted Payment Provisions or which restricts its right or ability to make any distributions to its stockholders or in respect of any of its Shares, to mortgage or dispose of its properties, to consummate any merger, consolidation or acquisition, to make Investments or Capital Expenditures, to enter into and perform leases, to pay executive compensation and/or to conduct its business as now conducted and now proposed to be conducted; or (iv) which has resulted in, or could reasonably be expected to result in, a Material Adverse Change. 5.13. ERISA. (a) The Company and each ERISA Affiliate have operated and administered each Plan in compliance with all applicable laws except for such instances of noncompliance which have not resulted in, and could not reasonably be expected to result in, a Material Adverse Change. Neither the Company nor any ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans (as defined in section 3 of ERISA), and no event, transaction or condition has occurred or exists that could reasonably be expected to result in the incurrence of any such liability by the Company or any ERISA Affiliate, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions or to section 401(a)(29) or 412 of the Code, other than such liabilities or Liens as would not individually or in the aggregate result in a Material Adverse Change. (b) The present value of the aggregate benefit liabilities under each of the Plans (other than Multiemployer Plans), determined as of the end of such Plan's most recently ended plan year on the basis of the actuarial assumptions specified for funding purposes in such Plan's most recent actuarial valuation report, did not exceed the aggregate current value of the assets of such Plan allocable to such benefit liabilities. The term "benefit liabilities" has the meaning specified in section 4001 of ERISA and the terms "current value" and "present value" have the meaning specified in section 3 of ERISA. (c) The Company and the ERISA Affiliates have not incurred withdrawal liabilities (and are not subject to contingent withdrawal liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer Plans that individually or in the aggregate could result in a Material Adverse Change. The Company and the ERISA Affiliates have made all required contributions to Multiemployer Plans. Neither the Company nor any ERISA Affiliate has incurred, nor would reasonably expect to incur, any Withdrawal Liability upon a complete or partial withdrawal from any Multiemployer Plan that individually or in the aggregate could result in a Material Adverse Change. To the best of the Company's knowledge, no Multiemployer Plan is, or is reasonably expected to be, insolvent, in reorganization or terminated within the meaning of Title IV of ERISA. (d) Neither the Company nor any of its Subsidiaries has any expected post retirement benefit obligation (determined in accordance with Financial Accounting Standards Board Statement No. 106, without regard to liabilities attributable to continuation coverage mandated by section 4980B of the Code). (e) The consummation of the transactions contemplated by the Operative Documents will not involve any transaction that is subject to the prohibitions of section 406(a) of ERISA or in connection with which a tax could be imposed pursuant to section 4975(c)(l)(A)-(D) of the Code. The representation by the Company in the first sentence of this section 5.l3(e) is made in reliance upon and subject to the accuracy of the representations made by each of the Purchasers in section 16 as to the sources of the funds used to pay the purchase price of the Securities to be purchased by each of them. 5.14. Consents, etc. No consent, approval or authorization of, or declaration or filing with, or other action by, any Person (including, without limitation, any creditor of or lender to the Company or any of its Subsidiaries and any governmental authority) is required as a condition precedent to the valid execution, delivery and performance of and the consummation of the transactions contemplated by this Agreement and the other Operative Documents. 5.15. Proprietary Rights: Licenses. The Company and its Subsidiaries have all Proprietary Rights and Licenses as are adequate for the conduct of their respective businesses (including, without limitation, in connection with the Acquired Businesses) as now conducted and now proposed to be conducted, without any known conflict with the rights of others. Each such Proprietary Right and License is in full force and effect, all material obligations with respect thereto have been fulfilled and performed by the Company or the applicable Subsidiary and there is no known infringement thereon by any other Person that has resulted in, or could reasonably be expected to result in, a Material Adverse Effect. No default in the performance or observance by the Company and/or any of its Subsidiaries (or any of their respective predecessors in interest) of its obligations thereunder has occurred which permits, or after notice of lapse of time or both would permit, the revocation or termination of any material Proprietary Right or License or which has resulted in, or could reasonably be expected to result in, a Material Adverse Change. Exhibit 5.15 attached to the Existing Securities Purchase Agreements contains a complete and accurate list of all material Proprietary Rights and material Licenses owned or held by the Company and its Subsidiaries. 5.16. Offer of Securities: Investment Bankers. Neither the Company nor any of its Subsidiaries nor any Person acting on their behalf (a) has directly or indirectly offered the Securities or any part thereof or any similar securities for issue or sale to, or solicited any offer to buy any of the same from, anyone other than the Purchasers, (b) has taken or will take any action which would bring the issuance and sale of the Securities within the provisions of Section 5 of the Securities Act or the registration or qualification provisions of any applicable blue sky or other securities laws, (c) has dealt with any broker, finder, commission agent or other similar Person in connection with the sale of the Securities, or (d) is under any obligation to pay any broker's fee, finder's fee or commission in connection with such sale. There are no closing fees or similar amounts payable to George N. Gillett, Jr. or any of his Affiliates in connection with the transactions contemplated hereby. 5.17. Government Regulation. Neither the Company nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act or the Investment Company Act of 1940, each as amended. 5.18. Labor Relations. No dispute involving employees of the Company or any of its Subsidiaries or the relationship of the Company or any of its Subsidiaries with any of its employees has resulted in, or could reasonably be expected to result in, any Material Adverse Change. 5.19. Disclosure. Neither this Agreement nor any of the other Operative Documents nor any other document, certificate or written statement furnished to you by or on behalf of the Company or any of its Subsidiaries in connection with the transactions contemplated by the Operative Documents (including, without limitation, the Disclosure Documents), contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading in the light of the circumstances under which such statements were made, it being understood that, except as set forth in section 5.6, no representation or warranty is made with respect to any projections or other prospective financial information. There is no fact known to the Company (other than information concerning general economic conditions known to the public generally) which has resulted in, or could reasonably be expected to result in, a Material Adverse Change which has not been set forth in this Agreement, the other Operative Documents and the other documents, certificates and written statements referred to above in this section 5.19. 6. Use of Proceeds. (a) The proceeds of the sale of the New Securities will be used on the Closing Date to make the payments to the Persons and for the purposes specified on Exhibit 6(a) attached hereto, and any remaining balance of such proceeds will be used for general corporate purposes of the Company and its Subsidiaries in accordance with the terms of the Operative Documents. (b) The Company does not own, and will not, and will not permit any of its Subsidiaries to, directly or indirectly, use any part of the proceeds of the sale of the Securities for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation U (12 CFR Part 221) of the Board of Governors of the Federal Reserve System (herein called a "margin security") or for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might constitute the transactions contemplated by the Operative Documents a "purpose credit" within the meaning of said Regulation U or cause this Agreement or any of the other Operative Documents to violate Regulation U or any other regulation of the Board of Governors of the Federal Reserve System, or the Exchange Act or any other applicable law, statute, regulation, rule, order or restriction. 7. Covenants of the Company. The Company will duly perform and observe, for the benefit of the holders of the New Securities (as well as for the benefit of the holders of any of the other Securities, if applicable) each and all of the applicable covenants and agreements set forth in the Existing Securities Purchase Agreements, the Security Documents and the other Operative Documents (as amended, modified and supplemented hereby), all of which covenants and agreements are hereby incorporated herein by reference, provided that for purposes of determining the Required Holders of any class of the Securities or for purposes of effecting any amendment or waiver of any of the Operative Documents, any Securities held by The Gillett Family Partnership or any of its successors or assigns shall be deemed not to be outstanding. 8. Certain Defined Terms. Unless the context clearly requires otherwise, all references in the Operative Documents (a) to "Notes" shall include the New Notes, (b) to "Purchased Common Shares" shall include the New Purchased Common Shares, (c) to "Warrants" shall include the New Warrants, (d) to the "Securities Purchase Agreements" and the "other Operative Documents" (or any of them) shall refer to such agreements, documents and instruments (or to those specified) as amended, modified and supplemented hereby, (e) to "Secured Obligations" in the Pledge Agreement or otherwise shall include all obligations and liabilities arising under or related to the New Notes and (f) to "Secured Partes" in the Pledge Agreement or otherwise shall include the holders of the New Notes. In addition, this Agreement, the New Securities and the other agreements, documents and instruments executed in connection herewith shall all constitute "Operative Documents". 9. Waiver and Consent of Institutional Investors. Each of John Hancock and CIBC Fund (a) hereby waives any Event of Default arising under the Existing Securities Purchase Agreements solely on account of the failure of the Company to obtain (and collaterally assign) the Gillett Key Man Insurance Policy, provided that such waiver shall continue only until October 15, 1998, by which date the Company hereby agrees to obtain (and collaterally assign) the same, and (b) hereby consents, for purposes of section 3(a) of the Stockholders Agreement, to the issuance of the New Purchased Common Shares and the New Warrants (and the issuance of any Underlying Securities upon the exercise thereof) and waive, for purposes of section 4 of the Stockholders Agreement, any preemptive right it might have under such section 4 with respect thereto and agrees that there shall be no anti-dilution adjustment under any of the Warrants on account thereof. 10. Ratification of Operative Documents. Each of the parties hereto hereby ratifies and confirms each of the Operative Documents to which it is a party and agrees that, after giving effect to the amendments, modifications and supplements effected hereby, each of the same is in full force and effect, that its obligations thereunder are its legal, valid and binding obligations enforceable against it in accordance with its terms and that it has no defense, whether legal or equitable, setoff or counterclaim, to the payment and performance of such obligations. Without limiting the generality of the foregoing, the Company hereby ratifies and confirms (and hereby re-grants) all of the security interests and Liens granted by it pursuant to the Security Documents to secure the Secured Obligations (as defined in the Security Documents after giving effect to the amendments effected hereby). 11. Further Assurances. From time to time hereafter, the Company will execute and deliver, or will cause to be executed and delivered, such additional agreements, documents and instruments and will take all such other actions as any Investor may reasonably request for the purpose of implementing or effectuating the provisions of this Agreement and the other Operative Documents. 12. Expenses: Indemnity. Whether or not the transactions contemplated by this Agreement shall be consummated, and without limiting the generality of the provisions of section 21 of the Existing Securities Purchase Agreements, the Company will pay or cause to be paid (or reimbursed, as the case may be) and will defend, indemnify and hold each of the Investors harmless (on an after tax basis) in respect of all costs, losses, expenses (including, without limitation, the reasonable fees, expenses and disbursements of counsel) incurred by or asserted against any Indemnitee in connection with the negotiation, execution, delivery, performance and/or enforcement of this Agreement or any of the other Operative Documents and/or the consummation of the transactions contemplated hereby and thereby. 13. Communications; Amendments. All communications provided for herein shall be given and shall be effective in accordance with section 23 of the Existing Securities Purchase Agreements. All amendments of this Agreement and all waivers of compliance herewith shall be in writing and shall be effected in accordance with section 19 of the Existing Securities Purchase Agreements. 14. Survival of Agreements, Representations and Warranties, etc. All agreements, representations and warranties contained herein or made in writing by or on behalf of the Company in connection with the transactions contemplated hereby or by any of the other Operative Documents shall be deemed to have been relied upon by each of the Investors and shall survive the execution and delivery of this Agreement and each of the other Operative Documents, the issue, sale and delivery of the New Securities and payment therefor and any disposition of the New Securities, whether or not any investigation at any time is made by any of the Investors or on their behalf. All statements contained in any report, memorandum, data or certificate delivered to any of the Investors by or on behalf of the Company in connection with the transactions contemplated hereby or by any of the other Operative Documents shall constitute representations and warranties by the Company under this Agreement and shall be subject to the terms of this section 14. 15. Successors and Assigns; Rights of Other Holders. This Agreement shall bind and inure to the benefit of and be enforceable by each of the parties hereto and their respective successors and assigns, including, without limitation, each holder from time to time of any Securities who, upon acceptance thereof, shall, without further action, be entitled to enforce the applicable provisions and enjoy the applicable benefits hereof. The Company may not assign any of its rights or obligations hereunder or under any of the other Operative Documents without the written consent of the Required Holders of each class of Securities then outstanding. 16. Purchase for Investment. Each Purchaser hereby makes severally as to itself (and not jointly with the other Purchasers) the representations and warranties set forth in section 26 of the Existing Securities Purchase Agreements with reference to the New Securities to be purchased by it with the same force and effect as if such section was set forth herein in full. 17. Governing Law. This Agreement, including the validity hereof and the rights and obligations of the parties hereunder, and all amendments and supplements hereof and all waivers and consents hereunder, shall be construed in accordance with and governed by the domestic substantive laws of The Commonwealth of Massachusetts without giving effect to any choice of law or conflicts of law provision or rule that would cause the application of the domestic substantive laws of any other jurisdiction. 18. Miscellaneous. The headings in this Agreement and in each of the other Operative Documents are for purposes of reference only and shall not limit or otherwise affect the meaning hereof or thereof. This Agreement (together with the other Operative Documents) embodies the entire agreement and understanding among the Investors and the Company and supersedes all prior agreements and understandings relating to the subject matter hereof. This Agreement may be executed in any number of counterparts and by the parties hereto on separate counterparts but all such counterparts shall together constitute but one and the same instrument. [The remainder of this page is intentionally left blank.] If you are in agreement with the foregoing, please sign the form of agreement on the accompanying counterparts of this letter, whereupon this letter shall become a binding agreement under seal between you and the Company. Please then return one of such counterparts to the Company. Very truly yours, BOOTH CREEK SKI GROUP, INC. By:/s/ GEORGE N. GILLETT, JR. ----------------------------- George N. Gillett, Jr. (Title) President The foregoing Agreement is hereby agreed to as of the date thereof. JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY By: /s/ DANIEL C. BUDDE ---------------------------- Daniel C. Budde (Title) Senior Investment Officer CIBC WG ARGOSY MERCHANT FUND 2, L.L.C. By: /s/ JAY LEVINE --------------------- Jay Levine (Title) Managing Director BOOTH CREEK PARTNERS LIMITED II. L.L.L.P. By: /s/ GEORGE N. GILLETT, JR. ------------------------------------------ George N. Gillett, Jr., a General Partner HANCOCK MEZZANINE PARTNERS L.P. By: Hancock Mezzanine Investment LLC, its general partner By: John Hancock Mutual Life Insurance Company, its investment manager -------------------------------------------------- Name: Stephen J. Blewitt Title: Senior Investment Officer EX-10 3 EX. 10.1 AMENDED AND RESTATED CREDIT AGREEEMENT BOOTH CREEK SKI HOLDINGS, INC. BOOTH CREEK SKI ACQUISITION CORP. TRIMONT LAND COMPANY SIERRA-AT-TAHOE, INC. BEAR MOUNTAIN, INC. WATERVILLE VALLEY SKI RESORT, INC. MOUNT CRANMORE SKI RESORT, INC. SKI LIFTS, INC. GRAND TARGHEE INCORPORATED LMRC HOLDING CORP. LOON MOUNTAIN RECREATION CORPORATION LOON REALTY CORP. $25,000,000 AMENDED AND RESTATED CREDIT AGREEMENT Dated as of October 30, 1998 BANKBOSTON, N.A. TABLE OF CONTENTS PAGE 1. General 1 1.1 Restatements; Calculations1 1.2 Definitions; Certain Rules of Construction 2 2. The Credit 23 2.1 The Revolving Credit 23 2.1.1 Revolving Loan 23 2.1.2 Annual Clean-Up 23 2.1.3 Borrowing Requests 23 2.1.4 Revolving Notes 23 2.2 Letters of Credit 24 2.2.2 Participations in Letters of Credit 24 2.2.3 Form and Expiration of Letters of Credit 24 2.2.4 Payment of Drafts 24 2.3 Application of Proceeds 25 2.3.1 The Revolving Loan 25 2.3.2 Letters of Credit 25 2.3.3 Specifically Prohibited Applications; Use of Proceeds 25 2.4 Nature of Obligations of Lenders to Extend Credit 25 3. Interest; LIBOR Pricing Options; Fees 25 3.1 Interest 25 3.2 LIBOR Pricing Options 26 3.2.1 Election of LIBOR Pricing Options 26 3.2.2 Notice to Lenders and Borrowers 26 3.2.3 Selection of LIBOR Interest Periods 27 3.2.4 Additional Interest 27 3.2.5 Violation of Legal Requirements 27 3.2.6 Funding Procedure 28 3.3 Fees 28 3.3.1 Commitment Fees for Revolving Loan 28 3.3.2 Prepayment Fee 28 3.3.3 Letter of Credit Fees 28 3.4 Capital Adequacy 29 3.5 Computations of Interest 29 4. Payment 29 4.1 Payment at Maturity 29 4.2 Mandatory Prepayments 30 4.3 Voluntary Prepayments of Revolving Loan 30 4.4 Reborrowing; Application of Payments 30 4.5 Payment and Interest Cut-off 30 4.6 Charging Accounts 30 5. Conditions 30 5.1 Conditions to Initial Extension of Credit 30 5.1.1 Notes 31 5.1.2 Payment of Fees 31 5.1.3 Legal Opinion 31 5.2 Conditions to Extending Credit 31 5.2.1 Representations and Warranties; No Default; No Material Adverse Change 31 5.2.2 Perfection of Security 31 5.2.3 Proper Proceedings 32 6. Security 32 7. General Covenants 32 7.1 Taxes and Other Charges 32 7.2 Conduct of Business, etc 33 7.2.1 Types of Business 33 7.2.2 Maintenance of Properties, Compliance with Agreements, etc. 33 7.2.3 Statutory Compliance. 33 7.3 Insurance 33 7.4 Financial Statements and Reports 34 7.4.1 Annual Statements 34 7.4.2 Quarterly Reports 35 7.4.3 Monthly Reports 35 7.4.4 Other Reports 36 7.4.5 Notice of Litigations; Notice of Defaults 36 7.4.6 ERISA Reports 36 7.4.7 Right to Obtain Appraisals 37 7.4.8 Other Information 37 7.5 Certain Financial Tests 38 7.5.1 Financing Debt to Cash Flow 38 7.5.2 Cash Flow to Fixed Charges 38 7.5.3 Minimum Net Worth 38 7.6 Indebtedness 38 7.7 Guarantees; Letters of Credit 40 7.8 Liens 40 7.9 Investments 41 7.10 Distributions 43 7.11 Capital Expenditures 44 7.12 Merger and Dispositions of Assets; Release of Liens; Use of Certain Proceeds 44 7.13 Subsidiaries 46 7.14 ERISA 46 7.15 Transactions with Affiliates 47 7.16 Loan to Value Ratio 47 7.17 Environmental Cleanup 47 7.18 Cash Concentration 47 7.19 Permitted Management Fees 47 7.20 Letters of Credit at Annual Clean-up 47 8. Representations and Warranties 48 8.1 Organization and Business 48 8.1.1 The Borrowers 48 8.1.2 Qualification 48 8.2 Financial Statements and Other Information. 48 8.3 Changes in Condition 49 8.4 Agreements Relating to Financing Debt, Investments, etc 49 8.5 Title to Assets 49 8.6 Licenses, etc 49 8.7 Litigation 50 8.8 Tax Returns 50 8.9 No Legal Obstacle to Agreements 50 8.10 Defaults 51 8.11 Certain Business Representations 51 8.11.1 Environmental Compliance 51 8.11.2 Burdensome Obligations 52 8.11.3 Future Expenditures. 52 8.12 Pension Plans 52 8.13 Disclosure 52 9. Defaults. 53 9.1 Events of Default 53 9.2 Certain Actions Following an Event of Default 56 9.2.1 No Obligation to Extend Credit 56 9.2.2 Specific Performance; Exercise of Rights 56 9.2.3 Enforcement of Payment Credit Securities Setoff 57 9.2.4 Acceleration 57 9.2.5 Cumulative Remedies 57 9.3 Annulment of Defaults 57 9.4 Waivers 58 10. Expenses; Indemnity 58 10.1 Expenses 58 10.2 General Indemnity 59 10.3 Indemnity With Respect to Letters of Credit 59 11. Operations 60 11.1 Interests in Credits 60 11.2 Agent's Authority to Act 60 11.3 Borrowers to Pay Agent, etc. 60 11.4 Lender Operations for Advances, etc. 60 11.4.1 Advances 60 11.4.2 Agent to Allocate Payments 61 11.4.3 Letters of Credit 61 11.5 Sharing of Payments, etc. 61 11.6 Amendments, Consents, Waivers, etc. 62 11.7 Agent's Resignation 62 11.8 Concerning the Agent 63 11.8.1 Action in Good Faith, etc 63 11.8.2 No Implied Duties, etc. 63 11.8.4 Compliance 63 11.8.5 Employment of Agents and Counsel 63 11.8.6 Reliance on Documents and Counsel 64 11.8.7 Agent's Reimbursement 64 11.9 Rights as a Lender 64 11.10 Independent Credit Decision 64 11.11 Indemnification 65 12. Successors and Assigns 65 12.1 Assignments by Lenders 65 12.1.1 Assignees and Assignment Procedures. 65 12.1.2 Acceptance of Assignment and Assumption 66 12.1.3 Federal Reserve Bank 66 12.1.4 Further Assurances 66 12.2 Credit Participants 66 13. Notices 67 14. Course of Dealing, Amendments and Waivers 67 15. Defeasance 68 16. Venue; Service of Process 68 17. Joint and Several Liability 68 18. General 69 19. WAIVER OF JURY TRIAL 69 EXHIBITS Exhibit 2.1.4 - Form of Revolving Note Exhibit 5.2.1 - Form of Officer's Certificate (for Closing Date) Exhibit 7.4.1 - Form of Officer's Certificate (for annual financial statements and reports) Exhibit 7.4.2 - Form of Officer's Certificate (for quarterly financial statements and reports) Exhibit 7.18 - Environmental Cleanup Requirements and Schedule Exhibit 8.1 - The Borrowers and their Subsidiaries Exhibit 8.4 - Financing Debt, etc. Exhibit 8.7 - Litigation Exhibit 8.11.1 - Environmental Litigation BOOTH CREEK SKI HOLDINGS, INC. BOOTH CREEK SKI ACQUISITION CORP. TRIMONT LAND COMPANY SIERRA-AT-TAHOE, INC. BEAR MOUNTAIN, INC. WATERVILLE VALLEY SKI RESORT, INC. MOUNT CRANMORE SKI RESORT, INC. SKI LIFTS, INC. GRAND TARGHEE INCORPORATED LMRC HOLDING CORP. LOON MOUNTAIN RECREATION CORPORATION LOON REALTY CORP. AMENDED AND RESTATED CREDIT AGREEMENT BOOTH CREEK SKI HOLDINGS, INC., a Delaware corporation (together with its successors and assigns, "BCS Holdings"), BOOTH CREEK SKI ACQUISITION CORP., a Delaware corporation (together with its successors and assigns, "BCS Acquisition"), TRIMONT LAND COMPANY, a California corporation (together with its successors and assigns, "Northstar-at-Tahoe"), SIERRA-AT-TAHOE, INC., a Delaware corporation (together with its successors and assigns, "Sierra-at-Tahoe"), BEAR MOUNTAIN, INC., a Delaware corporation (together with its successors and assigns, "Bear Mountain"), WATERVILLE VALLEY SKI RESORT, INC., a Delaware corporation (together with its successors and assigns, "Waterville"), MOUNT CRANMORE SKI RESORT, INC., a Delaware corporation (together with its successors and assigns, "Cranmore"), SKI LIFTS, INC., a Washington corporation (together with its successors and assigns, "Ski Lifts"), GRAND TARGHEE INCORPORATED, a Delaware corporation (together with its successors and assigns, "Grand Targhee"), LMRC HOLDING CORP., a Delaware corporation (together with its successors and assigns, "LMRC Holding"), LOON MOUNTAIN RECREATION CORPORATION, a New Hampshire corporation (together with its successors and assigns, "Loon"); LOON REALTY CORP., a New Hampshire corporation (together with its successors and assigns, "Loon Realty," and together with BCS Holdings, BCS Acquisition, Northstar-at-Tahoe, Sierra-at-Tahoe, Bear Mountain, Waterville, Cranmore, Ski Lifts, Grand Targhee, LMRC Holding and Loon, the "Borrowers", and each a "Borrower"), BANKBOSTON, N.A., a national banking association (together with its successors and assigns, "BKB"), any other Lenders from time to time party hereto, and BKB, as agent (the "Agent") for itself and the other Lenders, hereby agree as follows: 1. General. 1.1 Restatements; Calculations. Effective as of the date hereof (the "Restatement Date"), this Amended and Restated Credit Agreement (the "Agreement") amends and restates in its entirety the Amended and Restated Credit Agreement dated as of March 18, 1997, as amended and in effect immediately prior to the amendment and restatement thereof effected hereby (the "1997 Credit Agreement"), between the Borrowers, BKB and BKB, as agent. Effective on the Restatement Date, the "Revolving Loan" outstanding under the 1997 Credit Agreement on such date shall be deemed to be the Revolving Loan under Section 2.1.1 and shall be evidenced by Revolving Notes. Amounts in respect of interest, fees and other amounts payable to or for the account of the Lenders shall be calculated in accordance with the provisions of (i) the 1997 Credit Agreement with respect to any period (or portion of any period) ending prior to the Restatement Date and (ii) this Agreement as in effect on the Restatement Date after giving effect to the amendment and restatement thereof effected hereby and as from time to time thereafter in effect with respect to any period (or portion of any period) commencing on or after the Restatement Date. 1.2 Definitions; Certain Rules of Construction. Except as the context otherwise explicitly requires, (i) the capitalized term "Section" refers to sections of this Agreement, (ii) the capitalized term "Exhibit" refers to exhibits to this Agreement, (iii) references to a particular Section shall include all subsections thereof and (iv) the word "including" shall be construed as "including without limitation". Certain capitalized terms are used in this Agreement as specifically defined in this Section 1.2 as follows: "Accumulated Benefit Obligations" means the actuarial present value of the accumulated benefit obligations under any Plan, calculated in a manner consistent with Statement No. 87 of the Financial Accounting Standards Board. "Acquisition Appraisals" means, collectively, (i) the Appraisal on the assets of Cranmore performed by Sno.engineering and dated October 2, 1996; (ii) the Appraisal on Northstar-at-Tahoe performed by ResortNorth Valuation and dated September 21, 1996; (iii) the Appraisal on Sierra-at-Tahoe performed by Sno.engineering and dated September 27, 1996; (iv) the Appraisal on Bear Mountain performed by ResortNorth Valuation and dated September 18, 1996; (v) the Real Estate Appraisal on Northstar-at-Tahoe performed by Hanford Healy Appraisal Company and dated November 22, 1996; (vi) the Appraisal on the assets and business of Loon performed by ResortNorth Valuation, Inc. and dated January 30, 1998; and (vii) the updated Appraisals which may be obtained pursuant to Section 7.4.7. "Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under direct or indirect common control with such Person, and shall include (i) any officer or director or general partner of such Person and (ii) any Person of which such Person or any Affiliate (as defined in clause (i) above) of such Person shall, directly or indirectly, beneficially own either at least 5% of the outstanding equity securities having the general power to vote or at least 5% of all equity interests. "Agent" means BKB, in its capacity as agent for the Lenders, and its successors in that capacity. "Agent's Base Rate" means, on any date, the rate of interest announced by the Agent at its Boston Office as its "base rate". "Agreement" has the meaning provided in Section 1.1 hereof. "Alternate Base Rate" means, on any date, the greater of (a) the Agent's Base Rate or (b) the sum of 1/2% plus the Federal Funds Rate. "Alternate Base Rate Loan" means any portion of the Loan for which interest is calculated on the basis of the Alternate Base Rate. "Applicable Margin" means (i) during any fiscal quarter of the Borrowers for which Trailing Four Fiscal Quarter Cash Flow for the four fiscal quarters then most recently ended is less than or equal to $20,000,000, and during any Default Rate Period, 0.50% for any Alternate Base Rate Loan and 3.00% for any LIBOR Loan; (ii) during any fiscal quarter of the Borrowers for which Trailing Four Fiscal Quarter Cash Flow for the four fiscal quarters then most recently ended is greater than $20,000,000 and less than or equal to $25,000,000, 0.25% for any Alternate Base Rate Loan and 2.25% for any LIBOR Loan; and (iii) during any fiscal quarter of the Borrowers for which Trailing Four Fiscal Quarter Cash Flow for the four fiscal quarters then most recently ended is greater than $25,000,000, 0.00% for any Alternate Base Rate Loan and 2.00% for any LIBOR Loan. "Applicable Rate" means, at any date, the sum of: (a) (i) with respect to each portion of the Loan subject to a LIBOR Pricing Option, the sum of the Applicable Margin plus the LIBOR Rate with respect to such LIBOR Pricing Option; (ii) with respect to each other portion of the Loan, the sum of the Applicable Margin plus the Alternate Base Rate; plus (b) an additional 2% effective during any Default Rate Period. "Appraisal" means a valuation similar in form to the Acquisition Appraisals, of the operating business, assets, real estate or any portion thereof of any of the Borrowers. "ASC Subordinated Note" means the Subordinated Promissory Note dated November 27, 1996 issued by BCS Acquisition, Waterville and Cranmore payable to American Skiing Company, a Maine corporation. "Assignee" has the meaning provided in Section 12.1.1. "Banking Day" means any day other than Saturday, Sunday or a day on which banks in Boston, Massachusetts are authorized or required by law or other governmental action to close and, if such term is used with reference to a LIBOR Pricing Option, any day on which dealings are effected by first-class banks in the inter-bank LIBOR markets in New York, New York. "Bankruptcy Code" means Title 11 of the United States Code (or any successor statute) and the rules and regulations thereunder, all as from time to time in effect. "Bankruptcy Default" means an Event of Default referred to in Section 9.1.9. "BCS Acquisition" has the meaning provided in the preamble hereto. "BCS Acquisition Security Agreement" means the Security Agreement, originally dated as of November 27, 1996, as amended and restated as of December 3, 1996, between the Agent and BCS Acquisition, as amended, restated, supplemented or otherwise modified and in effect from time to time. "BCS Group" means Booth Creek Ski Group, Inc., a Delaware corporation, together with its successors and assigns. "BCS Holdings" has the meaning provided in the preamble hereto. "BCS Holdings Security Agreement" means the Security Agreement dated as of December 3, 1996 between the Agent and BCS Holdings, as amended, restated, supplemented or otherwise modified and in effect from time to time. "Bear Mountain" has the meaning provided in the preamble hereto. "Bear Mountain Mortgage" means the Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing all dated as of December 3, 1996, executed by Bear Mountain in favor of the Agent, as amended, restated, supplemented or otherwise modified and in effect from time to time. "Bear Mountain Security Agreement" means the Security Agreement dated as of December 3, 1996, between Bear Mountain and the Agent, as amended, restated, supplemented or otherwise modified and in effect from time to time. "BKB" has the meaning provided in the preamble hereto. "Booth Creek Management Company" means Booth Creek, Inc., a Delaware corporation, and its successors and assigns. "Booth Creek LLLP" means Booth Creek Partners Limited II, L.L.L.P., a Colorado limited liability limited partnership, and its successors and assigns. "Borrowers" has the meaning provided in the preamble hereto. "Boston Office" means the principal banking office of the Agent in Boston, Massachusetts. "By-laws" means all written by-laws, rules, regulations and all similar other documents relating to the management, governance or internal regulations of any Person other than an "individual" all as from time to time in effect. "California Resorts" means Northstar-at-Tahoe, Sierra-at-Tahoe and Bear Mountain, collectively. "Capital Expenditures" means, for any period, amounts added or required to be added to the fixed assets account on the Consolidated balance sheet of the Borrowers, prepared in accordance with GAAP, in respect of (i) the acquisition, construction, improvement or replacement of land, buildings, machinery, equipment, leaseholds and any other real or personal property, and (ii) to the extent not included in clause (i) above, expenditures on account of materials, contract labor and direct labor relating thereto (excluding expenditures properly expensed as repairs and maintenance in accordance with GAAP); provided, however, that additions to the fixed asset accounts resulting from exchanges of an existing capital asset for another capital asset of equal or greater net book value shall not constitute a Capital Expenditure to the extent effected without the expenditure of cash or the incurrence of additional debt, if the net book value of such capital asset(s) for one or a series of related transactions being replaced is less than or equal to $500,000 or otherwise with the written consent of the Agent, Capital Expenditures shall not include any such amounts added to fixed assets in respect of acquisition of assets paid for by the Borrowers by cancellation of obligations of the sellers of such assets to the Borrowers. "Capitalized Lease" means any lease which is required to be capitalized on the balance sheet of the lessee in accordance with GAAP and Statement Nos. 13 and 98 of the Financial Accounting Standards Board. "Capitalized Lease Obligations" means the amount of the liability reflecting the aggregate discounted amount of future payments under all Capitalized Leases calculated in accordance with GAAP and Statement Nos. 13 and 98 of the Financial Accounting Standards Board. "Cash Equivalents" means: (a) negotiable certificates of deposit, time deposits and bankers' acceptances issued by any United States financial institution having capital and surplus and undivided profits aggregating at least $100,000,000 and rated Prime-1 by Moody's Investors Service, Inc. or A-1 by Standard & Poor's Corporation or issued by any Lender; (b) short-term corporate obligations rated Prime-1 by Moody's Investors Service, Inc. or A-1 by Standard & Poor's Corporation; (c) any direct obligation of the United States of America or any agency or instrumentality thereof, or of any state or municipality thereof, (i) which has a remaining maturity at the time of purchase of not more than one year or (ii) which is subject to a repurchase agreement with any Lender (or any other financial institution referred to in clause (a) above) exercisable within one year from the time of purchase and (iii) which, in the case of obligations of any state or municipality, is rated AA or better by Moody's Investors Service, Inc.; and (d) any mutual fund or other pooled investment vehicle rated AA or better by Moody's Investors Service, Inc. which invests primarily in obligations described above. "Cash Flow" means, with respect to any Person, for any period, on a Consolidated basis for such Person, the total of (a) Net Income of such Person, plus (b) all amounts deducted in computing Net Income in respect of: (i) depreciation and amortization; provided, however, that when computing Cash Flow for any four fiscal quarter period the maximum amount to be added to Net Income pursuant to this clause (i) in respect of amortization of any capitalized real estate development costs shall not exceed $10,000,000 or such higher amount approved in writing by the Majority Lenders; (ii) depletion of natural resources; (iii) non-cash impairment charges recorded pursuant to FASB Statement No. 121; provided, however, that the amount and nature of such non- cash impairment charges shall be separately identified in the quarterly and annual schedules prepared by the Borrowers for the Computation Covenants, and inclusion of such non-cash impairment charges in the determination of Cash Flow shall be subject to the approval of the Agent; (iv) Interest Expense of such Person; and (v) taxes based upon or measured by income of such Person. "Cash Flow Adjustment" means, for any four fiscal quarter period of the Borrowers, the sum of (a) the amount of taxes based upon or measured by income actually paid during such period, plus (b) $3,000,000, plus (c) Distributions made pursuant to Section 7.10.2, plus (d) Investments in DRE LLC as set forth on Exhibit 8.4. "Cash Management System" has the meaning provided in Section 7.18. "Charter" means the articles of organization, certificate of incorporation, articles of incorporation, statute, constitution, joint venture agreement, partnership agreement, declaration of trust, limited ability company agreement or other charter document of any Person other than an individual, each as from time to time in effect. "CIBC Securities Subsidiary" means CIBC WG Argosy Merchant Funds II, L.L.C., and its successors and assigns. "Closing Date" means the Restatement Date and any subsequent date on which any extension of credit is made pursuant to Section 2.1.1 or 2.2.1. "Code" means, collectively, the federal Internal Revenue Code of 1986 (or any successor statute), and the rules and regulations thereunder, all as from time to time in effect. "Computation Covenants" means Sections 7.5 and 7.11. "Consolidated" and "Consolidating", when used with reference to any term, mean that term (or the terms "combined" and "combining", as the case may be, in the case of partnerships, joint ventures and Affiliates that are not Subsidiaries) as applied to the accounts of the Borrowers (or other specified Person) and all of their Subsidiaries (or other specified Persons), or such of their Subsidiaries as may be specified, consolidated (or combined) in accordance with GAAP and with appropriate deductions for minority interests in Subsidiaries, whether or not such deductions are required by GAAP. "Control Group Person" means any of the Borrowers, any Subsidiary and any Person which is at any time after December 3, 1996 a member of the controlled group or under common control with any of the Borrowers or any Subsidiary within the meaning of sections 414(b) or 414(c) of the Code or section 4001(a)(14) of ERISA. "Controlled Disbursement Advance" has the meaning provided in Section 2.1.3. "Controlled Disbursement Agreement" means any present or future written agreement from time to time entered into between the Borrowers and the Agent or any Affiliate of the Agent pursuant to which loans may be made to cover checks drawn by the Borrowers on a zero balance account or similar controlled disbursement basis. "Cranmore" has the meaning provided in the preamble hereto. "Cranmore Mortgage" means the Fee Mortgage and Security Agreement, originally dated as of November 27, 1996, executed by Cranmore in favor of BKB, as amended, restated, supplemented or otherwise modified and in effect from time to time. "Cranmore Security Agreement" means the Guarantee and Security Agreement, originally dated as of November 27, 1996, between Cranmore and the BKB, as amended, restated, supplemented or otherwise modified and in effect from time to time. "Credit Documents" means (i) this Agreement, any Controlled Disbursement Agreement, the Revolving Notes, the Security Agreements and the Mortgages, each as from time to time in effect; (ii) all financial statements, mortgages, assignments, Uniform Commercial Code financing statements or certificates delivered to any of the Lenders by any of the Borrowers in connection herewith or with any of the above; and (iii) any other present or future agreement or instrument from time to time entered into among the Agent or all the Lenders, on one hand, and any of the Borrowers or (so long as any of the Borrowers is also party thereto) any Affiliate of any of them, on the other hand, relating to, amending or modifying this Agreement or any other Credit Document referred to above or which is stated to be a Credit Document, each as from time to time in effect. "Credit Obligation Advance" has the meaning provided in Section 2.1.3. "Credit Obligations" means all present and future liabilities, obligations and Indebtedness of any of the Borrowers or any of their respective Affiliates party to a Credit Document owing to the Lenders or any of them, or to the Agent or any Affiliate of the Agent, under or in connection with this Agreement or any other Credit Document, including obligations in respect of principal, interest, commitment fees, Letter of Credit fees, reimbursement obligations under Letters of Credit and other fees, charges, indemnities and expenses from time to time owing hereunder or under any other Credit Document. "Credit Participant" has the meaning provided in Section 12.2. "Credit Security" means all assets now or from time to time hereafter subjected to a security interest or charge (or intended or required so to be pursuant to the Security Agreements, the Mortgages or any other Credit Document) to secure the payment or performance of any of the Credit Obligations, including the assets described in the Security Agreements, the Mortgages (excluding any environmental indemnity agreements) and any three party agreement with the USFS. "Default" means any Event of Default and any event or condition which with the passage of time or giving of notice, or both, would become an Event of Default. "Default Rate Period" means any period commencing on a day the Agent notifies the Borrowers that the interest rates hereunder are increasing as a result of the occurrence and continuance of an Event of Default until the earlier of such time as (i) such Event of Default is no longer continuing or (ii) such Event of Default is deemed no longer to exist, in each case pursuant to Section 9.3. "Designated Cleanup Period" has the meaning provided in Section 2.1.2. "Distribution" means, with respect to any Person: (i) the declaration or payment of any dividend, including dividends payable in shares of capital stock of such Person, on or in respect of any shares of any class of capital stock of such Person; (ii) the purchase or redemption of any shares of any class of capital stock of such Person (or of options, warrants or other rights for the purchase of such shares), directly, indirectly through a Subsidiary of such Person or otherwise; (iii) any other distribution on or in respect of any shares of any class of equity of or beneficial interest in such Person; (iv) any payment of principal or interest with respect to, or any purchase or redemption of, any Indebtedness of such Person which by its terms is subordinated to the payment of the Credit Obligations; and (v) any payment, loan or advance (including any salary, management fee or other fee, benefit, bonus or any other compensation in respect of services provided to such Person or any lease payments) by such Person to, or any other Investment by such Person in, the holder of any shares of any class of the capital stock of or equity interest in such Person. "DRE LLC" means DRE, L.L.C., a Delaware limited liability company, and its successors and assigns. "Environmental Audits" means, collectively, (i) the summary of environmental audit on the assets of Waterville attached as Exhibit B-1 to the Line Letter dated November 27, 1996 by BKB to BCS Acquisition, Waterville and Cranmore; (ii) the Limited Phase II Environmental Audit on the assets of Cranmore performed by H. Edmund Bergeron Civil Engineers and dated May 30, 1995; (iii) the Phase I Environmental Site Audit on Northstar-at-Tahoe performed by Roy C. Hampson & Associates and dated October 1996; (iv) the Phase I Environmental Site Audit on Sierra-at-Tahoe performed by Roy C. Hampson & Associates and dated October 1996; (v) the Phase I Environmental Site Audit on Bear Mountain performed by Roy C. Hampson & Associates and dated October 1996; (vi) the Phase I Assessment of Ski Lifts; (vii) the Phase I Assessment of Grand Targhee; (viii) the Phase II Assessment at Grand Targhee; and (ix) the Phase I Environmental Report dated as of July 1997 on Loon. "ERISA" means, collectively, the Employee Retirement Income Security Act of 1974 (or any successor statute), and the rules and regulations thereunder, all as from time to time in effect. "Event of Default" has the meaning provided in Section 9.1. "Excess Real Property" means unimproved parcels of real property owned by the Borrowers which are not then used or contemplated to be used in connection with the ski or golf operations of the Borrowers. "Exchange Act" means the federal Securities Exchange Act of 1934, as amended and in effect from time to time. "Executive Officer" means the chief executive officer, chief operating officer or president of any of the Borrowers (or other specified Person) or any vice president of any of the Borrowers (or other specified Person) who is not a Financial Officer. "Federal Funds Rate" means, for any day, the rate equal to the weighted average (rounded upward to the nearest 1/8%) of (a) the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as such weighted average is published for such day (or, if such day is not a Banking Day, for the immediately preceding Banking Day) by the Federal Reserve Bank of New York or (b) if such rate is not so published for such Banking Day, quotations received by the Agent from three federal funds brokers of recognized standing selected by the Agent. Each determination by the Agent of the Federal Funds Rate shall, in the absence of manifest error, be conclusive. "Final Maturity Date" means November 15, 1999. "Final Offering Memorandum" means the Offering Memorandum dated February 23, 1998, of BCS Holdings, in respect of the Series C Senior Unsecured Notes. "Financial Officer" means the chief financial officer, controller, treasurer or assistant treasurer of any of the Borrowers (or other specified Person) or a vice president whose primary responsibility is for the financial affairs of any of the Borrowers (or other specified Person). "Financing Debt" means (without duplication): (i) Indebtedness for borrowed money; (ii) Indebtedness evidenced by notes, bonds, debentures or similar instruments; (iii) Indebtedness in respect of Capitalized Leases; (iv) Indebtedness for the deferred purchase price of assets (other than normal trade accounts payable or other accrued liabilities arising in the ordinary course of business including, without limitation, trade accounts (payable over not more than 24 months) for rental equipment, uniforms, and, with the consent of the Agent which will not be unreasonably withheld or delayed, other items; and (v) Indebtedness in respect of mandatory redemption or mandatory dividends on capital stock (or other equity interests). "Financing Statements" means Uniform Commercial Code financing statement(s) from the Borrowers in favor of the Agent giving notice of a security interest in the Credit Security, such financing statements to be in form and substance satisfactory to the Agent and the Lenders. "Fixed Charges" means, for any four consecutive fiscal quarters, the sum of: (i) Interest Expense; plus (ii) the aggregate amount of all mandatory scheduled payments, prepayments and sinking fund payments, in each case with respect to principal paid by the Borrowers in respect of Financing Debt; plus (iii) the aggregate amount of all mandatory payments actually paid in cash in respect of leases of equipment, excluding all payments (whether in the nature of interest or principal) in respect of Capitalized Leases; provided, however, that following any acquisition of any Subsidiary, Fixed Charges shall mean (y) actual Fixed Charges, computed as provided in clauses (i) through (iii) hereof, accrued or paid by the Borrowers through the end of such period plus (z) actual Fixed Charges, computed as provided in clauses (i) through (iii) hereof, accrued or paid by such Subsidiary since the date of such acquisition through the end of such period, annualized. "GAAP" means generally accepted accounting principles, as defined by the United States Financial Accounting Standards Board, as from time to time in effect; provided, however, that for purposes of compliance with Section 8 (other than Section 8.4) and the related definitions, and for purposes of Section 8.2.1, "GAAP" means such principles as in effect on October 31, 1997 as applied by the Borrowers in the preparation of the financial statements referred to in Section 8.2.1, and consistently followed, without giving effect to any subsequent changes other than changes consented to in writing by the Agent. "Grand Targhee" has the meaning provided in the preamble hereto. "Grand Targhee Development Contingent Payment" means the "Development Contingent Payment" as that term is defined in the Grand Targhee Purchase Agreement. "Grand Targhee Purchase Agreement" means the Stock Purchase Agreement dated as of February 11, 1997 pursuant to which BCS Holdings purchased 100% of the capital stock of Grand Targhee. "Grand Targhee Security Agreement" means the Fixture Filing and Security Agreement dated as of March 18, 1997, between Grand Targhee and the Agent, as amended, restated, supplemented or otherwise modified and in effect from time to time. "Grand Targhee Skier Contingent Payments" means the "Skier Contingent Payments" as that term is defined in the Grand Targhee Purchase Agreement. "Guarantee" means: (i) any guarantee by a Person of the payment or performance of, or any contingent obligation by a Person in respect of, any Indebtedness or other obligation of any obligor other than such Person; (ii) any other arrangement whereby credit is extended to one obligor on the basis of any legally enforceable promise or undertaking of another Person (including any "comfort letter" or "keep well agreement" written by such other Person to a creditor or prospective creditor) to (a) pay the Indebtedness of such obligor, (b) purchase an obligation owed by such obligor, (c) pay for the purchase or lease of assets or services regardless of the actual delivery thereof or (d) maintain the capital, working capital, solvency or general financial condition of such obligor, in each case whether or not such arrangement is disclosed in the balance sheet of such other Person or referred to in a footnote thereto; (iii) any liability of a Person as a general partner of a partnership in respect of Indebtedness or other obligations of such partnership; (iv) any liability of a Person as a joint venturer of a joint venture in respect of Indebtedness or other obligations of such joint venture; and (v) reimbursement obligations with respect to letters of credit, surety bonds and other financial guarantees; provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. "Hazardous Material" means, collectively, any pollutant, toxic or hazardous material or waste, including any "hazardous substance" or "pollutant" or "contaminant" as defined in section 101(14) of the Comprehensive Environmental Response, Compensation and Liability Act (or any successor statute) or regulated as toxic or hazardous under the Resource Conservation and Recovery Act of 1976 or any similar state or local statute or regulation, and the rules and regulations thereunder, all as from time to time in effect. "Indebtedness" means all obligations, contingent or otherwise, which in accordance with GAAP should be classified upon the obligor's balance sheet as liabilities, but in any event including: (i) liabilities secured by any Lien existing on property owned or acquired by the obligor or any Subsidiary thereof, whether or not the liability secured thereby shall have been assumed; (ii) Capitalized Lease Obligations; (iii) liabilities in respect of mandatory redemption, repurchase or dividend obligations with respect to capital stock (or other evidence of beneficial interest); and (iv) all Guarantees and endorsements in respect of Indebtedness of others. "Indemnitee" has the meaning provided in Section 10.2. "Interest Expense" means, for any period, the aggregate amount of interest, including payments in the nature of interest under Capitalized Leases, paid or accrued by the Borrowers (whether such interest is reflected as an item of expense or capitalized) on Indebtedness; provided, however, that following any acquisition of any Subsidiary, Interest Expense shall include the sum of (y) actual Interest Expense accrued or paid by the Borrowers plus (z) actual Interest Expense accrued or paid by such Subsidiary since the date of such acquisition through the end of such period, annualized. "Interest Rate Protection Agreement" means any interest rate swap, interest rate cap, interest rate hedge or other contractual arrangement that converts variable interest rates into fixed interest rates, fixed interest rates into variable interest rates, or other similar arrangements. "Investment" means, with respect to any Person: (i) any share of capital stock, evidence of Indebtedness or other security issued by any other Person; (ii) any loan, advance or extension of credit to, or contribution to the capital of, any other Person; (iii) any Guarantee of the Indebtedness of any other Person; (iv) any acquisition of all or any material part of the business of or any resort property of any other Person or the assets comprising such business or part thereof; (v) any commitment to make any Investment or any option payments made relating to an Investment; and (vi) any other similar investment. The investments described in the foregoing clauses (i) through (vi) shall be included in the term "Investment" whether they are made or acquired by purchase, exchange, issuance of stock or other securities, merger, reorganization or any other method; provided, however, that the term "Investment" shall not include (a) current trade and customer accounts receivable for goods furnished or services rendered in the ordinary course of business and payable in accordance with customary trade terms, (b) advances and prepayments to suppliers for goods and services in the ordinary course of business, (c) advances to employees for travel expenses, drawing accounts and similar expenditures, (d) stock or other securities acquired in connection with the satisfaction or enforcement of Indebtedness or claims due to such Person or as security for any such Indebtedness or claim or (e) demand deposits in banks or trust companies. "John Hancock" means the John Hancock Mutual Life Insurance Company, a Massachusetts corporation, and its successors and assigns. "Legal Requirement" means any present or future requirement imposed upon any of the Lenders or the Borrowers and their Subsidiaries by any law, statute, rule, regulation, directive, order, decree or guideline (or any interpretation thereof by courts or of administrative bodies) of the United States of America, or any jurisdiction in which any LIBOR Office is located or any state or political subdivision of any of the foregoing, or by any board, governmental or administrative agency, central bank or monetary authority of the United States of America, any jurisdiction in which any LIBOR Office is located, or any political subdivision of any of the foregoing. Any such law, statute, rule, regulation, directive, order, decree, guideline or interpretation imposed on any of the Lenders not having the force of law shall be deemed to be a Legal Requirement for purposes of Section 3 if such Lender reasonably believes that compliance therewith is customary commercial practice of similarly situated lending institutions generally. "Lender" means the Agent, the banks and other Persons owning a Percentage Interest and their respective successors and assigns, including Assignees under Section 12.1. "Lending Officer" shall mean Carlton F. Williams or other officers of the Agent from time to time designated by it in writing to the Borrowers. "Letter of Credit Exposure" means, with respect to any Letter of Credit, the amount of the Maximum Exposure Under Letters of Credit attributable to such Letter of Credit. "Letters of Credit" has the meaning provided in Section 2.2.1. "LIBOR Base Rate" means, for any LIBOR Interest Period, the average (rounded upward to the nearest whole multiple of one sixteenth of one percent (1/16 of 1%)) of the rate of interest per annum at which deposits in United States Dollars in a principal amount approximately equal to the principal amount of the portion of the Loan to be subject to such Interest Period would be quoted on Telerate page 3750 (or such other page as may replace page 3750 on the Telerate Service or such other service or services as may be nominated by the British Bankers' Association for United States Dollar deposits) as of 11:00 AM., London time, at least two London banking days prior to the first day of the LIBOR Interest Period, the determination of which by the Agent shall, in the absence of manifest error, be conclusive. "LIBOR Interest Period" means any period, selected as provided in Section 3.2.1, of one, two, three or six months, commencing on any Banking Day and ending on the corresponding date in the subsequent calendar month so indicated (or, if such subsequent calendar month has no corresponding date, on the last day of such subsequent calendar month); provided, however, that subject to Section 3.2.3, if any LIBOR Interest Period so selected would otherwise begin or end on a date which is not a Banking Day, such LIBOR Interest Period shall instead begin or end, as the case may be, on the immediately preceding or succeeding Banking Day as determined by the Agent in accordance with the then current banking practice in the inter-bank LIBOR market with respect to LIBOR deposits at the applicable LIBOR Office, which determination by the Agent shall, in the absence of manifest error, be conclusive. "LIBOR Loan" means any portion of the Loan for which interest is calculated on the basis of a LIBOR Rate. "LIBOR Office" means such non-United States office or international banking facility of any Lender as the Lender may from time to time select. "LIBOR Pricing Options" means the options granted pursuant to Section 3.2.1 to have the interest on any portion of the Loan computed on the basis of a LIBOR Rate. "LIBOR Rate" for any LIBOR Interest Period means the rate, rounded upward to the nearest 1/100%, obtained by dividing (a) the LIBOR Base Rate for such LIBOR Interest Period by (b) an amount equal to 1 minus the LIBOR Reserve Rate; provided, however, that if at any time during such LIBOR Interest Period the LIBOR Reserve Rate applicable to any outstanding LIBOR Pricing Option changes, the LIBOR Rate for such LIBOR Interest Period shall automatically be adjusted to reflect such change, effective as of the date of such change to the extent required by the Legal Requirement implementing such change. "LIBOR Reserve Rate" means the stated maximum rate (expressed as a decimal) of all reserves (including any basic, supplemental, marginal or emergency reserve or any reserve asset), if any, as from time to time in effect, required by any Legal Requirement to be maintained by any Lender against (a) "Eurocurrency liabilities" as specified in Regulation D of the Board of Governors of the Federal Reserve System applicable to LIBOR Pricing Options, (b) any other category of liabilities that includes LIBOR deposits by reference to which the interest rate on portions of the Loan subject to LIBOR Pricing Options is determined, (c) the principal amount of or interest on any portion of the Loan subject to a LIBOR Pricing Option or (d) any other category of extensions of credit, or other assets, that includes loans subject to a LIBOR Pricing Option by a non-United States office of any of the Lenders to United States residents. "Lien" means, with respect to any Person: (i) any encumbrance, mortgage, pledge, lien, charge or security interest of any kind upon any property or assets of such Person, whether now owned or hereafter acquired, or upon the income or profits therefrom; (ii) the acquisition of, or the agreement to acquire, any property or assets upon conditional sale or subject to any other title retention agreement, device or arrangement (including a Capitalized Lease); and (iii) the sale, assignment, pledge or transfer for security of any accounts, general intangibles or chattel paper of such Person, with or without recourse. "LMRC Holding" has the meaning provided in the preamble hereto. "LMRC Holding Security Agreement" means the Security Agreement dated as of February 23, 1998 between LMRC Holding and the Agent, as amended, restated, supplemented and in effect from time to time. "Loans" means the Revolving Loans and the Letters of Credit. "Loon" has the meaning provided in the preamble hereto. "Loon Mortgage" means the Mortgage, Security Agreement and Assignment of Leases and Rents, dated as of February 23, 1998, executed by Loon in favor of the Agent, as amended, restated, supplemented or otherwise modified and in effect from time to time. "Loon Realty" has the meaning provided in the preamble hereto. "Loon Realty Security Agreement" means the Security Agreement, dated as of February 23, 1998, between Loon Realty and the Agent, as amended, restated supplemented or otherwise modified and in effect from time to time. "Loon Security Agreement" means the Security Agreement, dated as of February 23, 1998, between Loon and the Agent, as amended, restated, supplemented or otherwise modified and in effect from time to time. "Majority Lenders" means such Lenders who together own at least 51% or more of the Percentage Interests. "Margin Stock" means "margin stock" within the meaning of Regulations T, U or X (or any successor provisions) of the Board of Governors of the Federal Reserve System, or any regulations, interpretations or rulings thereunder, all as from time to time in effect. "Material Adverse Change" means any materially adverse change in the business, assets, financial condition or income of the Borrowers and their Subsidiaries taken as a whole since October 30, 1998. "Material Plan" means any Plan or Plans, collectively, as to which (i) the excess of (a) the aggregate Accumulated Benefit Obligations under such Plan or Plans over (b) the aggregate fair market value of the assets of such Plan or Plans allocable to such benefits, all determined as of the then most recent valuation date or dates for such Plan or Plans, is greater than (ii) $1,000,000. "Maximum Amount of Revolving Credit" has the meaning provided in ection 2.1.1. "Maximum Exposure Under Letters of Credit" means at any time the sum of (i) the aggregate face amount of all unpaid drafts which may then or thereafter be presented by beneficiaries under all Letters of Credit then outstanding, plus (ii) the aggregate face amount of all drafts then outstanding which the Agent has theretofore accepted under Letters of Credit but has not paid. "Mortgages" means, collectively, the Northstar-at-Tahoe Mortgage, the Sierra-at-Tahoe Mortgage, the Bear Mountain Mortgage, the Waterville Mortgage, the Cranmore Mortgage, the Ski Lifts Mortgage, the Loon Mortgage and related assignments to the Agent of leases of real property owned by any of the Borrowers. "Multiemployer Plan" means any Plan which is a "multiemployer plan" as defined in section 4001(a)(3) of ------------------ ERISA. "Net Income" means, with respect to any Person for any period, the net income (or loss) of the Borrowers determined in accordance with GAAP. Plus, to the extent approved by the Agent which approval shall not be unreasonably witheld or delayed, the pro forma effect on cash flow (including the effects of income and expenses) for such period of any acquisiton made by any of the Borrowers or any of thier subsidiaries permittied under this Agreement; provided, however, that Net Income shall not include: (a) all amounts included in computing such net income (or loss) in respect of the write-up of any asset acquired in connection with a Permitted Investment made after October 30, 1998; (b) extraordinary and nonrecurring gains and losses; and (c) net income of the Borrowers from real estate activities, except to the extent received in cash by the Borrowers during such period, including, without limitation, principal and interest received in cash on the promissory notes received from purchasers of Excess Real Property sold in accordance with the terms hereof. "Net Worth" means, with respect to any Person, at any date, the excess of the total assets of such Person over the total Indebtedness of such Person, on a Consolidated basis. Total assets shall be determined in accordance with GAAP, excluding, however: (i) all loans to any Subsidiary, employee, officer or other Affiliate of such Person, and all amounts payable to such Persons from any of such Affiliates; (ii) minority interests in other Persons, (iii) cash and securities segregated in a sinking or other similar fund established for the purpose of redemption or other retirement of capital stock or Financing Debt, and (iv) current reserves on the date of calculation for depreciation, depletion, obsolescence and amortization of properties and all other reserves which, in accordance with GAAP, should be established in connection with the business conducted by such Person. "New Hampshire Resorts" means collectively, Waterville, Cranmore and Loon. "Northstar-at-Tahoe" has the meaning provided in the preamble hereto. "Northstar-at-Tahoe Mortgage" means the Deed of Trust, Assignments of Rents, Security Agreement and Fixture Filing dated as of March 18, 1997, executed by Northstar-at-Tahoe in favor of the Agent, as amended, restated, supplemented or otherwise modified and in effect from time to time. "Northstar-at-Tahoe Security Agreement" means the Security Agreement dated as of March 18, 1997, between Northstar-at-Tahoe and the Agent, as amended, restated, supplemented or otherwise modified and in effect from time to time. "Northstar Club" means Northstar Club, L.L.C., a California limited liability company, together with its successors and assigns. "Obligor" means the Borrowers and each other Person guaranteeing or granting collateral to secure any Credit Obligations. "Payment Date" means the first Banking Day of each calendar quarter. "PBGC" means the Pension Benefit Guaranty Corporation or any successor entity. "Percentage Interest" has the meaning provided in Section 11.1. "Permitted BCS Group Owners" means Booth Creek LLLP (so long as George N. Gillett, Jr. or Rose Gillett is the managing general partner thereof), John Hancock and its Affiliates (other than its portfolio companies), the CIBC Securities Subsidiary, Jeffrey J. Joyce, George N. Gillett, Jr., Rose Gillett, any trust solely for the benefit of George N. Gillett, Jr. and Rose Gillett or their respective immediate family members, or any partnership all the ownership interests in which are beneficially owned by any of the foregoing; provided that with respect to any trust or partnership either George N. Gillett, Jr. or Rose Gillett shall at all times have the exclusive power under such trust or partnership to direct, directly or indirectly, the voting of the share of voting stock of BCS Group held by such trust or partnership. "Person" means any present or future natural person or any corporation, association, partnership, limited liability company, joint venture, company, trust, business trust, organization, business, individual or government or any governmental agency or political subdivision thereof. "Plan" means any pension or other employee benefit plan subject to Title IV of ERISA and/or Section 412 of the Code maintained, or to which contributions have been made by any of the Borrowers, any of their Subsidiaries or any Control Group Person at any time after December 3, 1996. "Resorts" means the California Resorts, the New Hampshire Resorts, the Washington Resorts and the Wyoming Resort, collectively. "Restatement Date" has the meaning provided in Section 1.1. "Revolving Loan" has the meaning provided in Section 2.1.1. "Revolving Note" has the meaning provided in Section 2.1.4. "Securities Act" means, collectively, the federal Securities Act of 1933 (or any successor statute) and the rules and regulations thereunder, all as from time to time in effect. "Security Agreements" means, collectively, the Northstar-at-Tahoe Security Agreement, the Sierra-at-Tahoe Security Agreement, the Bear Mountain Security Agreement, the Waterville Security Agreement, the Cranmore Security Agreement, the Ski Lifts Security Agreement, the Grand Targhee Security Agreement, the LMRC Holding Security Agreement, the Loon Security Agreement, the Loon Realty Security Agreement, the BCS Acquisition Security Agreement and the BCS Holdings Security Agreement. "Securities Purchase Agreements" means, collectively, the Securities Purchase Agreement dated November 27, 1996 between John Hancock and BCS Group and the Securities Purchase Agreement dated November 27, 1996 between the CIBC Securities Subsidiary and BCS Group, each as amended and restated as of February 26, 1998, as further amended and restated on September 14, 1988,and as further amended and in effect from time to time. "Senior Exchange Notes" means the "Exchange Notes" as such term is defined in the Senior Indenture. "Senior Indenture" means the Indenture dated as of March 18, 1997, among BCS Holdings, the Guarantors named therein, Marine Midland Bank as Trustee, and certain note holders as amended and supplemented by Supplemental Indenture No. 1 dated as of April 25, 1997, Supplemental Indenture No. 2 dated as of dated as of February 26, 1998 and Supplemental Indenture No. 3 dated as of February 26, 1998 and Supplemental Indenture No. 4 dated as of October 8, 1998. "Senior Unsecured Notes" means the notes issued pursuant to the Senior Indenture, and any Senior Exchange Notes issued therefor. "Sierra-at-Tahoe" has the meaning provided in the preamble hereto. "Sierra-at-Tahoe Mortgage" means the Deed of Trust, Assignments of Rents, Security Agreement and Fixture Filing dated as of December 3, 1996, executed by Sierra-at-Tahoe in favor of the Agent, as amended, restated, supplemented or otherwise modified and in effect from time to time. "Sierra-at-Tahoe Security Agreement" means the Security Agreement dated as of December 3, 1996, between Sierra-at-Tahoe and the Agent, as amended, restated, supplemented or otherwise modified and in effect from time to time. "Senior Liabilities" means all Indebtedness of the Borrowers minus Subordinated Indebtedness. "Ski Lifts" has the meaning provided in the preamble hereto. "Ski Lifts Mortgage" means the Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing dated as of March 18, 1997, executed by Ski Lifts in favor of the Agent, as amended, restated, supplemented or otherwise modified and in effect from time to time. "Ski Lifts Security Agreement" means the Security Agreement dated as of March 18, 1997, between Ski Lifts and the Agent, as amended, restated, supplemented or otherwise modified and in effect from time to time. "Stated Maximum" means $25,000,000. "Subordinated Indebtedness" means Indebtedness of the Borrowers which is subordinated to the Credit Obligations on terms reasonably acceptable to and approved in writing by the Agent. "Subsidiary" means any Person of which any of the Borrowers (or other specified Person) shall at the time, directly or indirectly through one or more of its Subsidiaries, (i) own at least 50% of the outstanding capital stock (or other shares of beneficial interest) entitled to vote generally, (ii) hold at least 50% of the partnership, limited liability company membership, joint venture or similar interests or (iii) be a general partner or joint venturer; provided, however, that in no event shall DRE LLC be considered a Subsidiary for purposes of this Agreement. "Trailing Four Fiscal Quarter Cash Flow" means for any four consecutive fiscal quarters the Cash Flow of the Borrowers for the period of four fiscal quarters most recently completed. "Uniform Commercial Code" means the Uniform Commercial Code as in effect in Massachusetts on the Restatement Date. "USFS" means the United States Department of Agriculture, Forest Service. "Washington Resorts" means Ski Lifts. "Waterville" has the meaning provided in the preamble hereto. "Waterville Mortgage" means the Fee Mortgage and Security Agreement originally dated November 27, 1996 between Waterville and the Agent, as amended, restated, supplemented or otherwise modified and in effect from time to time. "Waterville Security Agreement" means the Guarantee and Security Agreement, originally dated as of November 27, 1996 between Waterville and BKB, as amended, restated, supplemented or otherwise modified and in effect from time to time. "Wyoming Resort" means Grand Targhee. 2. The Credit. 2.1 The Revolving Credit. 2.1.1 Revolving Loan. Subject to all of the terms and conditions of this Agreement and so long as no Default exists, the Lenders will make loans to the Borrowers in an aggregate principal amount not to exceed at any time outstanding an amount (the "Maximum Amount of Revolving Credit") equal to the sum of (x) the lesser of (a) the Stated Maximum or (b) such amount (in a minimum amount of $300,000 and in integral multiples of $100,000) specified by irrevocable notice from BCS Holdings to the Agent (such notice reducing the Maximum Amount of Revolving Credit seven calendar days after being given to the Agent) minus (y) the Maximum Exposure Under Letters of Credit. The aggregate principal amount of the loans made pursuant to this Section 2.1.1 at any one time outstanding referred to as the "Revolving Loan". 2.1.2 Annual Clean-Up. For a period of sixty (60) consecutive days in each year, commencing between February 1 and February 28 of such year (such period being the "Designated Cleanup Period" for such year), the Revolving Loan shall not exceed $8,000,000 plus any sums maintained as in accounts at the Boston Office in accordance with Section 7.20 hereof. 2.1.3 Borrowing Requests. Revolving Loans will be made to the Borrowers by the Lenders under Section 2.1.1 on any Banking Day on or after the Restatement Date and prior to the Final Maturity Date. Not later than noon (Boston time) on the first Banking Day prior to the requested Closing Date for any such Loan, the Borrowers will give the Agent notice of their request (which may be given by a telephone call received by a Lending Officer and promptly confirmed in writing), specifying (i) the amount of the requested Loan (which shall be not less than $300,000 and in an integral multiple of $100,000) and (ii) the requested Closing Date therefor. Notwithstanding anything to the contrary contained in this Section 2.1.3, the Agent may, in its sole discretion, make Revolving Loans to the Borrowers under Section 2.1.1 at any time and in any amount in order to cover (i) the obligations of the Borrowers under any Controlled Disbursement Agreement (each such Loan being a "Controlled Disbursement Advance"), and (ii) the Credit Obligations of the Borrowers (each such Revolving Loan being a "Credit Obligation Advance"). Each loan under this Section 2.1.3 will be made at the Boston Office by depositing the amount thereof to the general account of the Borrowers with the Agent. 2.1.4 Revolving Notes. All Revolving Loans shall be evidenced by notes in substantially the form of either Exhibit 2.1.4 to this Agreement (each such note being a "Revolving Note") payable jointly and severally by the Borrowers to each Lender in a stated amount equal to such Lender's Percentage Interest in the Revolving Loan. Each Lender shall keep a record of the date and amount of (i) each loan made by such Lender to the Borrowers pursuant to Section 2.1.1 and (ii) each payment of principal made by the Borrowers pursuant to Section 4. Prior to the transfer of any Revolving Note, the Lender shall endorse on a schedule thereto appropriate notations evidencing such dates and amounts; provided, however, that the failure of any Lender to make any such recordation or endorsement shall not affect the obligations of the Borrowers under this Agreement, the Revolving Notes or any other Credit Document. 2.2 Letters of Credit. 2.2.1 Issuance of Letters of Credit. Subject to all of the terms and conditions of this Credit Agreement and so long as no Default exists, the Agent will issue for the account of any Borrower one or more irrevocable standby letters of credit (the "Letters of Credit") up to a Maximum Exposure Under Letters of Credit of $5,000,000. Letters of Credit will be issued on any Banking Day on or after the Restatement Date and prior to the Final Maturity Date. Any Borrower may from time to time request a Letter of Credit to be issued by providing notice to the Agent received not less that three Banking Days prior to the requested Closing Date for such Letter of Credit specifying (i) the amount of the requested Letter of Credit, (ii) the beneficiaries thereof and (iii) the requested Closing Date. As a condition to the issuance of any Letter of Credit such Borrower will provide to the Agent a signed application and such other documents relating to the issuance of letters of credit as are customarily required by the Agent. 2.2.2 Participations in Letters of Credit. Upon the issuance of any Letter of Credit, a participation therein, in an amount equal to the Lenders' respective Percentage Interests, shall automatically be deemed granted by the Agent to each other Lender on the date of such issuance and the Lenders shall automatically be obligated, as set forth in Section 11.1, to reimburse the Agent to the extent of their respective Percentage Interests for all obligations incurred by the Agent to third parties in respect of such Letter of Credit not reimbursed by or on behalf of the Borrowers. 2.2.3 Form and Expiration of Letters of Credit. Each Letter of Credit and each draft accepted or paid under a Letter of Credit shall be issued, accepted or paid, as the case may be by the Agent at the Boston Office. No Letter of Credit shall provide for the payment of drafts drawn thereunder, and no draft shall be payable, at a date that is later that the earlier of (i) the date 12 months after the date of issuance or (ii) the Final Maturity Date. Each Letter of Credit and each draft accepted under a Letter of Credit shall be in such form and minimum amount, and shall contain such terms, as the Agent and the Borrower may agree upon at the time such Letter of Credit is issued, including a requirement of not less than three Banking Days after presentation of a draft before payment must be made thereunder, the term of such Letter of Credit and any rights of cancellation with respect thereto. 2.2.4 Payment of Drafts. At such time as the Agent makes any payment on a draft presented or accepted under a Letter of Credit, the Borrowers will pay to the Agent in immediately available funds on demand the amount of such payment. If the Borrowers do not pay to the Agent the amount required by the foregoing provision, the Agent may make a Credit Obligation Advance pursuant to Section 2.1.3 in such amount as to pay in full the reimbursement obligation under such Letter of Credit and any reasonable other fees and costs permitted by this Agreement with respect to such Letter of Credit. 2.3 Application of Proceeds. 2.3.1 The Revolving Loan. Subject to Section 2.3.3 and Section 7, the Borrowers will apply the proceeds of the Revolving Loan only for working capital and other lawful corporate purposes or expenditures. 2.3.2 Letters of Credit. Subject to Section 2.3.3 and Section 7, Letters of Credit shall be issued for lawful corporate purposes relating to the business of the Borrowers as requested in writing to the Agent. 2.3.3 Specifically Prohibited Applications; Use of Proceeds. The Borrowers will not, directly or indirectly, apply any part of the proceeds of any of the Loans to purchase or carry Margin Stock. The Borrowers also will not directly or indirectly, apply any part of the proceeds of any extension of credit hereunder to any real estate development activity of the Borrowers or any of their Subsidiaries or Affiliates except as permitted by Section 7.11. 2.4 Nature of Obligations of Lenders to Extend Credit. The Lenders' obligations under this Agreement to make the Revolving Loan or participate in Letters of Credit are several and are not joint or joint and several. If any Lender shall fail to perform its obligations to extend such credit, the amount of the commitment of the Lender so failing to perform may be assumed by the other Lenders, in their sole discretion, in such proportions as such Lenders may agree among themselves and the Percentage Interests of each other Lender shall be appropriately adjusted, but such failure or such assumption and adjustment shall not relieve the Lenders from any of their obligations to make such extension of credit. 3.0 Interest; LIBOR Pricing Options; Fees. 3.1 Interest. The Loan shall accrue and bear interest at a rate per annum which shall at all times equal the Applicable Rate. Prior to any stated or accelerated maturity of the Loan, the Borrowers will jointly and severally pay, on each Payment Date, the accrued and unpaid interest on the portion of the Loan which was not subject to a LIBOR Pricing Option. On the last day of each LIBOR Interest Period or on any earlier termination of any LIBOR Pricing Option, the Borrowers will jointly and severally pay the accrued and unpaid interest on the portion of the Loan which was subject to the LIBOR Pricing Option which expired or terminated on such date. In the case of any LIBOR Interest Period longer than 90 days, the Borrowers will also jointly and severally pay the accrued and unpaid interest on the portion of the Loan subject to the LIBOR Pricing Option having such LIBOR Interest Period at quarterly intervals, the first such payment to be made on the last Banking Day of the three-month period which begins on the first day of such LIBOR Interest Period. On the stated or any accelerated maturity of the Loan, the Borrowers will jointly and severally pay all accrued and unpaid interest on the Loan, including any accrued and unpaid interest on any portion of the Loan which is subject to a LIBOR Pricing Option. Upon the occurrence and during the continuance of an Event of Default, the Lenders may require accrued interest to be payable on demand or at regular intervals more frequent than each Payment Date. All payments of interest hereunder shall be made to the Agent for the account of each Lender in accordance with such Lender's Percentage Interest. 3.2 LIBOR Pricing Options. 3.2.1 Election of LIBOR Pricing Options. Subject to all of the terms and conditions hereof and so long as no Default exists, the Borrowers may from time to time, by irrevocable notice to the Agent actually received not less than three Banking Days prior to the commencement of the LIBOR Interest Period selected in such notice, elect to have such portion of the Loan as the Borrowers may specify in such notice accrue and bear interest during the LIBOR Interest Period so selected at the Applicable Rate computed on the basis of the LIBOR Rate. In the event the Borrowers at any time fail to elect a LIBOR Pricing Option under this Section 3.2.1 for any portion of the Loan (upon termination of a LIBOR Pricing Option or otherwise), then such portion of the Loan will accrue and bear interest at the Applicable Rate based on the Alternate Base Rate. No election of a LIBOR Pricing Option shall become effective: (a) if, prior to the commencement of any such LIBOR Interest Period, the Agent determines that (i) the electing or granting of the LIBOR Pricing Option in question would violate a Legal Requirement, (ii) LIBOR deposits in an amount comparable to the principal amount of the Loan as to which such LIBOR Pricing Option has been elected and which have a term corresponding to the proposed LIBOR Interest Period are not readily available in the inter-bank LIBOR market, or (iii) by reason of circumstances affecting the inter-bank LIBOR market, adequate and reasonable methods do not exist for ascertaining the interest rate applicable to such deposits for the proposed LIBOR Interest Period; or (b) if the Majority Lenders shall have advised the Agent by telephone or otherwise at or prior to noon (Boston time) on the second Banking Day prior to the commencement of such proposed LIBOR Interest Period (and shall have subsequently confirmed in writing) that, after reasonable efforts to determine the availability of such LIBOR deposits, the Majority Lenders reasonably anticipate that LIBOR deposits in an amount equal to the Percentage Interest of the Majority Lenders in the portion of the Loan as to which such LIBOR Pricing Option has been elected and which have a term corresponding to the LIBOR Interest Period in question will not be offered in the LIBOR market to the Majority Lenders at a rate of interest that does not exceed the anticipated LIBOR Base Rate. 3.2.2 Notice to Lenders and Borrowers. The Agent will promptly inform each Lender (by telephone or otherwise) of each notice received by it from the Borrowers, pursuant to Section 3.2.1 and of the LIBOR Interest Period specified in such notice. Upon determination by the Agent of the LIBOR Rate for such LIBOR Interest Period or in the event such election shall not become effective, the Agent will promptly notify the Borrowers and each Lender (by telephone or otherwise) of the LIBOR Rate so determined or why such election did not become effective, as the case may be. 3.2.3 Selection of LIBOR Interest Periods. LIBOR Interest Periods shall be selected so that: (a) the minimum portion of the Loan subject to any LIBOR Pricing Option shall be $1,000,000 and an integral multiple of $500,000; (b) no more than six LIBOR Pricing Options shall be outstanding at any one time; and (c) no LIBOR Interest Period with respect to any part of the Loan subject to a LIBOR Pricing Option shall expire later than the Final Maturity Date. 3.2.4. Additional Interest. If any portion of the Loan subject to a LIBOR Pricing Option is repaid, or any LIBOR Pricing Option is terminated for any reason pursuant to the terms of this Agreement (including acceleration of maturity), on a date which is prior to the last Banking Day of the LIBOR Interest Period applicable to such LIBOR Pricing Option, the Borrowers will pay to the Agent for the account of each Lender in accordance with such Lender's Percentage Interest, in addition to any amounts of interest otherwise payable hereunder, an amount equal to the present value (calculated in accordance with this Section 3.2.4) of interest for the unexpired portion of such LIBOR Interest Period on the portion of the Loan so repaid, or as to which a LIBOR Pricing Option was so terminated, at a per annum rate equal to the excess, if any, of (a) the rate applicable to such LIBOR Pricing Option minus (b) the rate of interest obtainable by the Agent upon the purchase of debt securities customarily issued by the Treasury of the United States of America which have a maturity date approximating the last Banking Day of such LIBOR Interest Period. The present value of such additional interest shall be calculated by discounting the amount of such interest for each day in the unexpired portion of such LIBOR Interest Period from such day to the date of such repayment or termination at a per annum interest rate equal to the interest rate determined pursuant to clause (b) of the preceding sentence, and by adding all such amounts for all such days during such period. The determination by the Agent of such amount of interest shall, in the absence of manifest error, be conclusive. For purposes of this Section 3.2.4, if any portion of the Loan which was to have been subject to a LIBOR Pricing Option is not outstanding on the first day of the LIBOR Interest Period applicable to such LIBOR Pricing Option other than for reasons described in Section 3.2. 1, the Borrowers shall be deemed to have terminated such LIBOR Pricing Option. 3.2.5 Violation of Legal Requirements. If any Legal Requirement shall prevent any Lender from funding or maintaining through the purchase of deposits in the interbank LIBOR market any portion of the Loan subject to a LIBOR Pricing Option or otherwise from giving effect to such Lender's obligations as contemplated by Section 3.2, (a) the Agent may by notice to the Borrowers terminate all of the affected LIBOR Pricing Options, (b) the portion of the Loan subject to such terminated LIBOR Pricing Options shall immediately bear interest thereafter at the Applicable Rate computed on the basis of the Alternate Base Rate and (c) the Borrowers shall make any payment required by Section 3.2.4. 3.2.6 Funding Procedure. The Lenders may fund any portion of the Loan subject to a LIBOR Pricing Option out of any funds available to the Lenders. Regardless of the source of the funds actually used by any of the Lenders to fund any portion of the Loan subject to a LIBOR Pricing Option, however, all amounts payable hereunder, including the interest rate applicable to any such portion of the Loan and the amounts payable under Sections 3.2.4 and 3.5, shall be computed as if each Lender had actually funded such Lender's Percentage Interest in such portion of the Loan through the purchase of deposits in such amount of the type by which the LIBOR Base Rate was determined with a maturity the same as the applicable LIBOR Interest Period relating thereto and through the transfer of such deposits from an office of the Lender having the same location as the applicable LIBOR Office to one of such Lender's offices in the United States. 3.3 Fees. 3.3.1 Commitment Fees for Revolving Loan. In consideration of the Lenders' commitments to make the extensions of credit provided for in Section 2.1.1, while such commitments are outstanding, the Borrowers, jointly and severally, will pay, to the Agent for the account of the Lenders in accordance with the Lenders' respective commitments in the Revolving Loan, on each Payment Date in the last month of a fiscal quarter of the Borrowers, an amount equal to interest computed at the rate of 0.375% per annum on the amount by which (a) the average daily Maximum Amount of Revolving Credit during the quarter or portion thereof ending on such Payment Date exceeded (b) the sum of the average daily Revolving Loan during such period or portion thereof; provided, however, that the first such payment shall be for the period beginning on the Restatement Date and ending on the first such Payment Date. 3.3.2 Prepayment Fee. In consideration of the Agent's arranging the commitments to make the extensions of credit provided for in this Agreement, if the Borrowers provide notice pursuant to Section 2.1.1 such that the Maximum Amount of Revolving Credit (excluding the effects of Section 2.1.2 and the Maximum Exposure Under Letters of Credit on the Maximum Amount of Revolving Credit at the time such notice is given) is reduced to $10,000,000 or less, the Borrowers will pay to the Agent $100,000. 3.3.3 Letter of Credit Fees. The Borrowers, jointly and severally, will pay to the Agent on the date on which each Letter of Credit is issued and, if any such Letter of Credit is extended, renewed or otherwise remains outstanding longer than one year from the date of issuance, on each anniversary of the issuance of such Letter of Credit, a Letter of Credit fee at a rate of 1.5% per annum on the amount of the Letter of Credit Exposure with respect to such Letter of Credit for a period which is the shorter of (i) the period from the date on which such Letter of Credit is issued through the expiration date of such Letter of Credit (or, if later, the date on which an accepted draft presented under such Letter of Credit may be paid) or (ii) one year. The Borrowers, jointly and severally, shall also pay to the Agent customary service charges and expenses for its services at the times and in the amount from time to time in effect in accordance with the Agent's general rate structure, including fees and expenses relating to the issuance, amendment, negotiation, cancellation and similar operations. 3.4 Capital Adequacy. If any Lender shall have determined that compliance by such Lender with any applicable law, governmental rule, regulation or order regarding capital adequacy of banks or bank holding companies, or any interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by such Lender with any request or directive regarding capital adequacy (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender's capital as a consequence of such Lender's obligations hereunder to a level below that which such Lender could have achieved but for such compliance (taking into consideration such Lender's policies with respect to capital adequacy immediately before such compliance and assuming that such Lender's capital was fully utilized prior to such compliance) by an amount deemed by such Lender to be material, such Lender shall, promptly after it has made such determination, give notice thereof to the Borrowers, with a copy to the Agent. Promptly after the receipt by the Borrowers of any such notice, the Borrowers and the Lender who sent such notice shall attempt to negotiate in good faith an adjustment to the amount payable to such Lender under this Agreement, which amount shall be sufficient to compensate such Lender for such reduced return. If the Borrowers and such Lender are unable to agree to such adjustment within thirty days of the day on which the Borrowers receive such notice, then the Borrowers will on demand by such Lender pay to such Lender such additional amounts as shall be sufficient, in such Lender's reasonable determination, to compensate such Lender for such reduced return, such additional amounts commencing on the date of such notice (but not earlier than the effective date of any such law, governmental rule, regulation or order). Any such determination by a Lender hereunder shall be conclusive and binding upon the Borrowers, absent manifest error. In making any such determination such Lender may use any reasonable averaging and attribution methods. 3.5 Computations of Interest. For purposes of this Agreement, interest (and any amount expressed as interest) shall be computed on a daily basis and on the basis of a 360-day year for any LIBOR Loans, and on a daily basis and on the basis of a 365-day year for any Alternate Base Rate Loan. 4.0 Payment. 4.1 Payment at Maturity. On the stated or any accelerated maturity of the Revolving Notes, the Borrowers will jointly and severally pay to the Agent for the account of each Lender for credit to the Revolving Notes an amount equal to the Indebtedness evidenced by the Revolving Notes then due, together with all accrued and unpaid interest thereon and all other Credit Obligations then outstanding in respect of the Revolving Loan. 4.2 Mandatory Prepayments. If at any time the Revolving Loan exceeds (i) the Maximum Amount of Revolving Credit or (ii) the amount permitted by Section 2.1.2, the Borrowers promptly will jointly and severally pay the amount of such excess to the Agent for the account of each Lender for credit to the Revolving Notes. 4.3 Voluntary Prepayments of Revolving Loan. In addition to the prepayments required by Section 4.2. the Borrowers may from time to time prepay all or any portion of the Revolving Loan (in a minimum amount of $300,000 and an integral multiple of $100,000), without premium or penalty (except with respect to additional interest due pursuant to Section 3.2.4 in the case of certain voluntary repayments of LIBOR Loans). With respect to such prepayment, the Borrowers shall give the Agent at least one Banking Day's prior notice of its intention to prepay, specifying the date of payment, the total principal amount of the Revolving Loan to be paid on such date and the amount of interest to be paid with such prepayment. Notwithstanding anything contained in this Section 4.3, the Agent may accept payments in connection with a Controlled Disbursement Agreement at any time and in any amount. 4.4 Reborrowing; Application of Payments. The amounts of the Revolving Loan prepaid pursuant to Section 4.3 may be reborrowed from time to time prior to the Final Maturity Date in accordance with Section 2.1. The amount of the Revolving Loan prepaid pursuant to Section 4.2 may not be reborrowed. All payments of principal hereunder shall be made to the Agent for the account of each Lender in accordance with the Lenders' respective Percentage Interests. 4.5 Payment and Interest Cut-off. Notice of prepayment having been given in accordance with Section 4.3 and whether or not notice is given of prepayments pursuant to Section 4.2, the amount specified to be prepaid shall become due and payable on the date specified for prepayment, and from and after such date (except to the extent the Borrowers shall fail to make the payment thereof) interest thereon shall cease to accrue. 4.6 Charging Accounts. The Borrowers authorize the Agent to charge the accounts of the Borrowers, on the dates when the amounts thereof become due and payable, with the amounts of the principal of and interest on the Loans, commitment fees and all other fees and amounts owing under any Credit Document. 5. Conditions. 5.1 Conditions to Initial Extension of Credit. The obligations of the Lenders to make the initial extension of credit under Section 2 shall be subject to the satisfaction, of the conditions set forth in this Section 5.1 and in Section 5.2. 5.1.1 Notes. The Borrowers shall have executed Revolving Notes and delivered them to the Agent. 5.1.2 Payment of Fees. The Borrowers shall have paid (i) the reasonable fees and expenses of the Agent's counsel, Goodwin, Procter & Hoar LLP, for which statements have been rendered on or before the Restatement Date, and (ii) a fee to BKB as Agent as provided in the letter agreement of even date hereof. 5.1.3 Legal Opinion. The Lenders shall have received from Winston & Strawn, special counsel for the Borrowers, and from the Borrowers' local counsel, duly authorized and directed by the Borrowers, their opinions with respect to the transactions contemplated by the Credit Documents, which opinions shall be in form and substance satisfactory to the Lenders. 5.1.4 Confirmation of Mortgage Liens and Security Interests. The Borrowers shall have (a) confirmed to the Agent that the mortgage liens and other security interests created under the Mortgages and Security Agreements shall continue in full force and effect and secure the Credit Obligations and (b) delivered to the Agent such confirmations, amendments, endorsements and other instruments reasonably requested by the Agent in connection therewith. 5.2 Conditions to Extending Credit. The obligations of the Lenders to make any extension of credit pursuant to Section 2 shall be subject to the satisfaction, on or before the Closing Date for such extension of credit, of the conditions set forth in this Section 5.2. 5.2.1 Representations and Warranties; No Default; No Material Adverse Change. The representations and warranties of the Borrowers contained in this Agreement, the Security Agreements and the Mortgages shall be true and correct in all material respects on and as of the Closing Date with the same force and effect as though originally made on and as of such date, other than any such representations or warranties that, by their terms refer to a specific date other than the Closing Date, in which case, as of such date; no Default shall exist on such Closing Date prior to or immediately after giving effect to the requested extension of credit and no Material Adverse Change shall have occurred; and the Borrowers shall have furnished to the Agent on such Closing Date a certificate to these effects, in substantially the form of Exhibit 5.2.1, signed by an Executive Officer or a Financial Officer. 5.2.2 Perfection of Security. Each Obligor shall have duly authorized, executed, acknowledged, delivered, filed, registered and recorded such security agreements, (including, but not limited to, the Security Agreements), the Mortgages, three-party agreements with the USFS, notices, financing statements and other instruments as the Agent may have requested in order to perfect the security interests and encumbrances purported or required pursuant to the Credit Documents to be created in the Credit Security. 5.2.3 Proper Proceedings. This Agreement, each other Credit Document and the transactions contemplated hereby and thereby shall have been authorized by all necessary proceedings of each Obligor and any of their respective Affiliates party thereto. All necessary consents, approvals and authorizations of any governmental or administrative agency or any other Person of any of the transactions contemplated hereby or by any other Credit Document shall have been obtained and shall be in full force and effect. 5.2.4 Legality, etc. The making of the requested extension of credit on the Closing Date shall not (i) subject any Lender to any penalty or special tax, (ii) be prohibited by any law or governmental order or regulation applicable to any Lender or any Obligor or (iii) violate any voluntary credit restraint program of the executive branch of the government of the United States of America, the Board of Governors of the Federal Reserve System or any other governmental or administrative agency so long as any Lender reasonably believes that compliance therewith is in the best interests of such Lender. 5.2.5 General. All legal and corporate proceedings in connection with the transactions contemplated by this Agreement and each other Credit Document shall be satisfactory in form and substance to the Agent, and the Lenders shall have received copies of all documents, including records of corporate proceedings, appraisals and opinions of counsel, which any Lender may have reasonably requested in connection therewith, such documents where appropriate to be certified by proper corporate or governmental authorities. 6. Security. Each of the Borrowers acknowledges and agrees that all of the Credit Obligations under this amended and restated Agreement shall at all times be secured in the manner and on the terms contemplated by the Credit Documents, including the Security Agreements and the Mortgages, but excluding any environmental indemnity agreements. 7. General Covenants. The Borrowers covenant that, until all of the Credit Obligations shall have been paid in full and until the Lenders' commitments to extend credit under this Agreement and any other Credit Document shall have been irrevocably terminated, they will comply with each of the following provisions: 7.1 Taxes and Other Charges. The Borrowers will duly pay and discharge, or cause to be paid and discharged, before the same shall become in arrears (or in conformity with customary trade terms, where applicable) (i) all taxes, assessments and other governmental charges imposed upon the Borrowers and their properties, sales or activities, or upon the income or profits therefrom, (ii) all claims for labor, materials or supplies which if unpaid might by law become a Lien upon any of its property, and (iii) all accounts payable and other Indebtedness incident to their operations; provided, however, that any such tax, assessment, charge, claim or Indebtedness need not be paid if the validity or amount thereof shall at the time be contested in good faith by appropriate proceedings and if the Borrowers shall, in accordance with GAAP, have set aside on their books adequate reserves with respect thereto. 7 2. Conduct of Business, etc. 7.2.1 Types of Business. The Borrowers will engage only in the types of businesses in which they are engaged as of the date hereof and businesses related or ancillary thereto. 7.2.2 Maintenance of Properties, Compliance with Agreements, etc. The Borrowers will, and will cause each of their Subsidiaries to, (i) keep their properties in such repair, working order and condition (ordinary wear and tear excepted), and from time to time make such repairs, replacements, additions and improvements thereto, as their management deems necessary and appropriate and comply at all times in all material respects with all franchises, licenses, leases and other material agreements to which any of them is a party so as to prevent any loss or forfeiture thereof or thereunder, unless compliance at such time is being contested in good faith by appropriate proceedings or unless such losses or forfeitures could not in the aggregate result in any Material Adverse Change and (ii) do all things necessary to preserve, renew and keep in full force and effect and in good standing the legal existence and authority of the Borrowers and their material Subsidiaries necessary to continue any of their businesses; provided, however, that this Section 7.2.2 shall not apply to assets or entities disposed of in transactions permitted by Section 7.12 and provided further that so long as before and after giving effect thereto no Default exists, with the consent of the Agent, which shall not be unreasonably withheld or delayed, any Borrower or Subsidiary may merge or consolidate with or into another Borrower or Subsidiary. 7.2.3 Statutory Compliance. The Borrowers will, and will cause each of their respective Subsidiaries to, comply in all material respects with all valid and applicable statutes, ordinances, zoning and building codes and other rules and regulations of the United States of America, of the states and territories thereof and their counties, municipalities and other subdivisions and of any foreign country or other jurisdictions applicable to the Borrowers and their material Subsidiaries, except where compliance therewith shall at the time be contested in good faith by appropriate proceedings or where failure so to comply could not in the aggregate result in any Material Adverse Change. 7.3 Insurance. Each of the Borrowers will, and will cause its Subsidiaries to, maintain at all times, with financially sound and reputable insurers, insurance with respect to its properties and business and against such casualties and contingencies in such types and such amounts as shall be in accordance with sound business practices and reasonably satisfactory to the Lenders. Such insurance will be deemed satisfactory so long as each of the Borrowers and their Subsidiaries (i) keep their physical property insured against fire and extended coverage risks in amounts and with deductibles equal to those generally maintained by businesses of similar size engaged in similar activities, (ii) maintain all such workers' compensation or similar insurance as may be required by law, and (iii) maintain, in amounts and with deductibles equal to those generally maintained by businesses of similar size engaged in similar activities, general public liability insurance against claims for bodily injury, death or property damage occurring on, in or about the properties of each of the Borrowers, and product liability insurance. 7.4 Financial Statements and Reports. Each of the Borrowers will maintain a system of accounting in which full and correct entries will be made of all dealings and transactions in relation to their business and affairs in accordance with GAAP. The fiscal year of each of the Borrowers will end on the Friday closest to the end of October in each year. 7.4.1 Annual Statements. The Borrowers will furnish to the Lenders as soon as available and in any event within 100 days after the end of each fiscal year, the Consolidated and Consolidating balance sheet and statement of income of each of the Borrowers and their Subsidiaries, respectively, as at the end of such fiscal year and the Consolidated and Consolidating statements of changes in shareholders' equity and cash flows of the Borrowers and their Subsidiaries, respectively, for such year (all in reasonable detail), together with comparative figures for the preceding fiscal year (computed on a pro forma basis if necessary), and accompanied by: (i) unqualified reports or certificates of Ernst & Young, L.L.P. (or, if they cease to be auditors of the Borrowers and their Subsidiaries, independent certified public accountants of recognized standing reasonably satisfactory to the Lenders), to the effect that they have audited such Consolidated financial statements in accordance with GAAP and that such Consolidated financial statements present fairly, in all material respects, the financial position of the Persons covered thereby at the dates thereof and the results of their operations for the periods covered thereby in conformity with GAAP; (ii) the statement of such accountants that they have caused this Agreement to be reviewed and that in the course of their audit of the Borrowers and their Subsidiaries nothing has come to their attention to lead them to believe that any Default hereunder exists and in particular that they have no knowledge of any Default under Section 7.5 or, if such is not the case, specifying such Default or possible Default and the nature thereof, it being understood that the examination of such accountants cannot be relied upon to give them knowledge of any such Default except as it relates to accounting or auditing matters; (iii) a certificate of the Borrowers signed by a Financial Officer substantially in the form of Exhibit 7.4.1; (a) to the effect that such officer has caused this Agreement to be reviewed by the Borrowers and has no knowledge of any Default, or if such officer has such knowledge, specifying such Default and the nature thereof, and what action the Borrowers have taken, are taking or propose to take with respect thereto, (b) stating what changes, if any, have occurred in GAAP since the date of the financial statements described in Section 8.2, and (c) containing a schedule of computations demonstrating, as of the close of such fiscal year, compliance with the Computation Covenants; and (iv) supplements to Exhibits 8.1 and 8.4 showing any changes in the information set forth in such Exhibits during such fiscal year. 7.4.2 Quarterly Reports. The Borrowers will furnish to the Lenders as soon as available and, in any event, within 45 days after the end of each fiscal quarter, internally prepared Consolidated and Consolidating balance sheets as at the end of such quarter, and Consolidated and Consolidating statements of income and cash flows of the Borrowers and their Subsidiaries for such quarter (all in reasonable detail), accompanied by a certificate of the Borrowers signed by a Financial Officer substantially in the form of Exhibit 7.4.2: (i) to the effect that such financial statements have been prepared in accordance with GAAP and present fairly, in all material respects, the financial position of the Borrowers and their respective Subsidiaries at the dates thereof and the results of their operations for the periods covered thereby, subject only to normal year-end audit adjustments and the addition of footnotes; (ii) to the effect that such officer has caused this Agreement to be reviewed by the Borrowers and has no knowledge of any Default, or if such officer has such knowledge, specifying such Default and the nature thereof and what action the Borrowers have taken, are taking or propose to take with respect thereto, and (iii) containing a schedule of computations by the Borrowers demonstrating, as of the close of such fiscal quarter, compliance with the Computation Covenants. 7.4.3 Monthly Reports. The Borrowers will furnish to the Lenders as soon as available and, in any event, within 40 days after the end of each calendar month, an internally prepared Consolidated balance sheet as at the end of such month, and Consolidated statements of income and cash flows of the Borrowers and their Subsidiaries for such month and other related information in the form consistent with past practice (all in reasonable detail). 7.4.4 Other Reports. The Borrowers will furnish to the Lenders: (i) as soon as available, and in any event within 40 days after the end of each fiscal year, an annual budget and/or operating projections for the upcoming fiscal year of the Borrowers, prepared in a manner consistent with the manner in which the financial statements described in Sections 7.4.1 through 7.4.3 are prepared; (ii) as soon as available, any material updates, if any, of such budget and projections; (iii) as soon as available, all management letters furnished to the Borrowers by their auditors; (iv)as soon as practicable but, in any event, within 20 Banking Days after the issuance thereof, all budgets, projections, statements of operations and other material reports furnished by the Borrowers or any of their Subsidiaries generally to their shareholders in such capacity (but not including any such budgets, projections, statements of operations and other material reports furnished to the Board of Directors of any entity of the BCG Group but not otherwise made generally available); and (v) as soon as practicable but, in any event, within 20 Banking Days after the issuance thereof, such registration statements, proxy statements and reports, if any, as may be filed by the Borrowers or any Subsidiary with the Securities and Exchange Commission. 7.4.5 Notice of Litigations; Notice of Defaults. The Borrowers will promptly furnish to the Agent written notice of any litigation or any administrative or arbitration proceeding to which any of the Borrowers or any Subsidiary may hereafter become a party which may involve any material risk of any judgment which, after giving effect to any applicable insurance, may result in a claim of more than $500,000 against any of the Borrowers or any Subsidiary. Within five Banking Days after acquiring knowledge thereof, the Borrowers will notify the Lenders of the existence of any Default, specifying the nature thereof and what action the Borrowers have taken, are taking or propose to take with respect thereto. 7.4.6 ERISA Reports. The Borrowers will: (i)furnish the Lenders with a copy of any request for a waiver of the funding standards or an extension of the amortization period required by sections 303 and 304 of ERISA or section 412 of the Code, promptly after any Control Group Person submits such request to the Department of Labor or the Internal Revenue Service; (ii) notify the Lenders of any reportable event (as defined in section 4043 of ERISA), unless the notice requirement with respect thereto has been waived by regulation, promptly after any Control Group Person learns of such reportable event; and furnish the Lenders with a copy of the notice of such reportable event required to be filed with the PBGC, promptly after such notice is required to be given; (iii)furnish the Lenders with a copy of any notice received by any Control Group Person that the PBGC has instituted or intends to institute proceedings under section 4042 of ERISA to terminate any Plan, or that any Multiemployer Plan is insolvent or in reorganization status under Title IV of ERISA, promptly after receipt of such notice; (iv) notify the Lenders of the possibility of the termination of any Plan by its administrator pursuant to section 4041 of ERISA, as soon as any Control Group Person learns of such possibility and in any event prior to such termination; and furnish the Lenders with a copy of any notice to the PBGC that a Plan is to be terminated, promptly after any Control Group Person files a copy of such notice; and (v) notify the Lenders of the intention of the Borrowers or any Control Group Person to withdraw, in whole or in part, from any Multiemployer Plan, prior to such withdrawal, and, upon any Lender's request from time to time, of the extent of the liability, if any, of such Person as a result of such withdrawal, to be the best of such Person's knowledge at such time. 7.4.7 Right to Obtain Appraisals. The Agent shall have the right to obtain from time to time, at the Borrowers' cost and expense, updated Appraisals, provided that so long as no Default or Event of Default shall have occurred and be continuing, the Borrowers shall only be obligated to reimburse the Agent for its costs and expenses related to one updated Appraisal each fiscal year. The costs and expenses incurred by the Agent and the Lenders in obtaining such Appraisals shall be paid by the Borrowers forthwith upon billing or request by the Agent for reimbursement therefor. 7.4.8 Other Information. From time to time upon request of any authorized officer of the Agent, the Borrowers will furnish to the Lenders such other information regarding the business, affairs and condition, financial or otherwise, of each of the Borrowers and their Subsidiaries as such officer may reasonably request, including copies of all licenses, agreements, contracts, leases and instruments to which any of the Borrowers or their Subsidiaries are party. Upon reasonable notice to the Borrowers, the Lenders' authorized officers and representatives shall have the right during normal business hours to examine the books and records of each of the Borrowers and their Subsidiaries, to make copies, notes and abstracts therefrom and to make an independent examination of its books and records, for the purpose of verifying the accuracy of the reports delivered by any of the Borrowers and their Subsidiaries pursuant to this Section 7.4 or otherwise and ascertaining compliance with this Agreement or any other Credit Document. 7.5 Certain Financial Tests. 7.5.1 Financing Debt to Cash Flow. During the periods set forth below, the ratio of the unpaid principal amount of Consolidated Financing Debt of the Borrowers to Trailing Four Fiscal Quarter Cash Flow for such periods shall not exceed the ratios set forth below during the applicable periods: Period Ratio October 30, 1998 through October 29, 1999 6.5-to-1.0 October 30, 1999 through October 27, 2000 6.0-to-1.0 October 28, 2000 through November 2, 2001 5.5-to-1.0 November 3, 2001 and thereafter 5.0-to-1.0 7.5.2 Cash Flow to Fixed Charges. On the last day of each fiscal quarter of the Borrowers during the periods set forth below, the sum of (a) Trailing Four Fiscal Quarter Cash Flow measured on such date minus (b) Cash Flow Adjustment for the four fiscal quarters then ending, shall equal or exceed the percentages set forth below of Consolidated Fixed Charges of the Borrowers for such four fiscal quarters then ending: Period Percentages October 30, 1998 through October 29, 1999 100% October 30, 1999 through October 27, 2000 105% October 28, 2000 and thereafter 110% 7.5.3 Minimum Net Worth. At all times, Consolidated Net Worth of the Borrowers shall be in excess of $10,000,000. 7.6 Indebtedness. None of the Borrowers and their Subsidiaries will create, incur, assume or otherwise become or remain liable with respect to any Indebtedness or obligations under operating leases except the following: 7.6.1 Indebtedness in respect of the Credit Obligations. 7.6.2 Guarantees permitted by Section 7.7. 7.6.3 Current liabilities, (other than for Financing Debt and operating leases), incurred in the ordinary course of business; provided, however, that all such Indebtedness, including without limitation trade payables, shall be paid in accordance with Section 7.1. 7.6.4 To the extent that payment thereof shall not at the time be required by Section 7.1, Indebtedness in respect of taxes, assessments, governmental charges and claims for labor, materials and supplies. 7.6.5 Indebtedness secured by Liens of carriers, warehousemen, mechanics and landlord and similar liens permitted by Sections 7.8.5 and 7.8.6. 7.6.6 Indebtedness in respect of (a) judgments or awards in an aggregate amount of less than or equal to $1,000,000 and (b) judgments or awards in excess of $1,000,000 which (i) which have been in force for less than the applicable appeal period, so long as execution is not levied, or (ii) in respect of which the Borrowers shall at the time in good faith be prosecuting an appeal or proceedings for review, so long as execution thereof shall have been stayed pending such appeal or review. 7.6.7 To the extent permitted by Section 7.8.7, Indebtedness in respect of Capitalized Lease Obligations or secured by purchase money security interests; provided, however, that the aggregate principal amount of all Indebtedness permitted to be incurred by this Section 7.6.7 after the Restatement Date shall not exceed $5,000,000 at any one time outstanding. 7.6.8 Obligations in respect of (i) leases with the United States Forest Service with respect to forest lands and (ii) other operating leases (excluding certain leases with General Electric Capital Corporation for three ski lifts dated on or about December 24, 1998), provided the basic annual rental payments under such other operating leases do not exceed in the aggregate $3,000,000 in any fiscal year. 7.6.9 Indebtedness with respect to deferred compensation in the ordinary course of business and Indebtedness with respect to employee benefit programs (including liabilities in respect of deferred compensation, pension or severance benefits, early termination benefits, disability benefits, vacation benefits and tuition benefits) incurred in the ordinary course of business. 7.6.10 Indebtedness in respect of customer advances and deposits, deferred income, deferred gains, deferred taxes and other deferred credits arising in the ordinary course of business. 7.6.11 Indebtedness in respect of inter-company loans and advances between and among the Borrowers and their Subsidiaries which are not prohibited by Section 7.9. 7.6.12 [Intentionally Omitted] 7.6.13 Indebtedness in respect of the Senior Unsecured Notes, not to exceed $133,500,000 in aggregate principal amount. 7.6.14 Indebtedness in respect of the ASC Subordinated Note; provided, however, that such Indebtedness shall not in the aggregate exceed $2,750,000. 7.6.15 Indebtedness in respect of the Grand Targhee Development Contingent Payment and the Grand Targhee Skier Contingent Payments. 7.6.16 Indebtedness in respect of obligations outstanding on the date hereof and described on Exhibit 8.4. 7.6.17 Indebtedness in respect of the obligations of Northstar-at-Tahoe to Star Resorts, pursuant to the Agreement to Purchase and Sell Units between Northstar Club and Northstar-at-Tahoe, dated as of October 27, 1997 and as amended as of April 22, 1998, such obligations not to exceed in the aggregate $700,000. 7.6.18 [Intentionally Omitted] 7.6.19 Indebtedness in respect of Interest Rate Protection Agreements between BCS Holdings and the Agent. 7.6.20 Indebtedness consisting of (i) Bear Mountain 1915 Improvement Bond Act Obligations, not to exceed $700,000 in aggregate principal amount and (ii) Waterville Valley Sewer Obligations, not to exceed $150,000 in aggregate principal amount. 7.7 Guarantees; Letters of Credit. None of the Borrowers or their Subsidiaries will become or remain liable with respect to any Guarantee, including reimbursement obligations under letters of credit and other financing guarantees by third parties, except as contemplated by (i) the Credit Documents, (ii) the Senior Indenture, to the extent such Guarantees are of Indebtedness permitted by Section 7.6.13, (iii) the ASC Subordinated Note, (iv) a guarantee by BCS Holdings of workers' compensation liabilities of Ski Lifts and (v) Guarantees of Indebtedness permitted to be incurred under Section 7.6 hereof of any of the Borrowers by a Borrower or a Subsidiary. 7.8 Liens. None of the Borrowers or any of their Subsidiaries will create,incur or enter into, or suffer to be created or incurred or to exist, any Lien, or any arrangement or agreement which prohibits it from creating any Lien, on its respective properties or assets, except the following. 7.8.1 Liens included in any Credit Document and Liens on the Credit Security which secure the Credit Obligations. 7.8.2 Liens to secure taxes, assessments and other governmental charges, to the extent that payment thereof shall not at the time be required by Section 7.1. 7.8.3 Deposits or pledges made (i) in connection with, or to secure payment of, workers' compensation, unemployment insurance, old age pensions or other social security, (ii) in connection with insurance maintained in accordance with Section 7.3, (iii) to secure the performance of bids, tenders, contracts (other than contracts relating to Financing Debt) or leases, (iv) to secure statutory obligations or surety or appeal bonds, (v) to secure indemnity, performance or other similar bonds in the ordinary course of business or (vi) in connection with contests of tax or other liabilities to the extent that payment thereof shall not at that time be required by Section 7.1. 7.8.4 Liens in respect of judgments or awards, to the extent that such judgments or awards are permitted by Section 7.6.6. 7.8.5 Liens of carriers, warehousemen, mechanics and similar Liens or deposits to secure the release thereof. 7.8.6 Encumbrances in the nature of (i) zoning restrictions, (ii) easements, rights of way and similar interests (iii) restrictions of record on the use of real property and (iv) landlords' and lessors' Liens on rented premises, which in each case do not materially detract from the value of the encumbered property or materially impair the use thereof in the business of the Borrowers. 7.8.7 Capitalized Lease Obligations incurred after the Restatement Date and purchase money security interests in or purchase money mortgages on real or personal property acquired after the Restatement Date, including agreements to enter into Capitalized Lease Obligations, Purchase Money Security Interests and Purchase Money Mortgages, to secure purchase money Indebtedness to the extent permitted by Section 7.6.7 incurred in connection with the acquisition of such property, which security interests or mortgages cover only the real or personal property so acquired and proceeds thereof and reasonable attachments and accessories thereto. 7.8.8 Liens securing obligations under the ASC Subordinated Note, to the extent permitted by Section 7.7.14. 7.8.9 Other existing Liens and Capitalized Lease Obligations described on Exhibit 8.4 on the property secured by such Liens or the subject of such Capitalized Lease as of the Restatement Date and any renewals or replacements thereof, but not any increase in the amount thereof. 7.8.10 Liens granted pursuant to the Option Agreement dated as of April 22, 1998 between Northstar-at-Tahoe and Northstar Club. 7.9 Investments. None of the Borrowers and their Subsidiaries will have outstanding, acquire, commit itself to acquire or hold any Investment (including any Investment consisting of the acquisition of any business) except for the following: 7.9.1 Investments in cash and Cash Equivalents. 7.9.2 Trade or customer accounts or notes receivable for inventory or equipment sold or leased or services rendered in the ordinary course of business and for real estate permitted to be sold pursuant to Section 7.12 hereof. 7.9.3 Advances to employees, agents and consultants in the ordinary course of business, including, but not limited to, travel, payroll and other expenses incurred in the ordinary course of business. 7.9.4 Investments representing Indebtedness of any Person owing as a result of the sale by the Borrowers or a Subsidiary in the ordinary course of business to such Person of products or services or the sale of tangible property no longer required in its business. 7.9.5 Capital Expenditures to the extent permitted by Section 7.11. 7.9.6 Investments by any Borrower in any other Borrower. 7.9.7 Investments consisting of loans to employees of any of the Borrowers provided that the aggregate outstanding principal amount of such loans shall not at any time exceed $200,000. 7.9.8 Investments consisting of contingent liabilities of any Borrower represented by endorsements of negotiable instruments for collection or deposit in the ordinary course of business, and advances, deposits, down payments and prepayments on account of certain firm purchase orders made in the ordinary course of business. 7.9.9 Investments described on Exhibit 8.4. 7.9.10 Investments consisting of the one share of common stock of Tahoe Airline Guarantee Corp. owned by the Borrowers on the Restatement Date. 7.9.11 Investments, not to exceed $1,000,000 in aggregate amount, (i) pursuant to the terms of the Asset Purchase Agreement dated as of August 21, 1997 by and between Charles Wiper III, as shareholder, BCS Holdings and First Tracks Inc., an Oregon corporation and (ii) consisting of the "July Deposit" as defined therein. 7.9.12 Investments consisting of a Promissory Note made by Northstar Club, not to exceed $700,000 in principal amount and the related Agreement to Purchase and Sell Real Property between Northstar Club and Northstar-at-Tahoe, dated as of October 27, 1997 as amended as of April 22, 1998. 7.9.13 Investments that comprise part of Interest Rate Protection Agreements between BCS Holdings and the Agent. 7.9.14 Investments consisting of the holdback under the Loon Acquisition Agreement. 7.9.15 An investment consisting of the rights of BCS Holdings and BCS Acquisition under the Agreement of Merger dated as of August 28, 1998 among them and Seven Springs Farm, Inc. (the "Seven Springs Merger Agreement"); provided, however, that this Section shall not be construed as permitting consummation of the transactions contemplated by the Seven Springs Merger Agreement or the taking of any further action with respect thereto; and provided, further, that absent further consent of the Agent, amendment of the Seven Springs Merger Agreement, the taking of any action thereunder that it is an Investment or consummation of any transaction contemplated thereby shall be an Investment prohibited by this Agreement. 7.9.16 Investments consisting of not more than 21,122 shares of Class B Common Stock of Arlberg Holding Company, Inc. and a convertible subordinated debenture of Arlberg Holding Company, Inc. in the original principal amount of $50,000, all of which Investments have been pledged to the Agent. 7.9.17 Investments in joint ventures consisting of the contribution of Excess Real Property by the Borrowers up to an aggregate amount at any time not to exceed $10,000,000 in net book value of such Excess Real Property. 7.9.18 Other Investments, whether consisting of cash or property, not to exceed $1,000,000 for any one Investment or related series of Investments and not to exceed $2,000,000 in the aggregate on and after the Restatement Date. 7.9.19 Investments which are Guarantees permitted under Section 7.7 hereof. 7.10 Distributions. None of the Borrowers and their Subsidiaries shall make any Distribution except for the following: 7.10.1 The Borrowers may pay dividends in their common stock and, so long as immediately before and after giving effect thereto no Default exists, the Borrowers may make Distributions consisting of the exchange of one class of capital stock for another class of capital stock. 7.10.2 So long as before and after giving effect thereto no Default exists, the Borrowers may make Distributions to BCS Group to provide funds to service notes issued under the Securities Purchase Agreements. 7.10.3 So long as before and after giving effect thereto no Default exists, payments of principal and interest due under the ASC Subordinated Note. 7.10.4 So long as before and after giving effect there to no Default exists, Distributions from one Borrower to any other Borrower. 7.11 Capital Expenditures. The Borrowers will not make or incur Capital Expenditures in any period of four fiscal quarters in excess of the sum of (a) common stock equity contributions received in cash during such twelve-month period plus (b) amounts in excess of $12,000,000 received in cash or in cash from the collection on promissory notes received from the sale of Excess Real Property, plus (c) 50% of Cash Flow for such four fiscal quarter period; provided, however, that not more than 25% of such Capital Expenditures in any such period shall be for real estate activities of the Borrowers; and provided further that after the end of the second fiscal quarter of fiscal year 1999, the Borrowers may request that the allowance for Capital Expenditures in fiscal year 1999 be increased by an additional amount not to exceed 10% of Cash Flow of the Borrowers for fiscal 1999 through April 30, 1999, which the Agent may approve, in whole or in part, in its sole discretion. 7.12 Merger and Dispositions of Assets; Release of Liens; Use of Certain Proceeds. None of the Borrowers will become a party to any merger or consolidation, and none of the Borrowers will sell, sell and lease back, lease, sublease or otherwise dispose of any of its assets; provided, however, that so long as immediately prior to and after giving effect thereto no Default exists, the Borrowers may sell or otherwise dispose of: (a) inventory in the ordinary course of business; (b) tangible assets to be replaced in the ordinary course of business by other assets of substantially equal or greater value; (c) assets to any Borrower; (d) assets consisting of less than one acre of real property, owned by Northstar-at-Tahoe, to be sold to Northstar Club pursuant to the Agreement to Purchase and Sell Real Property dated as of October 27, 1997, as amended as of April 22, 1998; (e) tangible assets either obsolete or no longer used or useful in the business of the Borrowers; provided, however, that the aggregate fair market value (or book value, if greater) of the assets sold or disposed of pursuant to this clause (e) shall not exceed $2,000,000 in any fiscal year; (f) assets consisting of approximately 2.11 acres of real property owned by Northstar-at-Tahoe, if sold to Northstar Club in accordance with the terms of the Option Agreement dated as of September 14, 1998 between Northstar-at-Tahoe and Northstar Club; (g) undeveloped real property consisting of lots numbered 112-158 as part of Phase IV of Big Springs Development at Northstar; (h) with the consent of the Agent which shall not be unreasonably withheld or delayed, any Borrower or Subsidiary may merge or consolidate with or into another Borrower or Subsidiary; (i) any parcel of Excess Real Property; provided, however, that: (i) each applicable municipal authority exercising jurisdiction over the parcel of Excess Real Property has approved a lot split ordinance or other applicable action under local law dividing the parcel of Excess Real Property from the remainder of the property subject to any of the Mortgages and assigning separate tax identification numbers to each; (ii) no part of the remaining real property subject to any of the Mortgages shall be part of a tax lot affecting any portion of the parcel of Excess Real Property; (iii) all requirements under all laws, statutes, rules and regulations (including, without limitation, all zoning and subdivision laws, setback requirements, sideline requirements, parking ratio requirements, use requirements and building and fire code requirements) applicable to the property subject to any of the Mortgages necessary to accomplish the lot split shall have been fulfilled; (iv) as a result of the lot split, the remaining property subject to any of the Mortgages will not be in violation of any applicable law, statute, rule or regulation (including, without limitation, all zoning and subdivision laws, setback requirements, sideline requirements, parking ratio requirements, use requirements and building and fire code requirements) and all necessary variances, if any, shall have been obtained; (v) appropriate reciprocal easement agreements for the benefit and burden of the remaining property subject to any of the Mortgages and the parcel of Excess Real Property regarding the use of common facilities of such parcels, including, but not limited to, open areas, ski lifts, ski trails, roadways, parking areas, utilities, snowmaking facilities and community facilities by the occupants of the remaining property subject to any of the Mortgages and the parcel of Excess Real Property, in a form and substance acceptable to Agent. shall be declared and recorded; (vi) BCS Holdings shall have delivered to Agent one or more endorsements to the title insurance policies insuring the Lien of the applicable Mortgage or such other evidence reasonably acceptable to the Agent insuring that, after giving effect to such release, the title insurance policies insuring the Lien of the applicable Mortgage are in full force and effect and unaffected by such release; and (vii) Each of the Borrowers with an interest in such Excess Real Property shall execute such documents and instruments as Agent shall reasonably require in connection with the foregoing. Notwithstanding anything to the contrary herein, the Borrowers may utilize the cash proceeds from the sale of Excess Real Property for any purpose specifically permitted hereunder or for any other purpose with the consent of the Agent, which consent shall not be unreasonably withheld or delayed. Upon the transfer of any parcel of the Excess Real Property as permitted above, and upon the request of any such Borrower, at any time so long as there is no Default, the Lenders shall release all Liens under the Mortgages or Security Agreements to which such asset is subject, provided that the Borrowers shall reimburse the Lenders for any costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) they incur arising from the transfer of the asset and any release of such asset from the Lien of the Mortgages or the Security Agreements. 7.13 Subsidiaries. Each of the Borrowers shall have no Subsidiaries other than (a) as set forth on Exhibit 8.1 and (b) domestic Subsidiaries formed after the Restatement Date so long as the following conditions are satisfied: (i) the Agent has reviewed and approved charter documents, by-laws and other instruments relating to the formation of such Subsidiary; (ii) such Subsidiary has joined in this Agreement, jointly and severally, as a Borrower, or has executed an unlimited guaranty of all Credit Obligations, each on terms and conditions acceptable to the Agent; (iii) all of the issued and outstanding capital stock of such Subsidiary has been pledged to the Agent to secure the Credit Obligations pursuant to the Security Agreements; (iv) the Subsidiary has granted to the Agent a mortgage of and security interest in all of its assets pursuant to mortgages and security agreements on terms and conditions acceptable to Agent; (v) an opinion or opinions of counsel to such Subsidiary covering such matters as the Agent may reasonably request; and (vi) the Borrowers have executed and delivered to the Agent of such other documents, certificates and opinions as the Agent may reasonably request. 7.14 ERISA. Each of the Borrowers and their respective Subsidiaries will meet, and will cause all Control Group Persons to meet, all minimum funding requirements applicable to them with respect to any Plan pursuant to section 302 of ERISA or section 412 of the Code, without giving effect to any waivers of such requirements or extensions of the related amortization periods which may be granted. Each of the Borrowers and their respective Subsidiaries will comply, and will cause all Control Group Persons to comply, in all material respects, with the provisions of ERISA and the Code applicable to each Plan. At no time shall the Accumulated Plan Benefit Obligations under any Plan that is not a Multiemployer Plan exceed the fair market value of the assets of such Plan allocable to such benefits by more than $250,000. 7.15 Transactions with Affiliates. No Borrower shall effect any transaction with any of its Affiliates, other than as permitted by Section 7.19, on a basis less favorable to such Borrower than would be the case if such transaction had been effected with a non-Affiliate. 7.16 Loan to Value Ratio. The Borrowers will ensure that the Revolving Loan shall at no time exceed sixty percent (60%) of the sum of the value of the mountain operations of the Borrowers as set forth in the Acquisition Appraisals, or if later such new Appraisals have been obtained by the Agent pursuant to Section 7.4.7 hereof, the value of the mountain operations as set forth in the most recent such Appraisals. 7.17 Environmental Cleanup. The Borrowers will develop a written action plan addressing those items listed on Exhibit 7.18 which if not addressed would result in a Material Adverse Change, and submit such action plan to the Agent on or before March 15, 1999, such action plan to be reasonably acceptable to the Agent. 7.18 Cash Concentration. The Borrowers shall maintain a cash management system accounts with the Agent (the "Cash Management System") at all times prior to the Final Maturity Date. The Cash Management System shall include all accounts of the Borrowers except certain nonmaterial and trust accounts excluded from the Cash Management System with the prior consent of the Agent, such consent not to be unreasonably withheld. The Cash Management System shall include an automatic weekly transfer to accounts maintained at the Boston Office, of all positive balances in any deposit or other cash account included in the Cash Management System. 7.19 Permitted Management Fees. So long as before and after giving effect thereto no Default exists, the Borrowers may pay management fees to Booth Creek Management Company; provided, however, that (i) payment of such fees shall be made in equal monthly installments in each fiscal year; and (ii) such fees shall not during any fiscal year of the Borrowers exceed in the aggregate the lesser of (a) $750,000 and (b) $350,000 plus 0.025 times the amount that Cash Flow for that fiscal year exceeds $25,000,000; provided further, however, that during any period in which payment of fees is not permitted by this Section 7.19 because of the existence of a Default, such management fee payments shall accrue without interest and may be paid at such time as no Default or Event of Default exists. 7.20 Letters of Credit at Annual Clean-up. At all times during any Designated Cleanup Period the accounts of the Borrowers maintained at the Boston Office, excluding any interest account maintained for the Senior Unsecured Notes, shall have an aggregate balance that exceeds the aggregate amount of Letter of Credit Exposure with respect to all of the Letters of Credit previously issued and not yet canceled or expired at such time. 7.21 Use of Equipment. The Borrowers shall provide the Agent with 30 days' prior written notice before (i) any of the California Resorts, Ski Lifts or Grand Targhee removes, relocates or maintains any material tangible personal property outside the states of California, Washington and Wyoming, respectively, and (ii) any of the New Hampshire Resorts removes, relocates or maintains any material tangible personal property outside the state of New Hampshire. 8. Representations and Warranties. In order to induce the Lenders to extend credit to the Borrowers hereunder, the Borrowers represent and warrant that: 8.1. Organization and Business. 8.1.1 The Borrowers. Each of BCS Holdings, BCS Acquisition, Sierra-at-Tahoe, Bear Mountain, Waterville, Cranmore, Grand Targhee and LMRC Holding is a duly organized and validly existing corporation, in good standing, under the laws of the State of Delaware, Northstar-at-Tahoe is a duly organized and validly existing corporation, in good standing, under the laws of the State of California, Ski Lifts is a duly organized and validly existing corporation, in good standing, under the laws of the State of Washington, and each of Loon and Loon Realty is a duly organized and validly existing corporation, in good standing, under the laws of the State of New Hampshire, each with all power and authority, corporate or otherwise, necessary to (i) enter into and perform each of this Agreement and other Credit Documents to which it is party, (ii) grant the Lenders the security interests in the Credit Security owned by it to secure the Credit Obligations as applicable and (iii) own its properties and carry on the business now conducted or proposed to be conducted by it. Each of the Borrowers has taken all corporate or other action required to execute, deliver and perform each of this Agreement and other Credit Documents to which it is party. Certified copies of the Charter and By-laws of each of the Borrowers have been previously delivered to the Agent and are correct and complete. Exhibit 8.1, as from time to time hereafter supplemented in accordance with Section 7.4 or otherwise by written notice to the Lenders, sets forth (a) the jurisdiction of incorporation or organization of each of the Borrowers, (b) the address of each of the Borrowers' chief executive office and chief place of business and (c) the name under which each of the Borrowers conducts its business and the jurisdictions in which the name is used. 8.1.2 Qualification. Except as set forth on Exhibit 8.1 each of the Borrowers is duly and legally qualified to do business as a foreign corporation and is in good standing in each state or jurisdiction in which such qualification is required and is duly authorized, qualified and licensed under all laws, regulations, ordinances or orders of public authorities, or otherwise, to carry on its business in the places and in the manner in which it is conducted, except for failures to be so qualified, authorized or licensed which would not in the aggregate result, or pose a material risk of resulting, in any Material Adverse Change. 8.2 Financial Statements and Other Information. The Borrowers have previously furnished to the Lenders copies of the Consolidated and Consolidating balance sheets of the Borrowers as at May 1, July 31, and October 30, 1998, and Consolidated and Consolidating statements of changes in shareholders' equity and cash flows the Borrowers for the periods then ending. The Consolidated and Consolidating financial statements (including the notes thereto, subject, in the case of any unaudited financial statements, to the absence of footnote disclosure and normal year-end and audit adjustments) referred to above were prepared in accordance with GAAP and fairly present, in all material respects, the financial position of the Persons covered thereby at the respective dates thereof and the results of their operations for the periods covered thereby. Neither the Borrowers nor any of their Subsidiaries has any known material contingent liability which is not reflected in the most recent balance sheet referred to above or the notes thereto. 8.3 Changes in Condition. No Material Adverse Change has occurred, and since October 30, 1998, the Borrowers have not entered into any material transaction outside the ordinary course of business except for the transactions contemplated by this Agreement and except as listed on Exhibit 8.3 hereto. 8.4 Agreements Relating to Financing Debt, Investments, etc. Exhibit 8.4, as from time to time hereafter supplemented in accordance with Section 7.4 or otherwise by written notice to the Lenders, sets forth (i) the amounts (as of the dates indicated in Exhibit 8.4, as so supplemented) of all Financing Debt of the Borrowers and all agreements which relate to such Financing Debt, (ii) all Liens and Guarantees with respect to such Financing Debt and (iii) all agreements which directly or indirectly require the Borrowers to make any Investment. The Borrowers have furnished the Agent with correct and complete copies of any agreements described in clauses (i), (ii) and (iii) above requested by the Lenders. 8.5 Title to Assets. The Borrowers and their Subsidiaries have good and marketable title to all assets necessary for or material in the operations of their respective businesses as now conducted or proposed to be conducted by them and reflected in the most recent balance sheet referred to in Section 8.2.1 (or the balance sheet most recently furnished to the Lenders pursuant to Sections 7.4.1 through 7.4.3 or otherwise by written notice to the Lenders), and to all material assets acquired subsequent to the date of such balance sheet, subject to no Liens except for those permitted by Section 7.8 and except for assets disposed of as permitted by Section 7.12. 8.6 Licenses, etc. The Borrowers have all material patents, patent applications, patent licenses, patent rights, trademarks, trademark rights, trade names, trade name rights, copyrights, licenses, franchises, permits, authorizations and other rights as are necessary for the conduct of their business as now conducted or proposed to be conducted by them. All of the foregoing are in full force and effect, and the Borrowers are in substantial compliance with the foregoing without any known conflict with the valid rights of others which has resulted, or poses a material risk of resulting, in any Material Adverse Change. No event has occurred which permits, or after notice or lapse of time or both would permit, the revocation or termination of any such license, franchise or other right or affect the rights of the Borrowers thereunder so as to result in any Material Adverse Change. There is no litigation or other proceeding or dispute with respect to the validity or, where applicable, the extension or renewal, of any of the foregoing which has resulted, or poses a material risk of resulting, in any Material Adverse Change. 8.7 Litigation. Except as described on Exhibit 8.7, no litigation, at law or in equity, or in any proceeding before any court, board or other governmental or administrative agency or any arbitrator is pending or, to the knowledge of the Borrowers or their Subsidiaries, threatened which may involve any material risk of any final judgment, order or liability which, after giving effect to any applicable insurance, has resulted, or poses a material risk of resulting, in any Material Adverse Change or which seeks to enjoin the consummation, or which questions the validity, or any of the transactions contemplated by this Agreement or any other Credit Document. Except as described on Exhibit 8.7, no judgment, decree or order of any court, board or other governmental or administrative agency or any arbitrator has been issued ` or binds the Borrowers or any Subsidiary which has resulted, or poses a material risk of resulting, in any Material Adverse Change. 8.8 Tax Returns. Each of the Borrowers and their Subsidiaries has filed all material tax and information returns which are required to be filed by it and has paid, or made adequate provision for the payment of, all taxes which have or may become due pursuant to such returns or to any assessment received by it. The Borrowers know of no material additional assessments or any basis therefor. The Borrowers reasonably believe that the charges, accruals and reserves on the books of the Borrowers and their Subsidiaries in respect of taxes or other governmental charges are adequate. 8.9 No Legal Obstacle to Agreements. Neither the execution and delivery of this Agreement or any other Credit Document, nor the making of any borrowings hereunder, nor the securing of the Credit Obligations with the Credit Security, nor the consummation of any transaction referred to in or contemplated by this Agreement or any other Credit Document, nor the fulfillment of the terms hereof or thereof or of any other agreement, instrument, deed or lease referred to in this Agreement or any other Credit Document, has constituted or resulted in or will constitute or result in: (i) any breach or termination of the provisions of any agreement, instrument, deed or lease to which the Borrowers or any Subsidiary is a party or by which it is bound, or of the charter or by-laws of any of the Borrowers; (ii) the violation of any law, statute, judgment, decree or governmental order, rule or regulation applicable to the Borrowers or any Subsidiary; (iii) the creation under any agreement, instrument, deed or lease of any Lien (other than Liens on the Credit Security which secure the Credit Obligations) upon any of the assets of the Borrowers; or (iv) any redemption, retirement or other repurchase obligation of the Borrowers under any charter, by-law, agreement, instrument, deed or lease. No approval, authorization or other action by, or declaration to or filing with, any governmental or administrative authority or any other Person is required to be obtained or made by the Borrowers in connection with the execution, delivery and performance of this Agreement, the Notes or any other Credit Document, the transactions contemplated hereby or thereby or the making of any borrowing hereunder which has not been obtained or made prior to the Restatement Date, or which, if not obtained, does not result, or pose a material risk of resulting, in any Material Adverse Change. 8.10 Defaults. Neither the Borrowers nor any Subsidiary is in default under any provision of its charter or by-laws or of this Agreement or any other Credit Document. Neither the Borrowers nor any Subsidiary is in default under any provision of any agreement, instrument, deed or lease to which it is party or by which it or its property is bound, or has violated any law, judgment, decree or governmental order, rule or regulation, so as to result, or pose a material risk of resulting, in any Material Adverse Change. 8.11 Certain Business Representations. 8.11.1 Environmental Compliance. (i) Each of the Borrowers and their Subsidiaries is in compliance in all material respects with the applicable provisions of the Clean Air Act, the Federal Water Pollution Control Act, the Resource Conservation and Recovery Act of 1976, the Comprehensive Environmental Response, Compensation and Liability Act and any similar state or local statute or regulation in effect in any jurisdiction in which any properties of the Borrowers or any Subsidiary are located, and with all applicable published rules and regulations of the United States Environmental Protection Agency and of any similar state agencies, other than those which in the aggregate could not reasonably be expected to result in a Material Adverse Change. (ii) Except as set forth on Exhibit 8.11.1, no suit, claim, action or proceeding, of which any of the Borrowers have been given written notice or otherwise have actual knowledge, is now pending before any court, governmental agency or board, or to the Borrowers' knowledge, threatened by any Person (nor to the Borrowers' knowledge, does any factual basis exist therefor) for, and none of the Borrowers nor any of their Subsidiaries has received written correspondence from any federal, state or local governmental authority with respect to, in each case excepting items as would not reasonably be expected to result in a Material Adverse Change: (a) currently alleged noncompliance by any of the Borrowers or Subsidiaries with any such environmental law, rule or regulation which could result in a Material Adverse Change, (b) personal injury, wrongful death or other tortious conduct relating to materials, commodities or products used, generated, sold, transferred or manufactured by any of the Borrowers or their Subsidiaries (including but not limited to products made of, containing or incorporating asbestos, lead or other hazardous materials, commodities or toxic substances), or (c) the release into the environment by any of the Borrowers or their Subsidiaries of any Hazardous Material generated by the Borrowers or any of their Subsidiaries whether or not occurring at or on a site owned, leased or operated by any of the Borrowers or their Subsidiaries. (iii) To the best of the Borrowers' knowledge, none of the properties owned or leased by any of the Borrowers or their Subsidiaries has been used as a treatment, storage or disposal site. (iv) To the best of any of the Borrowers' knowledge, no Hazardous Material is present in any real property currently or formerly owned or operated by any of the Borrowers or their Subsidiaries except that which could not reasonably be expected to result in a Material Adverse Change. 8.11.2 Burdensome Obligations. None of the Borrowers is party to or bound by any agreement, instrument, deed or lease and is not subject to any charter, by-law or other restriction which, in the opinion of the management of the Borrowers, is so unusual or burdensome as in the foreseeable future to result, or pose a material risk of resulting, in a Material Adverse Change. 8.11.3 Future Expenditures. The Borrowers do not anticipate that future expenditures, if any, by the Borrowers needed to meet the provisions of any then existing federal, state or foreign governmental statutes, orders, rules or regulations will be so burdensome as to result, or pose a material risk of resulting, in any Material Adverse Change. 8.12 Pension Plans. Neither the Borrowers nor any Subsidiary has any Plan in effect as of the date hereof except for Plans of which the Lenders have been notified in writing and are in compliance with Section 7.14. Neither the Borrowers nor any Subsidiary has any liability (contingent or otherwise) under Title IV of ERISA or under Section 412 of the Code nor is any of the Borrowers or any Subsidiary currently a participant in a "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA). 8.13 Disclosure. Neither this Agreement nor any other Credit Document to be furnished to the Lenders by or on behalf of any of the Borrowers or any Subsidiary in connection with the transactions contemplated hereby or by such Credit Document contains any untrue statement of material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. No fact is actually known to any of the Borrowers which has resulted, or in the future (so far as any of the Borrowers can reasonably foresee) will result in any Material Adverse Change, except to the extent that present or future general economic conditions may result in a Material Adverse Change. 9. Defaults. 9.1 Events of Default. The following events are referred to as "Events of Default": 9.1.1 Any of the Borrowers shall fail to make any payment in respect of: (i) interest or any fee on or in respect of any of the Credit Obligations owed by them as the same shall become due and payable, and such failure shall continue for a period of five Banking Days, or (ii) principal of any of the Credit Obligations owed by them as the same shall become due, whether at maturity or by acceleration or otherwise. 9.1.2 Any of the Borrowers shall fail to perform or observe any of the provisions of Sections 7.5 through 7.21. 9.1.3 Any of the Borrowers or any of their Subsidiaries or any of their respective Affiliates party to any Credit Document shall fail to perform or observe any other covenant, agreement or provision to be performed or observed by them under this Agreement or any other Credit Document after giving effect to the applicable grace periods. Such failure shall not be rectified or cured to the written satisfaction of the Majority Lenders within 30 days after notice thereof by the Agent to any of the Borrowers. 9.1.4 Any representation or warranty of or with respect to any of the Borrowers, any Subsidiary or any of their respective Affiliates party to any Credit Document made to the Lenders in, pursuant to or in connection with this Agreement or any other Credit Document shall prove to have been false in any material respect upon the date when made and the condition, transaction or event which causes such representation or warranty to be false has had a Material Adverse Change. 9.1.5 (i) Any of the Borrowers or any of their Subsidiaries or BCS Group shall fail to make any payment when due (after giving effect to any applicable grace periods) in respect of any Financing Debt the principal amount of which exceeds $1,000,000 (other than the Credit Obligations); (ii) any of the Borrowers or any Subsidiary or BCS Group shall fail to perform or observe the terms of any agreement relating to such Financing Debt, and such failure or condition shall continue, without having been duly cured, waived or consented to, beyond the period of grace, if any, specified in such agreement or, if such Financing Debt is in respect of the notes issued under the Securities Purchase Agreements for 30 days or longer beyond the period of grace, if any, specified in such Securities Purchase Agreements; (iii) any such Financing Debt of any of the Borrowers or any Subsidiary or BCS Group shall be accelerated or become due or payable prior to its stated maturity for any reason whatsoever (other than voluntary prepayments thereof); (iv) any Lien on any property of any of the Borrowers or any Subsidiary securing any such Financing Debt shall be enforced by foreclosure or similar action; or (v) any holder of any such Financing Debt shall exercise any right of rescission with respect to the issuance thereof. 9.1.6 Except as permitted by Section 7.12, any of the Borrowers shall cease to own, directly or indirectly, all the capital stock of any of their Subsidiaries other than certain existing shares of Preferred Stock of Ski Lifts. 9.1.7 Any Credit Document shall cease, for any reason (other than the scheduled termination thereof in accordance with its terms), to be in full force and effect, or any of the Borrowers, any Subsidiary or any of their respective Affiliates party thereto shall so assert, or the security interests created by this Agreement and the other Credit Documents shall cease to be enforceable and of the same effect and priority purported to be created hereby. 9.1.8 A final judgment which, with other outstanding final judgments against any of the Borrowers and their Subsidiaries, exceeds an aggregate of $1,000,000 (after consideration of applicable insurance proceeds) shall be rendered against any of the Borrowers or any of their Subsidiaries or Affiliates party to any Credit Document and if, within 60 days after entry thereof, such judgment shall not have been discharged or execution thereof stayed pending appeal, or if, within 60 days after the expiration of any such stay, such judgment shall not have been discharged. 9.1.9 Any of the Borrowers, any Subsidiary or any of their respective Affiliates obligated with respect to any Credit Obligation shall: (i) commence a voluntary case under the Bankruptcy Code or authorize, by appropriate proceedings of its board of directors or other governing body, the commencement of such a voluntary case; (ii) have filed against it a petition commencing an involuntary case under the Bankruptcy Code which shall not have been dismissed within 60 days after the date on which such petition is filed; or file an answer or other pleading within such 60-day period admitting or failing to deny the material allegations of such a petition or seeking, consenting to or acquiescing in the relief therein provided; (iii) have entered against it an order for relief in any involuntary case commenced under the Bankruptcy Code; (iv) seek relief as a debtor under any applicable law, other than the Bankruptcy Code, of any jurisdiction relating to the liquidation or reorganization of debtors or to the modification or alteration of the rights of creditors, or consent to or acquiesce in such relief; (v) have entered against it an order by a court of competent jurisdiction (a) finding it to be bankrupt or insolvent, (b) ordering or approving its liquidation, reorganization or any modification or alteration of the rights of its creditors or (c) assuming custody of, or appointing a receiver or other custodian for, all or a substantial portion of its property; or (vi) make an assignment for the benefit of, or enter into a composition with, its creditors, or appoint, or consent to the appointment of, or suffer to exist a receiver or other custodian for, all or a substantial portion of its property. 9.1.10 Any Control Group Person shall fail to pay when due amounts aggregating in excess of $500,000 which it shall have become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any Control Group Person or administrator; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any Material Plan or a proceeding shall be instituted by a fiduciary of any Material Plan against any Control Group Person to enforce section 515 or 4219(c)(5) of ERISA and such proceeding shall not have been dismissed within 30 days thereafter; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated. 9.1.11 George N. Gillett, Jr. is no longer an incumbent director or officer of BCS Holdings, or George N. Gillett, Jr. is no longer actively involved in the management of the Resorts. 9.1.12 (i) BCS Group shall cease to own 100% of the capital stock of BCS Holdings; (ii) the approval by the holders of capital stock of BCS Group of any plan or proposal for the liquidation or dissolution of BCS Group; (iii) John Hancock and its Affiliates (other than its portfolio companies)shall cease to beneficially own (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, voting stock (or non-voting stock convertible into voting stock) representing at least 30% of the total voting power of all voting stock of BCS Group; or Booth Creek LLLP shall cease to beneficially own (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, voting stock representing at least (x) 50% of the total voting power of all voting stock of BCS Group prior to the exercise of the John Hancock warrants, the CIBC warrants and any management options and (y) 35% of the total voting power of all voting stock of BCS Group after the exercise of all such warrants and options; (iv) except for Permitted BCS Group Owners, any Person or group of related persons for purposes of Section 13(d) of the Exchange Act (a "Group"), together with any affiliates thereof, shall become the owner, directly or indirectly, beneficially or of record, of voting stock representing more than 35% of the total voting power of all voting stock of BCS Group; (v) Booth Creek LLLP shall cease to have the right to appoint a majority of the Board of Directors of BCS Group; (vi) the replacement of a majority of the Board of Directors of either of BCS Group or BCS Holdings over a two-year period from the directors who constituted the Board of Directors of BCS Group or BCS Holdings, respectively, at the beginning of such period, and such replacement shall not have been approved by a vote of at least two-thirds of the Board of Directors of BCS Group or BCS Holdings, respectively, then still in office who either were members of such Board of Directors at the beginning of such period or whose election as a member of such Board of Directors was previously so approved; or (vii) the occurrence of any "Change of Control" as defined in the Senior Indenture. 9.2 Certain Actions Following an Event of Default. If any one or more Events of Default shall occur, then in each and every such case: 9.2.1 No Obligation to Extend Credit. Upon notice from the Agent to any of the Borrowers, the obligations of the Lenders to make any further extensions of credit hereunder shall terminate. 9.2.2 Specific Performance; Exercise of Rights. The Agent may (and upon written request of the Majority Lenders shall) proceed to protect and enforce the Lenders' rights by suit in equity, action at law and/or other appropriate proceeding, either for specific performance of any covenant or condition contained in this Agreement or any other Credit Document or in any instrument or assignment delivered to the Lenders pursuant to this Agreement or any other Credit Document, or in aid of the exercise of any power granted in this Agreement or any other Credit Document or any such instrument or assignment. 9.2.3 Enforcement of Payment Credit Securities Setoff. The Agent may (and upon written request of the Majority Lenders shall) proceed to enforce payment of the Credit Obligations in such manner as it may elect and to realize upon any and all rights in the Credit Security, and the Lenders may offset and apply toward the payment of such balance (and/or toward the curing of any Event of Default) any Indebtedness from the Lenders to the respective Obligors, including any Indebtedness represented by deposits in any account maintained with the Lenders, regardless of the adequacy of any security for the Credit Obligations, and the Lenders shall have no duty to determine the adequacy of any such security in connection with any such offset. 9.2.4 Acceleration. The Agent on behalf of the Lenders may (and upon written request of the Majority Lenders shall) by notice in writing to any of the Borrowers (i) declare all or any part of the unpaid balance of the Credit Obligations then outstanding to be immediately due and payable, and thereupon such unpaid balance or part thereof shall become so due and payable, and (ii) require the Borrowers immediately to deposit with the Agent in cash an amount equal to the then Maximum Exposure Under Letters of Credit, and thereupon such unpaid balance or part thereof and such amount equal to the Maximum Exposure Under Letters of Credit shall become so due and payable, all without presentation, protest or further demand or notice of any kind, all of which are hereby expressly waived; provided, however, that if a Bankruptcy Default shall have occurred, the unpaid balance of the Credit Obligations shall automatically become immediately due and payable. 9.2.5 Cumulative Remedies. To the extent not prohibited by applicable law which cannot be waived, all of the Agent's and the Lenders' rights hereunder and under each other Credit Document shall be cumulative. 9.3 Annulment of Defaults. Any Default or Event of Default shall be deemed not to exist or to have occurred for any purpose of this Agreement if the required holders of Credit Obligations in accordance with Section 11.6 or the Agent (with any consent of holders of Credit Obligations required by Section 11.6) shall have waived such Default or Event of Default in writing, stated in writing that the same has been cured to such Lenders' reasonable satisfaction or entered into an amendment to this Agreement which by its express terms cures such Default or Event of Default. No such action by the Lenders or the Agent shall extend to or affect any subsequent Default or Event of Default or impair any rights of the Lenders upon the occurrence thereof. The making of any extension of credit during the existence of any Default or Event of Default shall not constitute a waiver thereof. 9.4 Waivers. Each of the Borrowers hereby waives to the extent not prohibited by applicable law: (i) all presentments, demands for performance, notices of nonperformance (except to the extent required by the provisions of this Agreement or any other Credit Document), protests, notices of protest and notices of dishonor, (ii) any requirement of diligence or promptness on the part of any Lender in the enforcement of its rights under this Agreement, the Notes or any other Credit Document, (iii) any and all notices of every kind and description which may be required to be given by any statute or rule of law, except as expressly required in any Credit Document, and (iv) any defense of any kind (other than indefeasible payment in full) which it may now or hereafter have with respect to its liability under this Agreement, the Notes or any other Credit Document or with respect to the Credit Obligations. 10. Expenses; Indemnity. 10.1 Expenses. Whether or not the transactions contemplated hereby shall be consummated, the Borrowers will bear (i) all reasonable out of pocket expenses of the Lenders (including the reasonable fees and disbursements of the special and local counsel to the Agent, but excluding fees and expenses of counsel to the other Lenders) in connection with the preparation and duplication of this Agreement, each other Credit Document, the transactions contemplated hereby and thereby and each closing hereunder, and any amendments, modifications, approvals, consents or waivers hereunder; (ii) all recording and filing fees and transfer and documentary stamp and similar taxes at any time payable in respect of this Agreement, any other Credit Document, any Credit Security or the incurrence of the Credit Obligations; and (iii) to the extent not prohibited by applicable law that cannot be waived, after the occurrence and during the continuance of any Default or Event of Default, all other reasonable expenses incurred by the Lenders or the holder of any Credit Obligation in connection with the enforcement of any rights hereunder or under any other Credit Document, including costs of collection and reasonable attorneys' fees (including a reasonable allowance for the hourly cost of attorneys employed by the Lenders on a salaried basis) and expenses; and (iv) fees and disbursements of the Agent in connection with the Acquisition Appraisals and any updated Appraisals conducted pursuant to Section 7.4.7. 10.2 General Indemnity. The Borrowers will indemnify the Lenders and hold them harmless from any liability, loss or damage resulting from the violation by the Borrowers of Section 2.1.3. The Borrowers will also indemnify each Lender, each of the Lenders' directors, officers and employees, and each Person, if any, who controls any Lender (each Lender and each of such directors, officers, employees and control Persons is referred to as an "Indemnitee") and hold each of them harmless from and against any and all claims, damages, liabilities and reasonable expenses (including reasonable fees and disbursements of counsel with whom any Indemnitee may consult in connection therewith and all reasonable expenses of litigation or preparation therefor) which any Indemnitee may incur or which may be asserted against any Indemnitee in connection with (i) the existence or exercise of any of the security rights with respect to the Credit Security in accordance with the Credit Documents or (ii) any other litigation or investigation involving the Borrowers, any Subsidiaries or Affiliates, or any officer, director or employee thereof (including the Lenders' compliance with or contest of any subpoena or other process issued against them in any proceeding involving the Borrowers or any Subsidiaries or Affiliates), other than litigation commenced by the Borrowers against the Lenders which seeks enforcement of any of the rights of the Borrowers hereunder or under any other Credit Document and is finally determined adversely to the Lenders and except to the extent such claims, damages, liabilities and expenses result from an Indemnitee's gross negligence or willful misconduct. 10.3 Indemnity With Respect to Letters of Credit. Any action, inaction or omission on the part of the Agent or any of its correspondents under or in connection with any Letter of Credit or the relative instruments, documents or property, if in good faith and not constituting gross negligence or willful misconduct, shall be binding upon each Borrower and shall not place the Agent or any of its correspondents under any liability to any Borrower. Each Borrower agrees to indemnify the Agent and its correspondents and hold them harmless from and against any and all claims, losses, liabilities and damages, including without limitation reasonable attorneys' fees, arising from or in connection with any Letter of Credit, including any such claim, loss, liability or damage arising out of any transfer, sale, delivery, surrender or endorsement of any invoice, bill of lading, warehouse receipt or other document at any time held by the Agent, or held for its account by any of its correspondents, in connection with any Letter of Credit; provided, however, that the foregoing shall not extend to actions taken by the Agent unless such actions were taken in good faith by the Agent and, with respect to drafts presented for payment, if it determines in good faith that the drafts and related documents appear on their face to be in accordance with the terms and conditions of the Letter of Credit in question, and any action or failure to act in accordance with a written opinion of its counsel shall conclusively be deemed to be in good faith. 11. Operations. 11.1 Interests in Credits. The percentage interest of each Lender in the Revolving Loan and Letters of Credit shall be computed based on the maximum principal amount for each Lender as follows: Lender Maximum Principal Amount Percentage Interest ------ ------------------------- -------------------- BankBoston, N.A. $25,000,000 100% Total $25,000,000 100% The foregoing percentage interests, as otherwise adjusted as the Lenders may from time to time agree among themselves, are referred to as the "Percentage Interests" with respect to all or any portion of the Revolving Loan and Letters of Credit. References in any Credit Document to the Lenders' respective Percentage Interests are to such interests as from time to time in effect. 11.2 Agent's Authority to Act. Each of the Lenders hereby appoints and authorizes the Agent to act for the Lenders as the Lenders' Agent in connection with the transactions contemplated by this Agreement and the other Credit Documents on the terms set forth herein. 11.3 Borrowers to Pay Agent, etc. The Borrowers shall be fully protected in making all payments in respect of the Credit Obligations to the Agent, in relying upon consents, modifications and amendments executed by the Agent purportedly on the Lenders' behalf, and in dealing with the Agent as herein provided. The Agent shall charge the accounts of the Borrowers, any amounts paid by the Agent to third parties under Letters of Credit or drafts presented thereunder, Letter of Credit fees, on the dates when the amounts thereof become due and payable, with the amounts of the principal of and interest on the Loan for the Borrowers, commitment fees, and all other fees and amounts owing under any Credit Document. 11.4 Lender Operations for Advances, etc. 11.4.1 Advances. On each Closing Date, each Lender shall advance to the Agent in immediately available funds such Lender's Percentage Interest in the portion of the Loans advanced on such Closing Date prior to 10:00 a.m. (Boston time). If such funds are not received at such time, but all the conditions set forth in Section 5 have been satisfied, each Lender hereby authorizes and requests the Agent to advance for the Lender's account, pursuant to the terms hereof, the Lender's respective Percentage Interest in such portion of the Loan and agrees to reimburse the Agent in immediately available funds for the amount thereof prior to 2:00 p.m. (Boston time) on the day any portion of the Loans is advanced hereunder; provided, however, that the Agent shall be under no obligation to make any such advance. 11.4.2 Agent to Allocate Payments. All payments of principal and interest in respect of the extensions of credit made pursuant to this Agreement, commitment fees, and other fees under this Agreement shall, as a matter of convenience, be made by the Borrowers to the Agent in immediately available funds, and the share of each Lender shall be credited to such Lender by the Agent in immediately available funds in such manner that the principal amount of the Credit Obligations to be paid shall be paid proportionately in accordance with the Lenders' respective Percentage Interests in such Credit Obligations. 11.4.3 Letters of Credit. Each of the Lenders hereby authorizes and requests the Agent to issue the Letters of Credit and to grant each Lender a participation in each of such Letter of Credit in an amount equal to its Percentage Interest in the amount of each such Letter of Credit. Promptly upon the request of the Agent, each Lender hereby agrees to reimburse the Agent in immediately available funds for such Lender's Percentage Interest in the amount of all obligations to third parties incurred by the Agent in respect of each Letter of Credit and each draft accepted under a Letter of Credit to the extent not reimbursed by the Borrowers. The Agent will notify each Lender monthly of the issuance of any Letter of Credit, the amount and date of payment of any draft drawn or accepted under a Letter of Credit and whether in connection with the payment of any such draft the amount thereof was added to the Revolving Loan or was reimbursed by the Borrowers. 11.5 Sharing of Payments, etc. Each Lender agrees that (i) if by exercising any right of set-off or counterclaim or otherwise, it shall receive payment of a proportion of the aggregate amount of principal and interest due with respect to its Percentage Interest in the Loan which is greater than the proportion received by any other Lender in respect of the aggregate amount of principal and interest due with respect to the Percentage Interest in the Loan of such other Lender and (ii) if such inequality shall continue for more than 10 days, the Lender receiving such proportionately greater payment shall purchase participations in the Percentage Interests in the Loans held by the other Lenders, and such other adjustments shall be made from time to time, as may be required so that all such payments of principal and interest with respect to the Loans held by the Lenders shall be shared by the Lenders pro rata in accordance with their respective Percentage Interests; provided, however, that this Section 11.5 shall not impair the right of any Lender to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of Indebtedness of any Obligor other than Indebtedness with respect to the Loans. The Borrowers agree, to the fullest extent permitted by applicable law, that any Credit Participant and any Lender purchasing a participation from another Lender pursuant to this Section 11.5 may exercise all rights of payment (including the right of set-off), and shall be obligated to share payments under this Section 11.5, with respect to its participation as fully as if such Credit Participant or such Lender were the direct creditor of the Borrowers and a Lender hereunder in the amount of such participation. 11.6 Amendments, Consents, Waivers, etc. Except as otherwise set forth herein, the Agent may (and upon the written request of the Majority Lenders shall) take or refrain from taking any action under this Agreement or any other Credit Document, including giving its written consent to any modification of or amendment to and waiving in writing compliance with any covenant or condition in this Agreement or any other Credit Document or any Default or Event of Default hereunder or thereunder, all of which actions shall be binding upon all of the Lenders; provided, however, that without the written consent of such Lenders as own 100% of the Percentage Interests (other than Delinquent Lenders during the existence of a Delinquency Period so long as such Delinquent Lender is treated the same as the other Lenders with respect to any actions enumerated below): (i) No reduction in the interest rate on the Loans shall be made. (ii) No extension or postponement of the stated time of payment of all or any portion of the Loans or interest thereon shall be made. (iii) No increase in the amount, or extension of the term, of the Lenders' commitments beyond that provided for in Section 2 shall be made. (iv) No alteration of the Lenders' several rights of set-off contained in Section 11.5 shall be made. (v)No release of any Credit Security other than as permitted by Section 7.9 or 7.12 and other than assets having an aggregate fair value not exceeding $2,000,000 shall be made. 11.7 Agent's Resignation. The Agent may resign at any time by giving at least 60 days' prior written notice of its intention to do so to each of the Lenders and upon the appointment by the Majority Lenders of a successor Agent satisfactory to the Borrowers. If no successor Agent shall have been so appointed and shall have accepted such appointment within 45 days after the retiring Agent's giving of such notice of resignation, then the retiring Agent may with the consent of the Borrowers, which shall not be unreasonably withheld, appoint a successor Agent which shall be a bank or a trust company organized under the laws of the United States of America or any state thereof and having a combined capital, surplus and undivided profit of at least $25,000,000; provided, however, that any successor Agent appointed under this sentence may be removed upon the written request of the Majority Lenders, which request shall also appoint a successor Agent satisfactory to the Borrowers. Upon the appointment of a new Agent hereunder, the term "Agent" shall for all purposes of this Agreement thereafter mean such successor. After any retiring Agent's resignation hereunder as Agent, or the removal hereunder of any successor Agent, the provisions of this Agreement shall continue to inure to the benefit of such Agent as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. 11.8 Concerning the Agent. 11.8.1 Action in Good Faith, etc. The Agent and its officers, directors, employees and agents shall be under no liability to any of the Lenders or to any future holder of any interest in the Credit Obligations for any action or failure to act taken or suffered in good faith and not constituting gross negligence, and any action or failure to act in accordance with a written opinion of its counsel shall conclusively be deemed to be in good faith and not grossly negligent. The Agent shall in all cases be entitled to rely, and shall be fully protected in relying, on instructions given to the Agent by the required holders of Credit Obligations as provided in this Agreement. 11.8.2 No Implied Duties, etc. The Agent shall have and may exercise such powers as are specifically delegated to the Agent under this Agreement or any other Credit Document together with all other powers incidental thereto. The Agent shall have no implied duties to any Person or any obligation to take any action under this Agreement or any other Credit Document except for action specifically provided for in this Agreement or any other Credit Document to be taken by the Agent. Before taking any action under this Agreement or any other Credit Document, the Agent may request an appropriate specific indemnity satisfactory to it from each Lender in addition to the general indemnity provided for in Section 11.11 and until the Agent has received such specific indemnity, the Agent shall not be obligated to take (although it may in its sole discretion take) any such action under this Agreement or any other Credit Document. 11.8.3 Validity, etc. Subject to Section 11.8.1, the Agent shall not be responsible to any Lender or any future holder of any interest in the Credit Obligations (i) for the legality, validity, enforceability or effectiveness of this Agreement or any other Credit Document, (ii) for any recitals, reports, representations, warranties or statements contained in or made in connection with this Agreement or any other Credit Document, (iii) for the existence or value of any assets included in any security for the Credit Obligations, (iv) for the perfection or effectiveness of any Lien purported to be included in such security or (v) for the specification or failure to specify any particular assets to be included in such security. 11.8.4 Compliance. The Agent shall not be obligated to ascertain or inquire as to the performance or observance of any of the terms of this Agreement or any other Credit Document; and in connection with any extension of credit under this Agreement or any other Credit Document, the Agent shall be fully protected in relying on a certificate of any of the Borrowers or any guarantor as to the fulfillment by the Borrowers of any conditions to such extension of credit. 11.8.5 Employment of Agents and Counsel. The Agent may execute any of its duties as Agent under this Agreement or any other Credit Document by or through employees, agents and attorneys-in-fact and shall not be answerable to any of the Lenders, any of the Borrowers or any other Subsidiary (except as to money or securities received by the Agent or the Agent's authorized agents) for the default or misconduct of any such agents or attorneys-in-fact selected by the Agent with reasonable care. The Agent shall be entitled to advice of counsel concerning all matters pertaining to the agency hereby created and its duties hereunder or under any other Credit Document. 11.8.6 Reliance on Documents and Counsel. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any affidavit, certificate, cablegram, consent, instrument, letter, notice, order, document, statement, telecopy, telegram, telex or teletype message or writing reasonably believed in good faith by the Agent to the genuine and correct and to have been signed, sent or made by the Person in question, including without limitation any telephonic or oral statement made by such Person, and, with respect to legal matters, upon the written opinion of counsel selected by the Agent. 11.8.7 Agent's Reimbursement. Each of the Lenders severally agrees to reimburse the Agent in the amount of such Lender's Percentage Interest, for any expenses not reimbursed by the Borrowers (without limiting the obligation of the Borrowers to make such reimbursement): (i) for which the Agent is entitled to reimbursement by the Borrowers under this Agreement or any other Credit Document, and (ii) after the occurrence of a Default, for any other expenses incurred by the Agent on the Lenders' behalf in connection with the enforcement of the Lenders' rights under this Agreement or any other Credit Document. 11.9 Rights as a Lender. With respect to any credit extended by it hereunder, BankBoston, N.A. shall have the same rights, obligations and powers hereunder as any other Lender and may exercise such rights and powers as though it were not the Agent, and unless the context otherwise specifies, BankBoston, N.A. shall be treated in its individual capacity as though it were not the Agent hereunder. Without limiting the generality of the foregoing, the Percentage Interest of BankBoston, N.A. shall be included in any computations of Percentage Interests. BankBoston, N.A. and its Affiliates may accept deposits from, lend money to, act as trustee for and generally engage in any kind of banking or trust business with the Borrowers, any Subsidiary or any Affiliate of any of them and any Person who may do business with or own an equity interest in the Borrowers, any of its Subsidiaries or any Affiliate of any of them, all as if such bank were not the Agent and without any duty to account therefor to the other Lenders. 11.10 Independent Credit Decision. Each of the Lenders acknowledges that it has independently and without reliance upon the Agent, based on the financial statements and other documents referred to in Section 8.2, on the other representations and warranties contained herein and on such other information with respect to each of the Borrowers and their respective Subsidiaries as such Lender deemed appropriate, made such Lender's own credit analysis and decision to enter into this Agreement and to make the extensions of credit provided for hereunder. Each Lender represents to the Agent that such Lender will continue to make its own independent credit and other decisions in taking or not taking action under this Agreement or any other Credit Document. Each Lender expressly acknowledges that neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to such Lender, and no act by the Agent taken under this Agreement or any other Credit Document, including any review of the affairs of the Borrowers and any of their Subsidiaries, shall be deemed to constitute any representation or warranty by the Agent. Except for notices, reports and other documents expressly required to be furnished to each Lender by the Agent under this Agreement or any other Credit Document, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition, financial or otherwise, or credit worthiness of the Borrowers or any of their Subsidiaries which may come into the possession of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. 11.11 Indemnification. The holders of the Credit Obligations hereby agree to indemnify the Agent (to the extent not reimbursed by the Obligors and without limiting the obligation of any of the Obligors to do so), pro rata according to their respective Percentage Interests, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time be imposed on, incurred by or asserted against the Agent relating to or arising out of this Agreement, any other Credit Document, the transactions contemplated hereby or thereby, or any action taken or omitted by the Agent in connection with any of the foregoing; provided, however, that the foregoing shall not extend to actions or omissions which are taken by the Agent with gross negligence or willful misconduct. 12 Successors and Assigns. Any reference in this Agreement to any of the parties hereto shall be deemed to include the successors and assigns of such party, and all covenants and agreements by or on behalf of the Borrowers, the Agent or the Lenders that are contained in this Agreement shall bind and inure to the benefit of their respective successors and assigns; provided, however, that (a) the Borrowers may not assign their rights or obligations under this Agreement, and (b) the Lenders may not assign their respective Percentage Interests in the Loan hereunder except as set forth below in this Section 12. 12.1 Assignments by Lenders. 12.1.1 Assignees and Assignment Procedures. Any Lender may, with the consent of the Borrowers (which consent shall not be unreasonably withheld and provided that such consent shall not be required if a Default exists at the time of such assignment) and the consent of the Majority Lenders (which consent shall not be unreasonably withheld), assign to one or more banks or other institutional lenders (each an "Assignee") (a) in the case of any Lender other than the Agent, all or a portion, which shall not be less than $5,000,000 and (b) in the case of the Agent, all or a portion (which shall not be less than $5,000,000), of its interests, rights and obligations under this Agreement and the other Credit Documents; provided, however, that prior to any reduction in the Maximum Amount of Revolving Credit, the Agent shall hold not less than $10,000,000 principal amount of the Revolving Note. From and after the effective date specified in each assignment agreement: (i) the Assignee shall be a party hereto and, to the extent provided in such assignment agreement have the rights and obligations of the assigning Lender under this Agreement, and (ii) the assigning Lender shall, to the extent provided in such assignment, be released from its obligations under this Agreement. 12.1.2 Acceptance of Assignment and Assumption. Upon the execution of an assignment agreement pursuant to this Section 12, the assigning Lender shall give prompt notice thereof to the Borrowers and the Agent. Within five Banking Days after receipt of notice, the Borrowers, at their own expense, shall execute and deliver to the assigning Lender, in exchange for each surrendered Note, (i) a new Note to the order of such Assignee in a principal amount equal to the amount of the Loans evidenced by the surrendered Note which has been assumed by such Assignee pursuant to such assignment agreement and (ii) a new Note to the order of the assigning Lender in a principal amount equal to the amount of the Loan evidenced by the surrendered Note which has been retained by such assigning Lender. Such new Notes shall be in an aggregate principal amount equal to the aggregate principal amount of the surrendered Notes, and shall be dated the date of the surrendered Notes which they replace. 12.1.3 Federal Reserve Bank. Notwithstanding the foregoing provisions of this Section 12, each Lender and any Assignee may at any time pledge or assign all or any portion of such Person's rights under this Agreement and the other Credit Documents to a Federal Reserve Bank; provided, however, that no such pledge or assignment shall release such Person from such Person's obligations hereunder or under any other Credit Document. 12.1.4 Further Assurances. The Borrowers shall sign such documents and take such other actions from time to time reasonably requested by an Assignee to enable it to share in the benefits of the rights created by the Credit Documents. 12.2 Credit Participants. Any Lender may, without the consent of the Borrowers, in compliance with applicable laws in connection with such participation, sell to one or more "qualified institutional investors" as defined in Rule 144A under the Securities Act (each a "Credit Participant") participations in all or a portion of its interests, rights and obligations under this Agreement and the other Credit Documents; provided, however, that: (a) such Lender's obligations under this Agreement shall remain unchanged; (b) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations; and (c) the Borrowers shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, and such Lender shall retain the sole right to enforce the obligations of the Borrowers under this Agreement or any Credit Document and to approve any amendment, modification or waiver of any provision of this Agreement or any Credit Document (other than amendments, modifications or waivers with respect to any fees payable hereunder or the amount of principal of or the rate at which interest is payable on the Loan, or the stated dates for payments of principal of or interest on the Loan). 13. Notices. Except as otherwise specified in this Agreement,any notice required to be given pursuant to this Agreement shall be given in writing. Any notice, demand or other communication in connection with this Agreement shall be deemed to be given if given in writing (including telex, telecopy or similar teletransmission) addressed as provided below (or to the addressee at such other address as the addressee shall have specified by notice actually received by the addressor), and if either (i) actually delivered in fully legible form to such address (evidenced in the case of a telex by receipt of the correct answer back) or (ii) in the case of a letter, five days shall have elapsed after the same shall have been deposited in the United States mails, with first-class postage prepaid and registered or certified. If to any of the Borrowers, to them at their addresses set forth in Exhibit 8.1 (as supplemented pursuant to Section 7.4), to the attention of their respective Presidents with a copy to Bruce A. Toth, Esq., Winston & Strawn, 35 West Wacker Drive, Chicago, IL 60601. If to the Agent, to it at its address set forth on the signature page of this Agreement, to the attention of the account offices specified on the signature page, with a copy to Edward Matson Sibble, Jr., P.C., Goodwin, Procter & Hoar LLP, Exchange Place, Boston, MA 02109. If to any Lenders, to them at their respective addresses set forth on the signature page of this Agreement, to the attention of the account officer specified on the signature page, with a copy to the Agent. 14. Course of Dealing, Amendments and Waivers. No course of dealing between any Lenders and the Borrowers or any Subsidiary or Affiliate of the Borrowers shall operate as a waiver of any of the Lenders' rights under this Agreement or any other Credit Document or with respect to the Credit Obligations. No delay or omission on the part of any Lender in exercising any right under this Agreement or any other Credit Document or with respect to the Credit Obligations shall operate as a waiver of such right or any other right hereunder or thereunder. A waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any future occasion. No waiver, consent or amendment with respect to this Agreement or any other Credit Document shall be binding unless it is in writing and signed by the Agent or the holders of the required Credit Obligations. 15. Defeasance. When all Credit Obligations have been paid, performed and reasonably determined by the Lenders to have been indefeasibly discharged in full, and if at the time no Lender continues to be committed to extend any credit to the Borrowers hereunder or under any other Credit Document, this Agreement shall terminate and, at the Borrowers' written request, accompanied by such certificates and opinions as the Borrowers and the Agent shall reasonably deem necessary, the Credit Security shall revert to the Borrowers and the right, title and interest of the Lenders therein shall terminate. Thereupon, on the Borrowers' demand and at their cost and expense, the Agent shall execute proper instruments, acknowledging satisfaction of and discharging this Agreement, and shall redeliver to the Borrowers any Credit Security then in its possession; provided, however, that Sections 11.8.7, 11.11, 16, 17 and 19 shall survive the termination of this Agreement. 16. Venue; Service of Process. Each of the Borrowers and the Lenders by its execution hereof: (i) Irrevocably submits to the nonexclusive jurisdiction of the state courts of The Commonwealth of Massachusetts and to the nonexclusive jurisdiction of the United States District Court for the District of Massachusetts for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement or any other Credit Document or the subject matter hereof or thereof. (ii) Waives to the extent not prohibited by applicable law, and agrees not to assert, by way of motion, as a defense or otherwise, in any such proceeding brought in any of the above-named courts, any claim that it is not subject personally to the jurisdiction of such court, that its property is exempt or immune from attachment or execution, that such proceeding is brought in an inconvenient forum, that the venue of such proceeding is improper, or that this Agreement or any other Credit Document, or the subject matter hereof or thereof, may not be enforced in or by such court. Each of the Borrowers and the Lenders consents to service of process in any such proceeding in any manner permitted by Chapter 223A of the General Laws of The Commonwealth of Massachusetts and agrees that service of process by registered or certified mail, return receipt requested, at its address specified in or pursuant to Section 13 is reasonably calculated to give actual notice. 17. Joint and Several Liability. Any obligations of the Borrowers, including without limitation any obligations of any of the Borrowers, shall be joint and several obligations of the Borrowers. 18 General. All covenants, agreements, representations and warranties made in this Agreement or any other Credit Document or in certificates delivered pursuant hereto or thereto shall be deemed to have been material and relied on by each Lender, notwithstanding any investigation made by any Lender on its behalf, and shall survive the execution and delivery to the Lenders hereof and thereof. The invalidity or unenforceability of any term or provision hereof shall not affect the validity or enforceability of any other term or provision hereof. The headings in this Agreement are for convenience of reference only and shall not limit, alter or otherwise affect the meaning hereof. This Agreement and the other Credit Documents constitute the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior and current understandings and agreements, whether written or oral. This Agreement may be executed in any number of counterparts which together shall constitute one instrument. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (OTHER THAN THE CONFLICT OF LAWS RULES). 19. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, EACH OF THE BORROWERS, THE OTHER OBLIGORS, THE AGENT AND THE LENDERS WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT OR THE SUBJECT MATTER HEREOF OR THEREOF OR ANY CREDIT OBLIGATION OR IN ANY WAY CONNECTED WITH THE DEALINGS OF THE LENDERS, THE AGENT, OR THE BORROWERS OR ANY OTHER OBLIGOR IN CONNECTION WITH ANY OF THE ABOVE, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER IN CONTRACT, TORT OR OTHERWISE. Each of the Borrowers and the other Obligors acknowledges that it has been informed by the Agent that the provisions of this Section 19 constitute a material inducement upon which each of the Lenders has relied and will rely in entering into this Agreement and any other Credit Document, and that it has reviewed the provisions of this Section 19 with its counsel. Any Lender, the Agent, the Borrowers or any other Obligor may file an original counterpart or a copy of this Section 19 with any court as written evidence of the consent of the Borrowers, the other Obligors, the Agent and the Lenders to the waiver of their rights to trial by Jury. Each of the undersigned has caused this Agreement to be executed and delivered by its duly authorized officer as an agreement under seal as of the date first above written. BOOTH CREEK SKI HOLDINGS, INC. BOOTH CREEK SKI ACQUISITION CORP. TRIMONT LAND COMPANY SIERRA-AT-TAHOE, INC. BEAR MOUNTAIN, INC. WATERVILLE VALLEY SKI RESORT, INC. MOUNT CRANMORE SKI RESORT, INC. SKI LIFTS, INC. GRAND TARGHEE INCORPORATED LMRC HOLDING CORP. LOON MOUNTAIN RECREATION CORPORATION LOON REALTY CORP. By: Title: /s/ELIZABETH J. COLE ------------------------ Elizabeth J. Cole Title: Executive Vice President BANKBOSTON, N.A. as Agent By: /s/ CARLTON WILLIAMS ---------------------- Carlton Williams Title: Director 100 Federal Street Boston, Massachusetts 02110 Attention: Carlton F. Williams Telecopy: (617) 434-8102 BANKBOSTON, N.A. as Lender By: /s/ CARLTON WILLIAMS --------------------- Carlton Williams Title: Director 100 Federal Street Boston, Massachusetts 02110 Attention: Carlton F. Williams Telecopy: (617) 434-8102 EXHIBIT 2.1.4 FORM OF REVOLVING NOTE N-___ As of October 30, 1998 FOR VALUE RECEIVED, the undersigned, Booth Creek Ski Holdings Inc., a Delaware corporation (together with its successors and assigns, "BCS Holdings"), Booth Creek Ski Acquisition Corp., a Delaware corporation (together with its successors and assigns, "BCS Acquisition"), Trimont Land Company, a California corporation (together with its successors and assigns, "Northstar-at-Tahoe"), Sierra-at-Tahoe, Inc., a Delaware corporation (together with its successors and assigns, "Sierra-at-Tahoe"), Bear Mountain, Inc., a Delaware corporation (together with its successors and assigns, "Bear Mountain"), Waterville Valley Ski Resort, Inc., a Delaware corporation (together with its successors and assigns, "Waterville"), Mount Cranmore Ski Resort, Inc., a Delaware corporation (together with its successors and assigns, "Cranmore"), Ski Lifts, Inc., a Washington corporation (together with its successors and assigns, "Ski Lifts"), Grand Targhee Incorporated, a Delaware corporation (together with its successors and assigns, "Grand Targhee"), LMRC Holding Corp., a Delaware corporation (together with its successor and assigns, "LMRC Holding"), Loon Mountain Recreation Corporation, a New Hampshire corporation (together with its successors and assigns, "Loon"), Loon Realty Corp., a New Hampshire corporation (together with its successors and assigns, "Loon Realty" and together with BCS Holdings, BCS Acquisition, Northstar-at-Tahoe, Sierra-at-Tahoe, Bear Mountain, Waterville, Cranmore, Ski Lifts, Grand Targhee, LMRC Holding and Loon the "Borrowers", and each a "Borrower"), hereby jointly and severally promise to pay [Insert Lender] (the "Lender") or order, on the Final Maturity Date, the aggregate unpaid principal amount of the loans made by the Lender to the Borrowers pursuant to the Credit Agreement referred to below. The Borrowers promise to pay daily interest from the date hereof, computed as provided in such Credit Agreement, on the aggregate principal amount of such loans from time to time unpaid at the per annum rate applicable to such unpaid principal amount as provided in such Credit Agreement, such interest being payable at the times specified in such Credit Agreement, except that all accrued interest shall be paid at the stated or accelerated maturity hereof or upon the prepayment in full hereof. Payments hereunder shall be made to BankBoston, N.A., as agent for the payee hereof (the "Agent"), at 100 Federal Street, Boston, Massachusetts 02110. All loans made by the Lender pursuant to the Credit Agreement referred to below and all repayments of the principal thereof shall be recorded by the Lender and, prior to any transfer hereof, appropriate notations to evidence the foregoing information with respect to each such loan then outstanding shall be endorsed by the Lender on the schedule attached hereto or on a continuation of such schedule attached to and made a part hereof; provided, however, that the failure of the Lender to make any such recordation or endorsement shall not affect the obligations of the Borrowers under this Revolving Note, such Credit Agreement or under any other Credit Document. This Revolving Note evidences borrowings under, and is entitled to the benefits and security of, and is subject to the provisions of, the Credit Agreement dated as of December 3, 1996, as amended and restated as of March 18, 1997 and as further amended and restated as of October 30, 1998, as from time to time in effect (the "Credit Agreement"), among the Borrowers, the Agent, the Lender and certain other lenders. The principal of this Revolving Note is prepayable in the amounts and under the circumstances set forth in the Credit Agreement, and may be prepaid in whole or from time to time in part, all as set forth in the Credit Agreement. Terms defined in the Credit Agreement and not otherwise defined herein are used herein with the meanings so defined. In case an Event of Default shall occur, the entire principal of this Revolving Note may become or be declared due and payable in the manner and with the effect provided in the Credit Agreement. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (OTHER THAN THE CONFLICT OF LAWS RULES). The parties hereto, including the Borrowers and all guarantors and endorsers, hereby waive presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Revolving Note, except as specifically otherwise provided in the Credit Agreement, and assent to extensions of time of payment, or forbearance or other indulgence without notice. BOOTH CREEK SKI HOLDINGS, INC. By /s/ ELIZABETH J. COLE Title: ------------------------------- Elizabeth J. Cole Executive Vice President BOOTH CREEK SKI ACQUISITION CORP. By /s/ ELIZABETH J. COLE Title: -------------------------------- Elizabeth J. Cole Executive Vice President TRIMONT LAND COMPANY By /s/ ELIZABETH J. COLE Title: ------------------------ Elizabeth J. Cole Executive Vice President SIERRA-AT-TAHOE, INC. By /s/ ELIZABETH J. COLE Title: ------------------------ Elizabeth J. Cole Executive Vice President BEAR MOUNTAIN, INC. By /s/ ELIZABETH J. COLE Title: ------------------------ Elizabeth J. Cole Executive Vice President WATERVILLE VALLEY SKI RESORT, INC. By /s/ ELIZABETH J. COLE Title: ------------------------ Elizabeth J. Cole Executive Vice President MOUNT CRANMORE SKI RESORT, INC. By /s/ ELIZABETH J. COLE Title: ------------------------ Elizabeth J. Cole Executive Vice President SKI LIFTS, INC. By /s/ ELIZABETH J. COLE Title: ------------------------ Elizabeth J. Cole Executive Vice President GRAND TARGHEE INCORPORATED By /s/ ELIZABETH J. COLE Title: ------------------------ Elizabeth J. Cole Executive Vice President LMRC HOLDING CORP. By /s/ ELIZABETH J. COLE Title: ------------------------ Elizabeth J. Cole Executive Vice President LOON MOUNTAIN RECREATION CORPORATION By /s/ ELIZABETH J. COLE Title: ------------------------ Elizabeth J. Cole Executive Vice President LOON REALTY CORP. By /s/ ELIZABETH J. COLE Title: ------------------------ Elizabeth J. Cole Executive Vice President LOAN AND PAYMENTS OF PRINCIPAL Amount Amount of Unpaid of Principal Principal Notation Date Loan Repaid Balance Made By EXHIBIT 5.2.1 FORM OF OMNIBUS OFFICER'S CERTIFICATE (For Closing Date) Pursuant to Section 5.2.1 of the Credit Agreement dated as of December 3, 1996, as amended and restated as of March 18, 1997 and as further amended and restated as of October 30, 1998, and as now in effect (the "Credit Agreement"), among the undersigned Booth Creek Ski Holdings, Inc., Booth Creek Ski Acquisition Corp., Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc, Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Ski Lifts, Inc., Grand Targhee Incorporated, LMRC Holding Corp., Loon Mountain Recreation Corporation and Loon Realty Corp. (collectively the "Borrowers"), BankBoston, N.A., a national banking association ("BKB"), the other Lenders, and BKB, as Agent for itself and the other Lenders, the Borrowers represent and warrant that the representations and warranties contained in Section 8 of the Credit Agreement, and the representations and warranties of each of the Borrowers under the Security Agreements and the Mortgages are true and correct in all material respects on and as of the date hereof, other than representations or warranties that by their terms refer to a specific date other than the Closing Date, in which case, as of such date, with the same force and effect as though originally made on and as of the date hereof; after giving effect to the requested extension of credit under the Credit Agreement, no Default exists; and no Material Adverse Change has occurred. Terms defined in the Credit Agreement and not otherwise defined herein are used herein with the meanings so defined. This certificate has been executed by a duly authorized Executive Officer or Financial Officer of each of the Borrowers as of this 28 day of January 1999. BOOTH CREEK SKI HOLDINGS, INC. By: /s/ ELIZABETH J. COLE ---------------------- Elizabeth J. Cole Title: Executive Vice President BOOTH CREEK SKI ACQUISITION CORP. TRIMONT LAND COMPANY SIERRA-AT-TAHOE, INC. BEAR MOUNTAIN, INC. SKI LIFTS, INC. MOUNT CRANMORE SKI RESORT, Inc WATERVILLE VALLEY SKI RESORT, INC. GRAND TARGHEE INCORPORATED LMRC HOLDING CORP. LOON MOUNTAIN RECREATION CORPORATION LOON REALTY CORP. By: /s/ ELIZABETH J. COLE ---------------------- Elizabeth J. Cole Title: Executive Vice President EXHIBIT 7.4.1 OFFICER'S CERTIFICATE (For Annual Financial Statements and Reports) Pursuant to Section 7.4.1 of the Credit Agreement dated as of December 3, 1996, as amended and restated as of March 18, 1997 and as further amended and restated as of October 30, 1998, and as now in effect (the "Credit Agreement"), among the undersigned Booth Creek Ski Holdings, Inc., Booth Creek Ski Acquisition Corp., Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Ski Lifts, Inc., Grand Targhee Incorporated, LMRC Holding Corp., Loon Mountain Recreation Corporation and Loon Realty Corp. (collectively the "Borrowers"), BankBoston, N.A., a national banking association ("BKB"), the other Lenders, and BKB, as Agent for itself and the other Lenders, the Borrowers represent and warrant that (i) no Default exists as of the date hereof except as set forth in Exhibit A attached hereto; (ii) no changes have occurred in GAAP since October 30, 1997 affecting the Borrowers except as set forth in Exhibit B attached hereto; and (iii) the Schedule of Computations set forth in Exhibit C attached hereto demonstrates, as of the close of the fiscal year just ended, compliance with the Computation Covenants. Terms defined in the Credit Agreement and not otherwise defined herein are used herein with the meanings so defined. This certificate has been executed by a duly authorized Financial Officer of Booth Creek Ski Holdings, Inc. this ____ day of _____________, ____. BOOTH CREEK SKI HOLDINGS, INC. By: Title: EXHIBIT 7.4.2 OFFICER'S CERTIFICATE (For Quarterly Financial Statements and Reports) Pursuant to Section 7.4.2 of the Credit Agreement dated as of December 3, 1996, as amended and restated as of March 18, 1997 and as further amended and restated as of October 30, 1998, as now in effect (the "Credit Agreement"), among the undersigned Booth Creek Ski Holdings, Inc., Booth Creek Ski Acquisition Corp., Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Ski Lifts, Inc., Grand Targhee Incorporated, LMRC Holding Corp., Loon Mountain Recreation Corporation and Loon Realty Corp. (collectively the "Borrowers"), BankBoston, N.A., a national banking association ("BKB"), the other Lenders, and BKB, as Agent for itself and the other Lenders, the Borrowers represent and warrant that (i) the financial statements furnished pursuant to Section 7.4.2 have been prepared in accordance with GAAP and present fairly, in all material respects, the financial position of the Borrowers at the dates thereof and the results of its operations for the periods covered thereby, subject only to normal year-end audit adjustments and the addition of footnotes; (ii) no Default exists as of the date hereof except as set forth in Exhibit A attached hereto; and (iii) the Schedule of Computations set forth in Exhibit B attached hereto demonstrates, as of the close of the fiscal quarter just ended, compliance with the Computation Covenants. Terms defined in the Credit Agreement and not otherwise defined herein are used herein with the meanings so defined. This certificate has been executed by a duly authorized Financial Officer of Booth Creek Ski Holdings, Inc., this ___ day of ___________, 19__. BOOTH CREEK SKI HOLDINGS, INC. By: Title: EXHIBIT 7.18 Environmental Cleanup 1. Snoqualmie Pass, Washington. o Remove four heating oil underground storage tanks used to heat several buildings at Snoqualmie and, if necessary, remediate any contamination associated with such tanks. o Repair floors in the maintenance areas at Alpental, Snoqualmie and Ski Acres resorts so as to eliminate any potential pathway for hazardous materials into the environment. o Evaluate nature and extent of any contamination associated with two above-ground storage tanks containing diesel and gasoline located near the Alpental maintenance shop and any contamination associated with stained soils or pools of liquid associated with other above-ground storage tanks.. Remediate any contamination discovered with respect to such tanks in accordance with applicable federal, state and local laws, rules and regulations. Provide secondary containment for such tanks. o Comply with all applicable reporting and record keeping requirements set forth in SARA Title III, Sections 311 and 312. o Test all potentially hazardous wastes generated onsite to determine if they qualify as hazardous waste under RCRA or any equivalent state or local law, rule or regulation. To the extent such wastes are determined to be hazardous, such wastes must be handled, stored and disposed of in compliance with all applicable federal, state and local laws, rules or regulations. Prepare and implement a plan for compliance with RCRA or any equivalent state or local law, rule or regulation regarding reporting or record keeping relating to hazardous wastes. o Operate any space heaters located at Ski Acres or other facilities which are used to burn used oil in compliance with all applicable federal, state or local requirements. o Perform any testing, record keeping or reporting required by federal, state or local law, rule or regulation ground water wells. o Obtain any required permits for any aboveground or underground tanks used to store hazardous substances or petroleum products. o Create and implement compliance plan for handling waste antifreeze generated from vehicle maintenance operations in compliance with all applicable federal, state or local environmental laws rules or regulations. o Create and implement compliance plan for handling, storing and disposing of used oil filters in accordance with federal, state or local laws, rules or regulations. o Develop an asbestos operation and maintenance plan and implement same to assure that the presumed asbestos containing materials identified in the ENVIRON January 20, 1997 report are properly managed. o Prepare a spill prevention control and counter measures plan (SPCC). o Prepare a written hazard communication plan or a lockout/tag-out plan and maintain a complete set of MSDS forms, as required by law. o Store all oils, hydraulic fluids, solvents or antifreezes stored at the Alpental, Snoqualmie and Ski Acres maintenance buildings in approved and segregated hazardous material storage area and secondary containment must be provided. o Remediate visible staining of the floor areas so as to comply with all applicable federal, state or local environmental laws rules or regulations. o Prepare a plan to address the occupational safety and health issues identified in the January 20, 1997 ENVIRON report. 2. Grand Targhee Ski & Summer Resort, Alta, Wyoming. o Evaluate nature and extent of any contamination associated with soils underlying a concrete pit and two former floor drains located within the lower maintenance building at Grand Targhee Ski & Summer Resort as detailed in the February 4, 1997, letter from ENVIRON to Eleni Kouimelis, Esq. Remediate any contamination discovered with respect to such pit and drains in accordance with applicable federal, state and local laws, rules and regulations. o Complete construction of new wastewater treatment plant in compliance with applicable federal, state and local laws, rules and regulations, including the compliance order entered with the Wyoming Department of Environmental Quality. Evaluate and, if necessary, remediate or dispose of existing wastewater treatment lagoon sludges in compliance with applicable federal, state and local laws, rules and regulations. o Evaluate nature and extent of any contamination associated with several areas of soil contamination identified in the vicinity of lower maintenance building in the May, 1996, Nelson Engineering and January 17, 1997 ENVIRON Corporation reports. Remediate any contamination discovered with respect to such areas in accordance with applicable federal, state and local laws, rules and regulations. o Provide secondary containment for existing above-ground fuel storage tanks located west of the maintenance building used to fuel Grand Targhee vehicles and for the waste oil tank located adjacent to the lower maintenance building. o Discontinue practice of vehicle maintenance and steam cleaning over concrete pit located in the lower maintenance building. o Develop an alternative plan for treatment and disposal of oily wastewater, including installation of an oil-water separator system and secondary containment for the waste oil storage tank and discharge of treated water to new package wastewater treatment system following construction during 1998/1999 ski season. o Develop SPCC plan for Grand Targhee. o Determine whether emergency generators require registration under WDEQ Air Quality Standards. If so, register such generators. o Dispose of all spent mineral spirits in accordance with all applicable federal, state and local law, rules or regulations. o Comply with all applicable reporting and record keeping requirements set forth in SARA Title III Sections 311 and 312. o Prepare written hazard communication plan and a lockout/tag-out plan, or a noise conservation program as outlined in the ENVIRON January 1997 report. EX-10 4 10.24 STOCK OPTION AGREEMENT BOOTH CREEK SKI GROUP, INC. 1997 STOCK OPTION PLAN STOCK OPTION AGREEMENT This STOCK OPTION AGREEMENT dated as of October 1, 1997 (this "Agreement"), is by and between Booth Creek Ski Group, Inc., a Delaware corporation ("BCSG"), and the individual whose name appears on the signature page hereof as "Holder" (together with such individual's Designated Beneficiary (as defined in the Plan), the "Holder"). RECITALS WHEREAS, BCSG has adopted the Booth Creek Ski Group, Inc. 1997 Stock Option Plan (the "Plan") to promote the long-term success of the Company by strengthening the Company's ability to attract and retain highly competent managers and other selected employees and to provide a means to encourage stock ownership and proprietary interest in BCSG; and WHEREAS, pursuant to the Plan, the Board of Directors of BCSG has awarded to the Holder an option (the "Option") to purchase eighty (80) shares of the Class A Common Stock, $0.001 par value, of BCSG ("Common Stock"), and BCSG and the Holder desire to evidence and set forth the terms and conditions of the Option pursuant to this Agreement; NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. Defined Terms. Capitalized terms used and not otherwise defined herein shall have the meanings given to such terms in the Plan. 2. Grant of Option. In accordance with the terms of the Plan, BCSG hereby grants to the Holder, as a matter of separate agreement and not in lieu of salary or any other compensation for services, an option to purchase eighty (80) shares of Common Stock, subject to the terms and conditions of the Plan and this Agreement. Any shares of Common Stock issuable upon the exercise of the Option are referred to herein as "Shares." 3. Exercise Price. The exercise price for the Option shall be $500.00 per vested Share, subject to adjustment as provided in Section 11 hereof and Section 14 of the Plan. The exercise price shall be paid by the Holder to BCSG on the date on which the Option is exercised for Shares with respect to which the Option has vested. 4. Medium and Time of Payment. The exercise price for Shares shall be paid in United States dollars in cash on or prior to the date on which the Option is exercised with respect to such Shares. Payment in full shall be required prior to the issuance of any Shares pursuant to the Option. In addition, prior to or concurrently with delivery to the Holder of a certificate representing such Shares, the Holder shall pay any and all amounts necessary to satisfy applicable federal, state and local tax requirements (including withholding requirements). 5. Vesting of Option. (a) The Option shall not become exercisable with respect to any Shares until the date it vests with respect to such Shares. The Option awarded pursuant to Section 2 shall vest (i) with respect to 20% of the Shares, on the date hereof and (ii) with respect to an additional 20% of the Shares, on each of the second, third, fourth and fifth anniversary of the date hereof. Subject to Sections 5(b) and 6 below, in the event Holder's Employment with the Company is terminated (A) by the Company for any reason (other than for Cause), (B) as a result of the death or disability of the Holder or (C) by the Holder, if the Holder is a party to a written employment agreement with the Company, (i) as a result of a breach of the Company in any material respect of its obligations under its employment agreement with such Holder and the Company's failure to cure such breach within any cure periods provided therein or (ii) as the result of a material reduction by the Company in such Holder's reporting responsibilities, titles, authority, offices or duties as in effect immediately prior to such change and the Company's failure to cure such reduction within any cure periods provided in such Holder's employment agreement, in any case, during the period commencing on the first anniversary of the date hereof and ending on the fifth anniversary of the date hereof, then the Option shall vest with respect to an additional 1.6667% of the Shares for each full month between the date of the immediately preceding anniversary of the date hereof and the Employment Termination Date (i.e., the 20% that would have vested at the end of such year will vest on a monthly, pro rata basis). (b) Notwithstanding the provisions of Section 5(a) hereof, if not earlier terminated, the Option shall immediately become fully vested and exercisable with respect to all Shares upon (i) the occurrence of a Change in Control or (ii) the termination by Holder of Holder's Employment within 45 days after either of the two following occurrences (each is referred to hereinafter as a "Good Reason"); (A) George N. Gillett, Jr. ceases to be Chief Executive Officer of BCSG or (B) George N. Gillett, Jr. and members of his immediate family cease to own sufficient shares of stock of BCSG to be able to elect a majority of the Board of Directors of BCSG. (c) The Option shall not vest or become exercisable with respect to any Share solely as a result of a Public Offering, but shall vest and become exercisable only as otherwise set forth in Sections 5(a) and (b) hereof. (d) Notwithstanding anything else herein to the contrary, in no event may the Option be exercised with respect to a vested Share after the tenth anniversary of the Effective Date, except as otherwise provided in the proviso to Section 6(b) hereof. 6. Termination of Employment. (a) (i) If the Holder's Employment is terminated for Cause (as defined in clause (ii)(B) or (ii)(C) of the definition thereof (or, if applicable, the corresponding provisions of the definition of "cause" in Holder's employment agreement with the Company)), the Holder's Option, whether or not vested at the Employment Termination Date with respect to any Shares, will be automatically canceled as of the Employment Termination Date. (ii) If Holder's Employment is terminated for Cause (other than of the type referenced in Section 6(a)(i) hereof), the Holder's Option will be automatically canceled as of the Employment Termination Date (A) to the extent not vested at the Employment Termination Date with respect to any Shares and (B) to the extent of 50% of the Shares that have vested as of the Employment Termination Date (other than the Shares with respect to which the Option vested on the date hereof). (b) If the Holder's Employment is terminated for any reason (other than by the Company for Cause), including due to the Holder's death, disability, voluntary resignation or termination by the Company for reasons other than for Cause, that portion of the Holder's Option that was not vested in Shares at the Employment Termination Date (according to the rules provided therefor in Section 5 hereof) will be automatically canceled as of the Employment Termination Date, and the Shares subject to that portion of the Holder's Option that were vested at the Employment Termination Date must be purchased by the Holder for the Exercise Price within 120 days of such Employment Termination Date, or otherwise be canceled on such 120th day; provided, however, that if (i) BCSG is then prohibited by law or by any agreement to which it is bound from purchasing any such Shares pursuant to a Put and the Common Stock is not then Publicly Traded or (ii) the Common Stock is Publicly Traded but the Holder is subject to a contractual agreement, executed by the Holder at the request of the Company, not to sell Shares, Holder shall have the right to purchase such Shares until 120 days after the earlier of (A) Holder's receipt of written notice from BCSG that BCSG is able to perform its obligations under Section 7 with respect to such Shares and (B) the Common Stock becoming Publicly Traded and any such contractual restrictions cease to apply, and such Shares have been registered in accordance with Section 10(b). If the Holder does not exercise Holder's right to purchase such Shares by the expiration of such 120-day period, the Option shall be canceled upon the expiration of such 120-day period; provided, however, that if Holder has delivered a Put Notice, but the Put Closing has not occurred on or as of such 120th day, Holder shall have the right to purchase such Shares until and including the date of the Put Closing. BCSG will provide such notice promptly following its becoming permitted to purchase such Shares. 7. Put Rights. (a) Put. Subject to Section 7(d) hereof, if the Holder's Employment is terminated for any reason other than cause, the Holder will have the right (a "Put"), for a period of 180 Qualified Days commencing on the Employment Termination Date, exercisable by delivery of written notice (the "Put Notice") to BCSG, to require BCSG to purchase for the Put Price (as defined below) any part or all of the Shares then owned by the Holder which has been issued upon exercise of the Holder's Option or which is issuable upon the exercise of the Holder's Option (the Shares or the underlying Option described in each Put Notice is referred to collectively as the "Put Shares"). For purposes hereof, a "Qualified Day" is any day on which BCSG is not prohibited by law or by any agreement to which it is bound from purchasing Shares pursuant to a Put. The Holder may not deliver more than one Put Notice. A Put Notice, once delivered, shall be irrevocable. The date on which a Put Notice is so delivered by the Holder shall be referred to as the "Put Exercise Date." (b) Determination of Put Price. The "Put Price" shall be the price of the Put Shares on the Employment Termination Date determined as set forth in this Section 7(b). In the event that a Put is exercised by Holder with respect to Shares without Holder first having exercised the Option with respect to such Shares, the Put Price for such Shares shall be equal to (i) the Put Price determined in accordance with this Section 7(b) minus (ii) the Exercise Price for such Shares. The Holder and BCSG shall seek to reach agreement on the fair market value of the Put Shares for a period of up to 30 days after the Put Exercise Date and, if they shall reach agreement thereon, the dollar amount so agreed upon shall be the "Put Price." For purposes of this Agreement, the fair market value of the Put Shares will be heir pro rata portion of the fair market value of all of the shares of Common Stock outstanding (on a fully diluted basis). If the Holder and BCSG are unable to reach agreement within such 30-day period, the Holder and BCSG shall seek for an additional 15 days to reach agreement on an Investment Bank to determine the fair market value of the Put Shares on the Put Exercise Date. If the parties reach agreement on an Investment Bank, such Investment Bank shall be promptly retained by BCSG and shall, within 60 days following its retention, determine the fair market value of the Put Shares on the Put Exercise Date and submit its report to each of the parties. If the parties are unable to reach agreement on an Investment Bank, each party shall, within the following 15 days, deliver to the other party a list of six Investment Banks, numbered one through six. The Investment Bank appearing on both lists and having the lowest total numbers assigned to it shall be promptly retained by BCSG and shall, within 60 days following its retention, determine the fair market value of the Put Shares (as provided above) and submit its report to each of the parties (e.g., if Investment Bank X is assigned number 1 on the Holder's list and number 6 on BCSG's list and Investment Bank Y is assigned number 2 on BCSG's list and number 4 on the Holder's list, Investment Bank Y shall be retained to determine the Put Price). If either party fails to deliver a list of six Investment Banks within such 15-day period, the determination as to "Put Price' shall be made by the Investment Bank assigned number one on the list of the other party. If no Investment Bank appears on the list of both the Holder and BCSG, the Holder and BCSG shall, within the following 15-day period, deliver to the other party a list of six Investment Banks, numbered one through six. The Investment Bank appearing on both lists and having the lowest total numbers assigned to it shall be promptly retained by BCSG to determine the fair market value of the Put Shares in accordance with the foregoing. If no Investment Bank appears on the lists of both the Holder and BCSG, the Holder and BCSG shall continue to deliver lists of six Investment Banks until one Investment Bank is chosen as provided above. In any event, if no Investment Bank has been chosen pursuant to this methodology within 90 days after the Put Exercise Date, either the Holder or BCSG may retain the American Arbitration Association to select an Investment Bank. The fees and expenses of any Investment Bank retained to determine the Put Price shall be paid by BCSG. The determination of the Put Price by an Investment Bank in accordance with the terms hereof shall be final and binding on the Holder and BCSG. (c) Put Closing. The closing (the "Put Closing") of the purchase and sale of Shares pursuant to a Put will take place on a date selected by BCSG which will be no earlier than the 16th and no late than the 30th day following the date of the final determination of the Put Price pursuant to Section 7(b) hereof. Payment of the Put Price for all Shares tendered will be paid by BCSG at the Put Closing by cashier's or certified check or by wire transfer of immediately available funds to an account designated by the Holder. If Holder's right to exercise Holder's Option was suspended in accordance with the proviso to Section 6(b), BCSG shall pay to the Holder, in addition to the Put Price, interest on the unpaid Put Price at an annual rate equal to the prime rate as published from time to time by The Wall Street Journal for the period between the Put Exercise Date and the Put Closing. (d) Limitations on Put Rights. Notwithstanding anything in this Agreement to the contrary, (i) Holder shall not have a Put with respect to any Shares if and so long as the Common Stock is Publicly Traded and (ii) BCSG shall not be required to purchase any Shares pursuant to a Put to the extent that BCSG is then prohibited from doing so by law or by any agreement to which it is bound. 8. Call Right. (a) Call. BCSG shall have the right (a "Call"), exercisable at any time after the termination of Holder's Employment by the Company for Cause or by the Holder without Good Reason, in either case, by the delivery of written notice to the Holder (a "Call Notice"), to purchase all Shares acquired by such Holder pursuant to the exercise of an Option (the Shares described in each Call Notice is referred to collectively as the "Call Shares"). The date on which a Call Notice is so delivered by BCSG shall be referred to as the "Call Exercise Date." (b) Determination of Call Price. The "Call Price" shall be the price of the Call Shares on the Call Exercise Date determined as set forth in this Section 8(b). The Holder and BCSG shall seek to reach agreement on the fair market value of the Call Shares for a period of up to 30 days after the Call Exercise Date and, if they shall reach agreement thereon, the dollar amount so agreed upon shall be the "Call Price." For purposes of this Agreement, the fair market value of the Call Shares will be their pro rata portion of the fair market value of all of the shares of Common Stock outstanding (on a fully diluted basis). If the Holder and BCSG are unable to reach agreement within such 30-day period, the Holder and BCSG shall seek for an additional 15 days to reach agreement on an Investment Bank to determine the fair market value of the Call Shares on the Call Exercise Date. If the parties reach agreement on an Investment Bank, such Investment Bank shall be promptly retained by BCSG and shall, within 60 days following its retention, determine the fair market value of the Call Shares on the Call Exercise Date and submit its report to each of the parties. If the parties are unable to reach agreement on an Investment Bank, each party shall, within the following 15 days, deliver to the other party a list of six Investment Banks, numbered one through six. The Investment Bank appearing on both lists and having the lowest total numbers assigned to it shall be promptly retained by BCSG and shall, within 60 days following its retention, determine the fair market value of the Call Shares (as provided above) and submit its report to each of the parties. If either party fails to deliver a list of six Investment Banks within such 15-day period, the determination as to "Call Price" shall be made by the Investment Bank assigned number one on the list of the other party. If no Investment Bank appears on the list of both the Holder and BCSG, the Holder and BCSG shall, within the following 15-day period, deliver to the other party a list of six Investment Banks, numbered one through six. The Investment Bank appearing on both lists and having the lowest total numbers assigned to it shall be promptly retained by BCSG to determine the fair market value of the Call Shares in accordance with the foregoing. If no Investment Bank appears on the lists of both the Holder and BCSG, the Holder and BCSG shall continue to deliver lists of six Investment Banks until one Investment Bank is chosen as provided above. In any event, if no Investment Bank has been chosen pursuant to this methodology within 90 days after the Call Exercise Date, either the Holder or BCSG may retain the American Arbitration Association to select an Investment Bank. The fees and expenses of any Investment Bank retained to determine the Call Price shall be paid by BCSG. The determination of the Call Price by an Investment Bank in accordance with the terms hereof shall be final and binding on the Holder and BCSG. (c) Call Closing. Each closing (a "Call Closing") of the purchase and sale of Shares pursuant to a Call will take place on a date selected by BCSG which will be no earlier than the 16th and no later than the 30th day following the date of the final determination of the Call Price pursuant to Section 8(b) hereof. Payment of the Call Price for all Shares tendered will be paid by BCSG at the Call Closing by cashier's or certified check or by wire transfer of immediately available funds to an account designated by the Holder. 9. Stockholders Agreement. The Shares shall be subject to the terms of the Stockholders Agreement. Concurrently with the issuance to Holder of Shares upon the exercise of the Option, Holder shall become a party to the Stockholders Agreement by executing an amendment or restatement of the Stockholders Agreement or a supplementary agreement to that effect. The certificates representing Shares issued upon exercise of the Option shall bear the legends required by the Stockholders Agreement and such other legends as BCSG may deem appropriate to comply with all applicable federal and state securities laws. 10. Compliance with Securities Laws. (a) Unless the Shares issued upon exercise of the Option are registered under the Securities Act of 1933, as amended (the "Securities Act"), and the securities laws of all other appropriate jurisdictions, the obligation of BCSG to issue Shares upon exercise of the Option shall be subject to receipt from Holder of a written representation to the effect that (i) Holder is purchasing the shares for Holder's own account for investment, and not with a view to, or for resale in connection with, the distribution thereof, and has no present intention of distributing or reselling any thereof, (ii) Holder has the financial ability to bear the economic risks of Holder's investment in the Shares to be purchased, (iii) Holder has such knowledge and experience in financial and business matters, and knowledge of and experience with the Company, to be capable of evaluating the merits and risks of the purchase of the Shares to be purchased by Holder, and (iv) such other representations as are necessary or appropriate to establish an exemption from registration. Shares issued or issuable upon the exercise of the Option shall not be transferable unless an exemption from such registration is available and, as appropriate, only with a written opinion of counsel (which shall be satisfactory in form and substance to BCSG) that an exemption from registration under the Securities Act is available and that the transaction would not violate any applicable securities laws. Certificates for the Shares will bear such legends as BCSG deems necessary or appropriate in connection with the Securities Act and all other applicable securities laws. (b) BCSG shall have no obligation to register the Shares under the federal securities laws or take any other steps as may be necessary to enable the Shares to be offered and sold under the securities laws of any jurisdiction; provided, however, that in the event the Common Stock at any time becomes Publicly Traded, BCSG shall promptly cause the Shares to be registered pursuant to a Form S-8 registration statement. 11. Dilution and Other Adjustments; Extraordinary Dividends. (a) In the event the shares of Common Stock, as presently constituted, shall be changed into or exchanged for a different number or kind of shares of stock or other securities of BCSG or of another corporation (whether by reason of merger, consolidation, recapitalization, reclassification, split, reverse split, combination of shares or otherwise) or if the number of such shares of Common Stock shall be increased through the payment of a stock dividend, then there shall be substituted for or added to each share of Common Stock subject or which may become subject to the Option, the number and kind of shares of stock or other securities into which each outstanding share of Common Stock shall be so changed, or for which each such share shall be exchanged, or to which each such share shall be entitled, as the case may be. The Option shall also be appropriately amended as to price and other terms as the Board, in its sole discretion, may determine are necessary to reflect the foregoing events. (b) In the event that BCSG shall pay any extraordinary dividends or extraordinary distributions (which determination, in either case, shall be made in the good faith determination of the Board) on or with respect to the Common Stock, the Board shall treat the Option as having been fully exercised but shall retain the dividends or distributions applicable to the Option and release such dividends or distributions (without interest thereon) to the Holder of the Option only if, to the extent and at such time as the Option shall be exercised. Holder shall not be entitled to receive any extraordinary dividends or extraordinary distributions unless and until Holder's Option shall have vested and been exercised. Except as otherwise expressly provided in this Section 11(b), Holder shall not have any right to any dividends or distributions on or with respect to the Shares, unless and until Holder becomes a holder of Shares. 12. Miscellaneous Provisions. (a) The Holder shall have no rights as a holder of BCSG's Common Stock with respect to the Option, unless and until certificates for Shares are issued to the Holder, except as otherwise provided in Section 11(b) hereof. (b) The Option shall not be transferable or assignable other than (i) by will or the laws of descent and distribution; (ii) by gift or other transfer or any trust or estate in which the original Holder or such Holder's spouse or other immediate relative has a substantial beneficial interest, or to a spouse or other immediate relative; or (iii) pursuant to a domestic relations order (as defined by the Code); provided, however, that the Option, if so transferred, shall continue to be subject to all the terms and conditions hereof. Shares received upon the exercise of the Option shall be transferable or assignable only pursuant to the terms of the Stockholders Agreement. (c) Neither this Agreement, the Option, the Plan nor any action taken hereunder or thereunder shall be construed as giving any employee, including the Holder, any right to be retained in the employ of the Company or any of its Affiliates or shall interfere with or restrict in any way the rights of the Company or any of its Affiliates, which are hereby reserved, to discharge Holder at any time for any reason whatsoever, with or without cause. (d) The Option shall be canceled if it does not vest in accordance with Section 5 hereof. (e) The costs and expenses of the administering the Plan shall be borne by BCSG and not charged to the Holder. (f) During the term of the Option and Plan, BCSG will at all times reserve and keep available such numbers of Shares as may be issuable under the Plan upon exercise of the Option. (g) This Agreement is an Individual Option Agreement as described in Section 8 of the Plan. This Agreement is intended to conform in all respects with, and is subject to all applicable provisions of, the Plan, which is incorporated herein by reference. Any inconsistency between this Agreement and the Plan shall be resolved in accordance with the terms of the Plan. By executing and delivering this Agreement, Holder acknowledges receipt of the Plan and agrees to be bound by all of the terms thereof. (h) In the event that a court of competent jurisdiction determines that BCSG has failed to perform in any material respect any of its obligations under the Plan or this Agreement, BCSG shall pay all reasonable attorneys' fees and disbursements incurred by Holder in enforcing such Holder's rights thereunder or hereunder with respect to such failure to perform. 13. Amendments and Termination. (a) The Plan may be amended by the Board as it deems necessary or appropriate to better achieve the purposes of the Plan, except that no such amendment which would increase the number of shares available for issuance (except as required in accordance with Section 14 of the Plan or Section 11 hereof) shall be made without the approval of the holders of a majority of BCSG's outstanding Common Stock. The Board may suspend the Plan or terminate the Plan at any time; provided, that no such action shall adversely affect any benefit outstanding hereunder. (b) The Board, in its sole discretion, may amend this Agreement or the Plan as it relates to the Option without the consent of Holder, but not in any manner adversely affecting the rights, interests or obligations of Holder hereunder. 14. Tax Withholding. BCSG shall have the right to deduct from any settlement of the Option, including the delivery or vesting of Shares, a sufficient amount to cover withholding of any federal, state or local taxes required by law, or to take such other action as may be necessary to satisfy any such withholding obligations, including requiring that Holder, upon exercise of the Option, pay to BCSG in cash, in addition to the Exercise Price for Shares to be issued, an amount equal to any withholding tax liability incurred by BCSG in connection with such issuance. 15. Other Benefit and Compensation Programs. Unless otherwise specifically determined by the Board, the Option is intended to be "nonqualified compensation" under the Code and shall not be deemed a part of Holder's regular, recurring compensation for purposes of calculating payments or benefits from any Company benefit plan or severance program. Further, the Company may adopt other compensation programs, plans or arrangements as it deems appropriate or necessary. Nothing in this Agreement shall be deemed to confer upon Holder any right to receive additional options under the Plan. 16. Unfunded Plan; No Fiduciary Relationship. Unless otherwise determined by the Board, the Plan shall be unfunded and shall not create (or be construed to create) a trust or a separate fund or funds. The Plan shall not establish any fiduciary relationship between BCSG and the Holder or other Person. To the extent any Person holds any rights by virtue of an award granted under the Plan, such rights shall be no greater than the rights of an unsecured general creditor of BCSG. 17. Regulatory Approvals. The implementation of the Plan, the granting of the Option and the issuance of Shares upon the exercise or settlement thereof shall be subject to BCSG's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the Options granted under it or the Shares issued pursuant to it. 18. Successors and Assigns. This Agreement shall be binding on all heirs, successors and assigns of the Holder, including, without limitation, his or her Designated Beneficiary and the estate of the Holder and the executor, administrator or trustee of such estate, or any receiver or trustee in bankruptcy or representative of the Holder's creditors. 19. GOVERNING LAW. THE VALIDITY AND CONSTRUCTION OF THE PLAN AND THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE. 20. No Other Grants. The parties hereto acknowledge and agree that, except as expressly provided herein, BCSG has not granted to the Holder options to acquire any shares of the Common Stock. [signature page follows] IN WITNESS WHEREOF, BCSG and the Holder have duly executed this Stock Option Agreement as of the date first written above. BOOTH CREEK SKI GROUP, INC., a Delaware corporation By: /s/ GEORGE N. GILLETT, JR. --------------------------- George N. Gillett, Jr. Name: Title: President HOLDER: /s/ TIMOTHY H. BECK --------------------- Timothy H. Beck Address: 304 Rt 132 Norwich, VT 05055 EX-10 5 10.25 STOCK OPTION AGREEMENT BOOTH CREEK SKI GROUP, INC. 1997 STOCK OPTION PLAN STOCK OPTION AGREEMENT This STOCK OPTION AGREEMENT dated as of February 28, 1998 (this "Agreement"), is by and between Booth Creek Ski Group, Inc., a Delaware corporation ("BCSG"), and the individual whose name appears on the signature page hereof as "Holder" (together with such individual's Designated Beneficiary (as defined in the Plan), the "Holder"). RECITALS WHEREAS, BCSG has adopted the Booth Creek Ski Group, Inc. 1997 Stock Option Plan (the "Plan") to promote the long-term success of the Company by strengthening the Company's ability to attract and retain highly competent managers and other selected employees and to provide a means to encourage stock ownership and proprietary interest in BCSG; and WHEREAS, pursuant to the Plan, the Board of Directors of BCSG has awarded to the Holder an option (the "Option") to purchase ten (10) shares of the Class A Common Stock, $0.001 par value, of BCSG ("Common Stock"), and BCSG and the Holder desire to evidence and set forth the terms and conditions of the Option pursuant to this Agreement; NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. Defined Terms. Capitalized terms used and not otherwise defined herein shall have the meanings given to such terms in the Plan. 2. Grant of Option. In accordance with the terms of the Plan, BCSG hereby grants to the Holder, as a matter of separate agreement and not in lieu of salary or any other compensation for services, an option to purchase ten (10) shares of Common Stock, subject to the terms and conditions of the Plan and this Agreement. Any shares of Common Stock issuable upon the exercise of the Option are referred to herein as "Shares." 3. Exercise Price. The exercise price for the Option shall be $500.00 per vested Share, subject to adjustment as provided in Section 11 hereof and Section 14 of the Plan. The exercise price shall be paid by the Holder to BCSG on the date on which the Option is exercised for Shares with respect to which the Option has vested. 4. Medium and Time of Payment. The exercise price for Shares shall be paid in United States dollars in cash on or prior to the date on which the Option is exercised with respect to such Shares. Payment in full shall be required prior to the issuance of any Shares pursuant to the Option. In addition, prior to or concurrently with delivery to the Holder of a certificate representing such Shares, the Holder shall pay any and all amounts necessary to satisfy applicable federal, state and local tax requirements (including withholding requirements). 5. Vesting of Option. (a) The Option shall not become exercisable with respect to any Shares until the date it vests with respect to such Shares. The Option awarded pursuant to Section 2 shall vest (i) with respect to 20% of the Shares, on the date hereof and (ii) with respect to an additional 20% of the Shares, on each of the second, third, fourth and fifth anniversary of the date hereof. Subject to Sections 5(b) and 6 below, in the event Holder's Employment with the Company is terminated (A) by the Company for any reason (other than for Cause), (B) as a result of the death or disability of the Holder or (C) by the Holder, if the Holder is a party to a written employment agreement with the Company, (i) as a result of a breach of the Company in any material respect of its obligations under its employment agreement with such Holder and the Company's failure to cure such breach within any cure periods provided therein or (ii) as the result of a material reduction by the Company in such Holder's reporting responsibilities, titles, authority, offices or duties as in effect immediately prior to such change and the Company's failure to cure such reduction within any cure periods provided in such Holder's employment agreement, in any case, during the period commencing on the first anniversary of the date hereof and ending on the fifth anniversary of the date hereof, then the Option shall vest with respect to an additional 1.6667% of the Shares for each full month between the date of the immediately preceding anniversary of the date hereof and the Employment Termination Date (i.e., the 20% that would have vested at the end of such year will vest on a monthly, pro rata basis). (b) Notwithstanding the provisions of Section 5(a) hereof, if not earlier terminated, the Option shall immediately become fully vested and exercisable with respect to all Shares upon (i) the occurrence of a Change in Control or (ii) the termination by Holder of Holder's Employment within 45 days after either of the two following occurrences (each is referred to hereinafter as a "Good Reason"); (A) George N. Gillett, Jr. ceases to be Chief Executive Officer of BCSG or (B) George N. Gillett, Jr. and members of his immediate family cease to own sufficient shares of stock of BCSG to be able to elect a majority of the Board of Directors of BCSG. (c) The Option shall not vest or become exercisable with respect to any Share solely as a result of a Public Offering, but shall vest and become exercisable only as otherwise set forth in Sections 5(a) and (b) hereof. (d) Notwithstanding anything else herein to the contrary, in no event may the Option be exercised with respect to a vested Share after the tenth anniversary of the Effective Date, except as otherwise provided in the proviso to Section 6(b) hereof. 6. Termination of Employment. (a) (i) If the Holder's Employment is terminated for Cause (as defined in clause (ii)(B) or (ii)(C) of the definition thereof (or, if applicable, the corresponding provisions of the definition of "cause" in Holder's employment agreement with the Company)), the Holder's Option, whether or not vested at the Employment Termination Date with respect to any Shares, will be automatically canceled as of the Employment Termination Date. (ii) If Holder's Employment is terminated for Cause (other than of the type referenced in Section 6(a)(i) hereof), the Holder's Option will be automatically canceled as of the Employment Termination Date (A) to the extent not vested at the Employment Termination Date with respect to any Shares and (B) to the extent of 50% of the Shares that have vested as of the Employment Termination Date (other than the Shares with respect to which the Option vested on the date hereof). (b) If the Holder's Employment is terminated for any reason (other than by the Company for Cause), including due to the Holder's death, disability, voluntary resignation or termination by the Company for reasons other than for Cause, that portion of the Holder's Option that was not vested in Shares at the Employment Termination Date (according to the rules provided therefor in Section 5 hereof) will be automatically canceled as of the Employment Termination Date, and the Shares subject to that portion of the Holder's Option that were vested at the Employment Termination Date must be purchased by the Holder for the Exercise Price within 120 days of such Employment Termination Date, or otherwise be canceled on such 120th day; provided, however, that if (i) BCSG is then prohibited by law or by any agreement to which it is bound from purchasing any such Shares pursuant to a Put and the Common Stock is not then Publicly Traded or (ii) the Common Stock is Publicly Traded but the Holder is subject to a contractual agreement, executed by the Holder at the request of the Company, not to sell Shares, Holder shall have the right to purchase such Shares until 120 days after the earlier of (A) Holder's receipt of written notice from BCSG that BCSG is able to perform its obligations under Section 7 with respect to such Shares and (B) the Common Stock becoming Publicly Traded and any such contractual restrictions cease to apply, and such Shares have been registered in accordance with Section 10(b). If the Holder does not exercise Holder's right to purchase such Shares by the expiration of such 120-day period, the Option shall be canceled upon the expiration of such 120-day period; provided, however, that if Holder has delivered a Put Notice, but the Put Closing has not occurred on or as of such 120th day, Holder shall have the right to purchase such Shares until and including the date of the Put Closing. BCSG will provide such notice promptly following its becoming permitted to purchase such Shares. 7. Put Rights. (a) Put. Subject to Section 7(d) hereof, if the Holder's Employment is terminated for any reason other than cause, the Holder will have the right (a "Put"), for a period of 180 Qualified Days commencing on the Employment Termination Date, exercisable by delivery of written notice (the "Put Notice") to BCSG, to require BCSG to purchase for the Put Price (as defined below) any part or all of the Shares then owned by the Holder which has been issued upon exercise of the Holder's Option or which is issuable upon the exercise of the Holder's Option (the Shares or the underlying Option described in each Put Notice is referred to collectively as the "Put Shares"). For purposes hereof, a "Qualified Day" is any day on which BCSG is not prohibited by law or by any agreement to which it is bound from purchasing Shares pursuant to a Put. The Holder may not deliver more than one Put Notice. A Put Notice, once delivered, shall be irrevocable. The date on which a Put Notice is so delivered by the Holder shall be referred to as the "Put Exercise Date." (b) Determination of Put Price. The "Put Price" shall be the price of the Put Shares on the Employment Termination Date determined as set forth in this Section 7(b). In the event that a Put is exercised by Holder with respect to Shares without Holder first having exercised the Option with respect to such Shares, the Put Price for such Shares shall be equal to (i) the Put Price determined in accordance with this Section 7(b) minus (ii) the Exercise Price for such Shares. The Holder and BCSG shall seek to reach agreement on the fair market value of the Put Shares for a period of up to 30 days after the Put Exercise Date and, if they shall reach agreement thereon, the dollar amount so agreed upon shall be the "Put Price." For purposes of this Agreement, the fair market value of the Put Shares will be heir pro rata portion of the fair market value of all of the shares of Common Stock outstanding (on a fully diluted basis). If the Holder and BCSG are unable to reach agreement within such 30-day period, the Holder and BCSG shall seek for an additional 15 days to reach agreement on an Investment Bank to determine the fair market value of the Put Shares on the Put Exercise Date. If the parties reach agreement on an Investment Bank, such Investment Bank shall be promptly retained by BCSG and shall, within 60 days following its retention, determine the fair market value of the Put Shares on the Put Exercise Date and submit its report to each of the parties. If the parties are unable to reach agreement on an Investment Bank, each party shall, within the following 15 days, deliver to the other party a list of six Investment Banks, numbered one through six. The Investment Bank appearing on both lists and having the lowest total numbers assigned to it shall be promptly retained by BCSG and shall, within 60 days following its retention, determine the fair market value of the Put Shares (as provided above) and submit its report to each of the parties (e.g., if Investment Bank X is assigned number 1 on the Holder's list and number 6 on BCSG's list and Investment Bank Y is assigned number 2 on BCSG's list and number 4 on the Holder's list, Investment Bank Y shall be retained to determine the Put Price). If either party fails to deliver a list of six Investment Banks within such 15-day period, the determination as to "Put Price' shall be made by the Investment Bank assigned number one on the list of the other party. If no Investment Bank appears on the list of both the Holder and BCSG, the Holder and BCSG shall, within the following 15-day period, deliver to the other party a list of six Investment Banks, numbered one through six. The Investment Bank appearing on both lists and having the lowest total numbers assigned to it shall be promptly retained by BCSG to determine the fair market value of the Put Shares in accordance with the foregoing. If no Investment Bank appears on the lists of both the Holder and BCSG, the Holder and BCSG shall continue to deliver lists of six Investment Banks until one Investment Bank is chosen as provided above. In any event, if no Investment Bank has been chosen pursuant to this methodology within 90 days after the Put Exercise Date, either the Holder or BCSG may retain the American Arbitration Association to select an Investment Bank. The fees and expenses of any Investment Bank retained to determine the Put Price shall be paid by BCSG. The determination of the Put Price by an Investment Bank in accordance with the terms hereof shall be final and binding on the Holder and BCSG. (c) Put Closing. The closing (the "Put Closing") of the purchase and sale of Shares pursuant to a Put will take place on a date selected by BCSG which will be no earlier than the 16th and no late than the 30th day following the date of the final determination of the Put Price pursuant to Section 7(b) hereof. Payment of the Put Price for all Shares tendered will be paid by BCSG at the Put Closing by cashier's or certified check or by wire transfer of immediately available funds to an account designated by the Holder. If Holder's right to exercise Holder's Option was suspended in accordance with the proviso to Section 6(b), BCSG shall pay to the Holder, in addition to the Put Price, interest on the unpaid Put Price at an annual rate equal to the prime rate as published from time to time by The Wall Street Journal for the period between the Put Exercise Date and the Put Closing. (d) Limitations on Put Rights. Notwithstanding anything in this Agreement to the contrary, (i) Holder shall not have a Put with respect to any Shares if and so long as the Common Stock is Publicly Traded and (ii) BCSG shall not be required to purchase any Shares pursuant to a Put to the extent that BCSG is then prohibited from doing so by law or by any agreement to which it is bound. 8. Call Right. (a) Call. BCSG shall have the right (a "Call"), exercisable at any time after the termination of Holder's Employment by the Company for Cause or by the Holder without Good Reason, in either case, by the delivery of written notice to the Holder (a "Call Notice"), to purchase all Shares acquired by such Holder pursuant to the exercise of an Option (the Shares described in each Call Notice is referred to collectively as the "Call Shares"). The date on which a Call Notice is so delivered by BCSG shall be referred to as the "Call Exercise Date." (b) Determination of Call Price. The "Call Price" shall be the price of the Call Shares on the Call Exercise Date determined as set forth in this Section 8(b). The Holder and BCSG shall seek to reach agreement on the fair market value of the Call Shares for a period of up to 30 days after the Call Exercise Date and, if they shall reach agreement thereon, the dollar amount so agreed upon shall be the "Call Price." For purposes of this Agreement, the fair market value of the Call Shares will be their pro rata portion of the fair market value of all of the shares of Common Stock outstanding (on a fully diluted basis). If the Holder and BCSG are unable to reach agreement within such 30-day period, the Holder and BCSG shall seek for an additional 15 days to reach agreement on an Investment Bank to determine the fair market value of the Call Shares on the Call Exercise Date. If the parties reach agreement on an Investment Bank, such Investment Bank shall be promptly retained by BCSG and shall, within 60 days following its retention, determine the fair market value of the Call Shares on the Call Exercise Date and submit its report to each of the parties. If the parties are unable to reach agreement on an Investment Bank, each party shall, within the following 15 days, deliver to the other party a list of six Investment Banks, numbered one through six. The Investment Bank appearing on both lists and having the lowest total numbers assigned to it shall be promptly retained by BCSG and shall, within 60 days following its retention, determine the fair market value of the Call Shares (as provided above) and submit its report to each of the parties. If either party fails to deliver a list of six Investment Banks within such 15-day period, the determination as to "Call Price" shall be made by the Investment Bank assigned number one on the list of the other party. If no Investment Bank appears on the list of both the Holder and BCSG, the Holder and BCSG shall, within the following 15-day period, deliver to the other party a list of six Investment Banks, numbered one through six. The Investment Bank appearing on both lists and having the lowest total numbers assigned to it shall be promptly retained by BCSG to determine the fair market value of the Call Shares in accordance with the foregoing. If no Investment Bank appears on the lists of both the Holder and BCSG, the Holder and BCSG shall continue to deliver lists of six Investment Banks until one Investment Bank is chosen as provided above. In any event, if no Investment Bank has been chosen pursuant to this methodology within 90 days after the Call Exercise Date, either the Holder or BCSG may retain the American Arbitration Association to select an Investment Bank. The fees and expenses of any Investment Bank retained to determine the Call Price shall be paid by BCSG. The determination of the Call Price by an Investment Bank in accordance with the terms hereof shall be final and binding on the Holder and BCSG. (c) Call Closing. Each closing (a "Call Closing") of the purchase and sale of Shares pursuant to a Call will take place on a date selected by BCSG which will be no earlier than the 16th and no later than the 30th day following the date of the final determination of the Call Price pursuant to Section 8(b) hereof. Payment of the Call Price for all Shares tendered will be paid by BCSG at the Call Closing by cashier's or certified check or by wire transfer of immediately available funds to an account designated by the Holder. 9. Stockholders Agreement. The Shares shall be subject to the terms of the Stockholders Agreement. Concurrently with the issuance to Holder of Shares upon the exercise of the Option, Holder shall become a party to the Stockholders Agreement by executing an amendment or restatement of the Stockholders Agreement or a supplementary agreement to that effect. The certificates representing Shares issued upon exercise of the Option shall bear the legends required by the Stockholders Agreement and such other legends as BCSG may deem appropriate to comply with all applicable federal and state securities laws. 10. Compliance with Securities Laws. (a) Unless the Shares issued upon exercise of the Option are registered under the Securities Act of 1933, as amended (the "Securities Act"), and the securities laws of all other appropriate jurisdictions, the obligation of BCSG to issue Shares upon exercise of the Option shall be subject to receipt from Holder of a written representation to the effect that (i) Holder is purchasing the shares for Holder's own account for investment, and not with a view to, or for resale in connection with, the distribution thereof, and has no present intention of distributing or reselling any thereof, (ii) Holder has the financial ability to bear the economic risks of Holder's investment in the Shares to be purchased, (iii) Holder has such knowledge and experience in financial and business matters, and knowledge of and experience with the Company, to be capable of evaluating the merits and risks of the purchase of the Shares to be purchased by Holder, and (iv) such other representations as are necessary or appropriate to establish an exemption from registration. Shares issued or issuable upon the exercise of the Option shall not be transferable unless an exemption from such registration is available and, as appropriate, only with a written opinion of counsel (which shall be satisfactory in form and substance to BCSG) that an exemption from registration under the Securities Act is available and that the transaction would not violate any applicable securities laws. Certificates for the Shares will bear such legends as BCSG deems necessary or appropriate in connection with the Securities Act and all other applicable securities laws. (b) BCSG shall have no obligation to register the Shares under the federal securities laws or take any other steps as may be necessary to enable the Shares to be offered and sold under the securities laws of any jurisdiction; provided, however, that in the event the Common Stock at any time becomes Publicly Traded, BCSG shall promptly cause the Shares to be registered pursuant to a Form S-8 registration statement. 11. Dilution and Other Adjustments; Extraordinary Dividends. (a) In the event the shares of Common Stock, as presently constituted, shall be changed into or exchanged for a different number or kind of shares of stock or other securities of BCSG or of another corporation (whether by reason of merger, consolidation, recapitalization, reclassification, split, reverse split, combination of shares or otherwise) or if the number of such shares of Common Stock shall be increased through the payment of a stock dividend, then there shall be substituted for or added to each share of Common Stock subject or which may become subject to the Option, the number and kind of shares of stock or other securities into which each outstanding share of Common Stock shall be so changed, or for which each such share shall be exchanged, or to which each such share shall be entitled, as the case may be. The Option shall also be appropriately amended as to price and other terms as the Board, in its sole discretion, may determine are necessary to reflect the foregoing events. (b) In the event that BCSG shall pay any extraordinary dividends or extraordinary distributions (which determination, in either case, shall be made in the good faith determination of the Board) on or with respect to the Common Stock, the Board shall treat the Option as having been fully exercised but shall retain the dividends or distributions applicable to the Option and release such dividends or distributions (without interest thereon) to the Holder of the Option only if, to the extent and at such time as the Option shall be exercised. Holder shall not be entitled to receive any extraordinary dividends or extraordinary distributions unless and until Holder's Option shall have vested and been exercised. Except as otherwise expressly provided in this Section 11(b), Holder shall not have any right to any dividends or distributions on or with respect to the Shares, unless and until Holder becomes a holder of Shares. 12. Miscellaneous Provisions. (a) The Holder shall have no rights as a holder of BCSG's Common Stock with respect to the Option, unless and until certificates for Shares are issued to the Holder, except as otherwise provided in Section 11(b) hereof. (b) The Option shall not be transferable or assignable other than (i) by will or the laws of descent and distribution; (ii) by gift or other transfer or any trust or estate in which the original Holder or such Holder's spouse or other immediate relative has a substantial beneficial interest, or to a spouse or other immediate relative; or (iii) pursuant to a domestic relations order (as defined by the Code); provided, however, that the Option, if so transferred, shall continue to be subject to all the terms and conditions hereof. Shares received upon the exercise of the Option shall be transferable or assignable only pursuant to the terms of the Stockholders Agreement. (c) Neither this Agreement, the Option, the Plan nor any action taken hereunder or thereunder shall be construed as giving any employee, including the Holder, any right to be retained in the employ of the Company or any of its Affiliates or shall interfere with or restrict in any way the rights of the Company or any of its Affiliates, which are hereby reserved, to discharge Holder at any time for any reason whatsoever, with or without cause. (d) The Option shall be canceled if it does not vest in accordance with Section 5 hereof. (e) The costs and expenses of the administering the Plan shall be borne by BCSG and not charged to the Holder. (f) During the term of the Option and Plan, BCSG will at all times reserve and keep available such numbers of Shares as may be issuable under the Plan upon exercise of the Option. (g) This Agreement is an Individual Option Agreement as described in Section 8 of the Plan. This Agreement is intended to conform in all respects with, and is subject to all applicable provisions of, the Plan, which is incorporated herein by reference. Any inconsistency between this Agreement and the Plan shall be resolved in accordance with the terms of the Plan. By executing and delivering this Agreement, Holder acknowledges receipt of the Plan and agrees to be bound by all of the terms thereof. (h) In the event that a court of competent jurisdiction determines that BCSG has failed to perform in any material respect any of its obligations under the Plan or this Agreement, BCSG shall pay all reasonable attorneys' fees and disbursements incurred by Holder in enforcing such Holder's rights thereunder or hereunder with respect to such failure to perform. 13. Amendments and Termination. (a) The Plan may be amended by the Board as it deems necessary or appropriate to better achieve the purposes of the Plan, except that no such amendment which would increase the number of shares available for issuance (except as required in accordance with Section 14 of the Plan or Section 11 hereof) shall be made without the approval of the holders of a majority of BCSG's outstanding Common Stock. The Board may suspend the Plan or terminate the Plan at any time; provided, that no such action shall adversely affect any benefit outstanding hereunder. (b) The Board, in its sole discretion, may amend this Agreement or the Plan as it relates to the Option without the consent of Holder, but not in any manner adversely affecting the rights, interests or obligations of Holder hereunder. 14. Tax Withholding. BCSG shall have the right to deduct from any settlement of the Option, including the delivery or vesting of Shares, a sufficient amount to cover withholding of any federal, state or local taxes required by law, or to take such other action as may be necessary to satisfy any such withholding obligations, including requiring that Holder, upon exercise of the Option, pay to BCSG in cash, in addition to the Exercise Price for Shares to be issued, an amount equal to any withholding tax liability incurred by BCSG in connection with such issuance. 15. Other Benefit and Compensation Programs. Unless otherwise specifically determined by the Board, the Option is intended to be "nonqualified compensation" under the Code and shall not be deemed a part of Holder's regular, recurring compensation for purposes of calculating payments or benefits from any Company benefit plan or severance program. Further, the Company may adopt other compensation programs, plans or arrangements as it deems appropriate or necessary. Nothing in this Agreement shall be deemed to confer upon Holder any right to receive additional options under the Plan. 16. Unfunded Plan; No Fiduciary Relationship. Unless otherwise determined by the Board, the Plan shall be unfunded and shall not create (or be construed to create) a trust or a separate fund or funds. The Plan shall not establish any fiduciary relationship between BCSG and the Holder or other Person. To the extent any Person holds any rights by virtue of an award granted under the Plan, such rights shall be no greater than the rights of an unsecured general creditor of BCSG. 17. Regulatory Approvals. The implementation of the Plan, the granting of the Option and the issuance of Shares upon the exercise or settlement thereof shall be subject to BCSG's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the Options granted under it or the Shares issued pursuant to it. 18. Successors and Assigns. This Agreement shall be binding on all heirs, successors and assigns of the Holder, including, without limitation, his or her Designated Beneficiary and the estate of the Holder and the executor, administrator or trustee of such estate, or any receiver or trustee in bankruptcy or representative of the Holder's creditors. 19. GOVERNING LAW. THE VALIDITY AND CONSTRUCTION OF THE PLAN AND THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE. 20. No Other Grants. The parties hereto acknowledge and agree that, except as expressly provided herein, BCSG has not granted to the Holder options to acquire any shares of the Common Stock. [signature page follows] IN WITNESS WHEREOF, BCSG and the Holder have duly executed this Stock Option Agreement as of the date first written above. BOOTH CREEK SKI GROUP, INC., a Delaware corporation By: /s/GEORGE GILLETT, JR. ----------------------- George Gillett, Jr. Name: Title: President HOLDER: /s/ JOHN A. RICE ------------------- John A. Rice Address: 3438 East Riverpark Drive South Lake Tahoe, CA 96150 EX-21 6 SUBSIDIARIES EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT Trimont Land Company d/b/a Northstar-at-Tahoe (California) Sierra-at-Tahoe, Inc. (Delaware) Bear Mountain, Inc. (Delaware) Booth Creek Ski Acquisition Corp. (Delaware) - Waterville Valley Ski Resort, Inc. (Delaware) - Mount Cranmore Ski Resort, Inc. (Delaware) Ski Lifts, Inc. (Washington) Grand Targhee Incorporated (Delaware) - B-V Corporation (Wyoming) - Targhee Company (Delaware) - Targhee Ski Corp. (Delaware) LMRC Holding Corp. (Delaware) - Loon Mountain Recreation Corporation (New Hampshire) - Loon Realty Corp. (New Hampshire) Booth Creek Ski Acquisition, Inc. (Pennsylvania) D.R.E., L.L.C (Delaware) EX-27 7 FDS --
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF BOOTH CREEK SKI HLDINGS, INC. AS OF OCTOBER 30, 1998 AND FOR THE YEAR THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS OCT-30-1998 OCT-30-1998 625 0 1,573 54 4,370 7,945 180,818 24,349 218,546 41,038 133,500 2,634 0 0 37,377 218,546 0 104,856 0 65,996 37,397 0 18,713 (17,270) 0 (17,270) 0 0 0 (17,530) 0 0
-----END PRIVACY-ENHANCED MESSAGE-----