Filed pursuant to Rule 424(b)(3)
Registration No. 333-76596
PROSPECTUS
VAIL RESORTS, INC.
[LOGO] VAIL RESORTS TM
Exchange Offer
for
$160,000,000 Aggregate Principal Amount
of
8 3/4% Senior Subordinated Notes due 2009
-----------------
Terms of Exchange Offer:
. Expires 5:00 p.m., New York City time, on March 27, 2002 unless extended.
. Subject to certain customary conditions which may be waived by us.
. All outstanding 8 3/4% Senior Subordinated Notes due 2009 that are validly
tendered and not withdrawn will be exchanged.
. Tenders of outstanding notes may be withdrawn any time prior to the
expiration of this exchange offer.
. The exchange of the outstanding notes will not be a taxable exchange for
U.S. federal income tax purposes.
. We will not receive any cash proceeds from the exchange offer.
. The terms of the notes to be issued in exchange for the outstanding notes
are substantially identical to the outstanding notes, except for certain
transfer restrictions and registration rights relating to the outstanding
notes.
. Any outstanding notes not validly tendered will remain subject to existing
transfer restrictions.
See "Risk Factors," beginning on page 16, for a discussion of certain
factors that should be considered by holders before tendering their outstanding
notes in the exchange offer.
There has not previously been any public market for the exchange notes that
will be issued in the exchange offer. We do not intend to list the exchange
notes on any national stock exchange or on the Nasdaq National Market. There
can be no assurance that an active market for such exchange notes will develop.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
-----------------
The date of this prospectus is February 22, 2002.
The exchange offer is not being made to, nor will we accept surrenders for
exchange from, holders of outstanding notes in any jurisdiction in which the
exchange offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
NOTICE TO UNITED KINGDOM RESIDENTS
The notes will not be offered or sold to persons in the United Kingdom,
except to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purposes
of their business or otherwise in circumstances which have not resulted and
will not result in an offer to the public in the United Kingdom within the
meaning of the Public Offers of Securities Regulations 1995. This prospectus
may only be issued or passed on in or into the United Kingdom to a person who
is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemption) Order 1996 or after 30 November 2001,
in Article 19 of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2001, or is a person to whom such document may otherwise
lawfully be issued or passed on.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended. The Exchange Act file number for our
Commission filings is 001-09614. You may read and copy any document we file at
the Commission public reference room at 450 Fifth Street, N.W., Washington,
D.C. 20549. You may obtain information on the operation of the public reference
room by calling the Commission at 1-800-SEC-0330. We file information
electronically with the Commission. Our Commission filings are available from
the Commission's Internet site at http://www.sec.gov, which contains reports,
proxy and information statements, and other information regarding issuers that
file electronically.
The Commission allows us to "incorporate by reference" certain documents we
file with it, which means that we can disclose important information to you by
referring you to those documents. We are incorporating by reference the
documents listed below and any future filings we will make with the Commission
under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act.
. Annual Report on Form 10-K for the year ended July 31, 2001;
. Quarterly Report on Form 10-Q for the period ended October 31, 2001,
filed on December 13, 2001; and
. Proxy Statement on Schedule 14A for the fiscal 2001 Annual Meeting of
Shareholders.
The information in the documents incorporated by reference is considered to
be part of this prospectus, and information in documents that we file later
with the Commission will automatically update and supersede such information.
Any statement contained in a document incorporated or deemed to by
incorporated by reference in this prospectus is modified or superseded for
purposes of this prospectus to the extent that a statement contained in this
prospectus or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded does not, except as so
modified or superseded, constitute a part of this prospectus.
i
We will provide a copy of the documents we incorporate by reference, at no
cost, to any person who receives this prospectus, including any beneficial
owner of our common stock. To request a copy of any or all of these documents,
you should write or telephone us at the following address and telephone number:
Vail Resorts, Inc.
Post Office Box 7
Vail, Colorado 81658
Telephone: (970) 845-2500
Attention: Investor
Relations
http://www.vailresorts.com
To obtain timely delivery, you must make your request no later than March
20, 2002 (five business days prior to the expiration date for the exchange
offer).
FORWARD-LOOKING STATEMENTS
This prospectus includes and incorporates by reference forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements relate to analyses and other information which are
based on forecasts of future results and estimates of amounts not yet
determinable. These statements also relate to our future prospects,
developments and business strategies.
These forward-looking statements are identified by their use of terms and
phrases such as "anticipate," "believe," "could," "estimate," "expect,"
"intend," "may," "plan," "predict," "project," "will" and similar terms and
phrases, including references to assumptions. These statements are contained in
sections entitled "Prospectus Summary," "Risk Factors" and other sections of
this prospectus, and in the documents incorporated by reference in this
prospectus.
Although we believe that our plans, intentions and expectations reflected in
or suggested by such forward-looking statements are reasonable, we cannot
assure you that such plans, intentions or expectations will be achieved.
Important factors that could cause actual results to differ materially from our
forward-looking statements are set forth below and elsewhere in this
prospectus, including under the section headed "Risk Factors." Such factors
include, among others, economic downturns; terrorist acts upon the United
States; unfavorable weather conditions; our ability to obtain financing on
terms acceptable to us to finance our capital expenditure and growth strategy;
our ability to develop our resort and real estate operations; competition in
our resort businesses; our reliance on government permits for our use of
federal land; our ability to integrate and successfully operate future
acquisitions; and adverse changes in the real estate market. All
forward-looking statements attributable to us or any persons acting on our
behalf are expressly qualified in their entirety by these cautionary statements.
Our risks are more specifically described in "Risk Factors" and in our
Annual Report on Form 10-K, which is incorporated by reference in this
prospectus. If one or more of these risks or uncertainties materialize, or if
underlying assumptions prove incorrect, our actual results may vary materially
from those expected, estimated or projected. We will not update these
forward-looking statements, even if new information, future events or other
circumstances have made them incorrect or misleading.
ii
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
connection with, the more detailed information and consolidated financial
statements (including the notes thereto) appearing elsewhere in, or
incorporated by reference into, this prospectus. The terms "Vail," "the
Company," "we," "us" and "our" as used in this prospectus refer to Vail
Resorts, Inc. and its subsidiaries and predecessors as a combined entity,
except where it is clear from the context that such term means only the parent
company. Our fiscal year end is July 31. Unless otherwise specified, "ski
season" shall mean the period from the opening of any of our mountains for
skiing to the closing of our last mountain for skiing, typically late October
to early May, and "skier visit" shall mean one guest accessing a ski mountain
for all or any part of a day or night and includes both paid and complimentary
tickets and ski passes. "Beaver Creek" and other designated trademarks are
registered trademarks of Vail Resorts, Inc.
The Company
Vail Resorts is one of the leading resort operators in North America.
Through our premier properties we provide a comprehensive resort experience
throughout the year to a diverse clientele with an attractive demographic
profile. Included within our resort portfolio are four owned and operated
mountain resorts in the Colorado Rocky Mountains:
. Vail Mountain--the largest and most popular single ski mountain complex
in North America;
. Beaver Creek Resort--one of the world's premier family-oriented mountain
resorts;
. Breckenridge Mountain--an attractive destination resort with numerous
apres-ski activities and an extensive bed base; and
. Keystone Resort--a year-round family vacation destination.
We are one of the most profitable mountain resort operators due to the
following competitive strengths:
. ownership of premium resorts;
. attractive guest demographics;
. strong brand franchise;
. scope, diversity and quality of our complementary activities and guest
services; and
. proximity of our ski resorts to both Denver International Airport and
Vail/Eagle County Airport.
All of our ski resorts were rated among the top twelve ski resorts in North
America in SKI Magazine's October 2001 readers survey, with Vail Mountain rated
as the number two ski resort destination in North America. We had an 8.7% share
of skier visits in the United States for the 2000-01 ski season, with an 8.3%
increase in skier visits at our four ski resorts from the 1999-00 ski season.
In addition, Vail, Breckenridge and Keystone were the three most visited ski
resorts in the United States for the 2000-01 ski season. Our ski resorts are
located within 50 miles of each other, which enables us to offer guests the
opportunity to visit each ski resort during one vacation stay and participate
in common loyalty programs.
We also own leading non-ski destination resorts and hotels and operate a
premier hospitality management company:
. Grand Teton Lodge Company--premier summer resort properties in and
around Grand Teton National Park in Wyoming; and
. Rockresorts International, LLC--a luxury hotel management company
currently with 10 properties under management.
1
We also own substantial real estate proximate to our resorts from which we
derive significant strategic benefits and cash flow. In addition, we develop
and sell technology-based products and services for the hospitality and resort
industries.
For the quarter ended October 31, 2001, our revenue from resort operations
and Resort EBITDA was $57.4 million and a loss of $24.6 million, respectively.
It is normal for us to experience losses in resort operations in our first
fiscal quarter due to the seasonal nature of our business. For the quarter
ended October 31, 2001, our revenue from real estate operations and technology
operations was $15.9 million and $1.1 million, respectively.
Resort, Real Estate &Technology
Resort
Vail Mountain
Located 100 miles west of Denver, Vail is the largest and most popular
single ski mountain complex in North America, offering over 5,200 acres of
unique and varied ski terrain interconnected by a large network of high-speed
chairlifts. Vail's offerings include the world-famous Back Bowls, a top rated
ski and snowboard school and a wide variety of lodging, dining and retail
venues. Over the past two years, we have made significant investments in
capital improvements, primarily to open Blue Sky Basin, which increased Vail's
skiable terrain by approximately 645 acres, as well as to renovate The Lodge at
Vail and to fund the expansion and upgrade of Vail's snowmaking systems and
grooming equipment. Vail hosted the 1999 and 1989 World Alpine Ski
Championships, the first time a North American ski resort has been selected to
host this prestigious event twice. For ten of the last fourteen years, Vail has
been rated the number one ski resort in North America by SKI Magazine. Vail was
the most visited ski resort in the United States for the 2000-01 ski season,
attracting in excess of 1.6 million skier visits.
Beaver Creek Resort
Located ten miles west of Vail, Beaver Creek is one of the world's premier
family-oriented mountain resorts, offering its guests a superior level of
service in a pristine alpine setting. Known for its unique diversity,
European-style village-to-village skiing, exceptional snow quality and an
award-winning ski and snowboard school, Beaver Creek offers more than 1,600
acres of skiable terrain, and operates 13 lifts connecting the Beaver Creek,
Bachelor Gulch and Arrowhead villages. We have a significant presence of
retailing and dining options in Beaver Creek Village and also own and operate
two hotels, the Inn at Beaver Creek and The Pines Lodge. In addition, a joint
venture, of which we are a partner, has recently commenced the construction of
the Ritz-Carlton, Bachelor Gulch, which will be a 5-star hotel with 238 rooms
and 23 luxury condominium residences, providing further high-end lodging
options for our destination guests. This premier property is scheduled to open
in the 2002-03 ski season. Beaver Creek has become one of the most popular
resorts in the United States, attracting in excess of 675,000 skier visits in
the 2000-01 ski season, its best ski season in its 20 year history. Beaver
Creek was rated the number six ski resort in North America in SKI Magazine's
October 2001 readers survey.
Breckenridge Mountain
Located approximately 85 miles west of Denver and 40 miles east of Vail,
Breckenridge offers over 2,000 acres of skiing on four different mountain
peaks, including open bowl skiing and excellent beginner and intermediate ski
terrain. The Town of Breckenridge, situated adjacent to the ski area, has
numerous apres-ski activities and an extensive and growing bed base, making it
an attractive destination resort for national and international skiers. Since
acquiring Breckenridge in 1997, we have made significant capital improvements
to the resort, including one high-speed double loading six passenger chairlift,
two high-speed quadruple chairlifts, a 50% increase in snowmaking capacity, and
the opening of the first new on-mountain restaurant at Breckenridge in more
than 12 years. We own and operate two lodging properties in the Town of
Breckenridge--The Great
2
Divide Lodge, which has undergone a substantial renovation, and the Village at
Breckenridge, a resort property that includes lodging, condominiums and
commercial space and serves as the primary portal to Breckenridge Mountain.
With more than 1.4 million skier visits, Breckenridge was second only to Vail
in terms of skier visits during the 2000-01 ski season. Breckenridge was rated
the tenth most popular ski resort in North America in SKI Magazine's October
2001 readers survey.
Keystone Resort
Located 70 miles west of Denver and 15 miles from Breckenridge, Keystone
features over 1,850 acres of skiing on three mountains interconnected by a
network of 22 lifts, including two high-speed gondolas, one high speed six
passenger chairlift and six high-speed quadruple chairlifts. Keystone has a
large and advanced snowmaking system, which provides snowmaking coverage for
more than 50% of its skiable terrain and which enables Keystone to be one of
the first Rocky Mountain ski resorts to open each ski season and one of the
last to close. As the largest single-mountain night skiing experience in North
America, with 17 lighted trails including a halfpipe and terrain park, Keystone
provides a 12.5-hour ski day. Keystone is a planned family-oriented community
that offers numerous year-round activities and amenities, such as the Keystone
Conference Center, where capacity was recently doubled, and The River Course,
Keystone's second golf course, which opened in 2000. During the 2000-01 ski
season, Keystone attracted more than 1.2 million skier visits, the third most
visited ski resort in the United States. Keystone was rated the twelfth most
popular ski resort in North America in SKI Magazine's October 2001 readers
survey.
Grand Teton Lodge Company
Based in the Jackson Hole valley in Wyoming, Grand Teton owns and operates
four premier summer seasonal destination resort properties in and around Grand
Teton National Park. Within the park, we operate the Jackson Lake Lodge, a
full-service 385-room lodge with conference facilities that can accommodate up
to 650 people; the Jenny Lake Lodge, a AAA four diamond 37-cabin lodge; and
Colter Bay Village, a family-oriented facility with 166 log cabins as well as
extensive camping and recreational facilities. Outside the park, we own and
operate the Jackson Hole Golf and Tennis Club, which has the number one rated
golf course (by Golf Digest magazine) in the State of Wyoming. We also operate
and have a majority ownership interest in Snake River Lodge & Spa, which has 95
deluxe hotel rooms and 75 luxury condominium bedrooms. Located in Teton
Village, Snake River Lodge operates year-round due to its desirable location at
the base of the Jackson Hole ski area.
Rockresorts International
We recently completed the acquisition of a majority interest in Rockresorts
International, a luxury resort hotel management company. In connection with
this acquisition, we have secured contracts to manage five leading resort
hotels across the United States: the Cheeca Lodge in the Florida Keys, The
Equinox in Manchester Village, Vermont, La Posada Resort & Spa in Sante Fe, New
Mexico, Rosario Resort in the San Juan islands and Casa Madrona in Sausalito,
California. We have also flagged and manage six of our existing hotels under
the Rockresorts brand: The Great Divide Lodge in Breckenridge, The Lodge at
Vail, The Keystone Lodge, The Pines Lodge in Beaver Creek, the Snake River
Lodge & Spa and the Lodge at Rancho Mirage. We believe Rockresorts provides a
powerful brand name that we can leverage across our existing hotel portfolio
and will create additional hotel management opportunities.
The Lodge at Rancho Mirage
We recently completed the acquisition of the Ritz-Carlton, Rancho Mirage, a
four-star hotel located in the Palm Springs area of California. With its
variety of luxury amenities, including a full service spa, salon and
3
fitness center, outdoor swimming pool, three restaurants and 12,000 feet of
meeting space, the Rancho Mirage caters to the same attractive demographic
profile as our ski properties, thereby offering numerous cross-selling
opportunities. The hotel has been renamed the Lodge at Rancho Mirage and
re-flagged under our Rockresorts brand, expanding our portfolio of premier
Rockresorts hotels.
Vail Marriott Mountain Resort
We acquired the Vail Marriott Mountain Resort from Host Marriott Corporation
in December 2001. The Vail Marriott, which we operate, is located 150 yards
from Vail's gondola and is the largest hotel in the Vail Valley with 349 rooms
and amenities, which include a restaurant and bar, over 16,500 square feet of
meeting space, indoor and outdoor pools, a full service spa, a 3,600 square
foot fitness center, four tennis courts, and over 4,500 square feet of retail
space.
Real Estate
We also benefit from our extensive holdings of real property in proximity to
our resorts. Our real estate operations include the planning, oversight,
marketing, infrastructure improvement and development of our real property
holdings. As of October 31, 2001, the book value of our real estate held for
sale was approximately $173.0 million. In addition to the substantial cash flow
generated from real estate sales, our resort operations benefit from these
development activities through:
. the creation of additional resort lodging which is available to our
guests;
. the ability to control the architectural theming of our resorts;
. the creation of unique facilities and venues which provide us with the
opportunity to create new sources of recurring revenue; and
. the expansion of our property management and brokerage operations, which
are the preferred providers of these services for developments on our
land.
In order to facilitate the development and sale of its real estate holdings,
Vail Resorts Development Company, a wholly owned subsidiary of the Company,
also invests in mountain improvements such as ski lifts, snowmaking equipment
and trail construction. These mountain improvements enhance the value of the
real estate held for sale and also benefit resort operations. Generally, we
seek to minimize our exposure to development risks and maximize the long-term
value of our real property holdings by selling land to third party developers
for cash payments prior to the commencement of construction, while retaining
approval of the development plans as well as an interest in the developer's
profit. We also typically retain the option to purchase any commercial space
created in a development. We are able to secure these benefits from third party
developers as a result of the high property values and strong demand associated
with property in close proximity to our world-class mountain resort facilities.
Technology
In addition, we develop and sell technology-based products and services for
the hospitality and resort industries. We own a 51% ownership interest in
Resort Technology Partners LLC, which develops and sells, among other products,
a comprehensive proprietary point-of-sale system tailored to the needs of
resort companies. We also have a 49% equity investment in Lowther Ltd., a joint
venture with Datalex plc, a leading provider of e-business solutions for the
global travel industry.
Business Strategy
Internal Growth Initiatives. A key component of the business strategy for
our mountain resorts has been to expand and enhance our core ski operations,
while at the same time increasing the scope, diversity and quality of
4
the complementary activities and services offered to our skiing and non-skiing
guests throughout the year. Our resorts derive revenue through a combination of
activities available to guests, including lift ticket sales, ski and snowboard
lesson packages, a large inventory of resort accommodations, retail and
equipment rental outlets, a variety of dining venues, meeting and event
planning services and other recreational activities such as golf, tennis,
horseback riding, guided fishing, float trips, and on-mountain activities
centers. As a result of this strategy, non-lift ticket revenue as a percentage
of total Resort revenue has increased to approximately 70% of total Resort
revenue in fiscal 2001, as compared to 52% in fiscal 1996.
Our focus on developing a comprehensive destination resort experience has
also allowed us to attract a diverse guest population with an attractive
demographic and economic profile, including a significant number of affluent
and family-oriented destination guests, who tend to generate higher and more
diversified revenues per guest than day skiers from local population centers.
While our Resort revenue per skier visit is currently among the highest in the
industry, we estimate that we currently capture only a portion of the total
vacation expenditures of an average destination guest at our resorts.
In connection with this strategy, we have completed numerous internal growth
initiatives over the past several years to add new attractions and improve
on-mountain facilities, including:
. the addition of Vail's new Blue Sky Basin, 645 acres of natural, gladed
ski terrain serviced by four high-speed quadruple chairlifts;
. the opening of The River Course at Keystone, Keystone's second 18-hole
championship golf course; and
. the development of the Red Sky Ranch golf community, located
approximately 10 miles west of Beaver Creek, which will include 87
homesites and two championship golf courses.
We will also continue to enhance our existing hotel portfolio by completing
selective capital improvements on room upgrades and adding hotel facilities,
such as spas, meeting rooms, restaurants and other amenities. These
expenditures are designed to enhance the overall guest experience, thereby
enabling us to increase occupancy rates and average room rates and improve
operations.
Selective Acquisitions of New Resorts and Properties. We will continue to
seek potential acquisitions of additional ski and other destination resorts and
properties, which we believe can be successfully integrated into our existing
operations, enhance our ability to attract destination guests to all of our
resorts and benefit from our capital investment and management expertise.
Our 1997 acquisition of Breckenridge and Keystone exemplifies this strategy.
We believe we have successfully broadened the appeal of these resorts to
destination guests and improved their operating performance through capital
investment, coordinated marketing, improved central reservations and common,
four-resort lift tickets. We have also realized efficiencies in our purchasing,
information systems, accounting and legal areas by sharing these functions
across all of our resorts.
With our acquisition of Grand Teton in 1999, we capitalized on an
opportunity to further leverage our hospitality, dining, retail and recreation
expertise while geographically diversifying our resort operations to the state
of Wyoming. Furthermore, with its peak season from the late Spring to early
Fall, Grand Teton has also significantly increased our summer Resort revenue.
We will also continue to selectively acquire hotel properties proximate to
our resorts that we believe allow us to broaden our participation in the
services available to our guests, increase our ability to offer "package"
vacation products and, with respect to our ski resorts, increase Resort revenue
per skier visit. The recent acquisition of the Vail Marriott reflects our
implementation of this strategy.
5
Expanding Hospitality Business. The personal creation of Laurence
Rockefeller in the 1950s, Rockresorts is one of the most storied resort brands
in the United States. We believe that leveraging this powerful brand name will
enable superior cross-marketing and form the basis for building a luxury resort
hospitality business. Our 11 hotel properties currently under Rockresorts
management provide us with a coast-to-coast presence, with 1,742 rooms in the
aggregate.
We believe the acquisition of Rockresorts provides us with an excellent
platform for further national and international expansion of our hospitality
business either through third party management contracts, management contracts
secured with minority equity investments or direct property ownership. Future
expansion of our hospitality business will be focused on identifying properties
that exhibit superior attributes consistent with the positioning of the
Rockresorts brand, including desirable locations, attractive guest demographic
profiles and reputation for high quality guest services.
Our principal executive offices are located at 137 Benchmark Road, Avon,
Colorado 81620 and our telephone number is (970) 845-2500.
6
The Exchange Offer
Registration Rights......... You are entitled to exchange your outstanding
notes for freely tradeable exchange notes with
substantially identical terms. The exchange offer
is intended to satisfy your exchange rights.
After the exchange offer is complete, you will no
longer be entitled to any exchange or
registration rights with respect to your
outstanding notes. Accordingly, if you do not
exchange your outstanding notes, you will not be
able to reoffer, resell or otherwise dispose of
your outstanding notes unless you comply with the
registration and prospectus delivery requirements
of the Securities Act, or there is an exemption
available.
The Exchange Offer.......... We are offering to exchange $1,000 principal
amount of our 8 3/4% Senior Subordinated Notes
due 2009, which have been registered under the
Securities Act, for $1,000 principal amount of
our outstanding 8 3/4% Senior Subordinated Notes
due 2009, which were issued in a private offering
on November 21, 2001. As of the date of this
prospectus, there are $160.0 million principal
amount at maturity of outstanding notes. We will
issue exchange notes promptly after the
expiration of the exchange offer.
Resales..................... We believe that the exchange notes issued in the
exchange offer may be offered for resale, resold
or otherwise transferred by you without
compliance with the registration and prospectus
delivery requirements of the Securities Act,
provided that:
. you are acquiring the exchange notes in
the ordinary course of your business;
. you are not participating, do not intend
to participate and have no arrangement or
understanding with any person to
participate in a distribution of the
exchange notes; and
. you are not an "affiliate" of ours.
If you do not meet the above criteria you will
have to comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with any reoffer,
resale or other disposition of your exchange
notes.
Each broker or dealer that receives exchange
notes for its own account in exchange for
outstanding notes that were acquired as a
result of market-making or other trading
activities must acknowledge that it will deliver
this prospectus in connection with any sale of
exchange notes.
Expiration Date............. 5:00 p.m., New York City time, on March 27, 2002,
unless we extend the expiration date.
Conditions to the Exchange
Offer..................... The exchange offer is subject to certain
customary conditions, which may be waived by us.
The exchange offer is not conditioned upon any
minimum principal amount of outstanding notes
being tendered.
7
Procedures for Tendering
Outstanding Notes......... If you wish to tender outstanding notes, you must
complete, sign and date the letter of
transmittal, or a facsimile of it, in accordance
with its instructions and transmit the letter of
transmittal, together with your notes to be
exchanged and any other required documentation,
to The Bank of New York, who is the exchange
agent, at the address set forth in the letter of
transmittal to arrive by 5:00 p.m., New York City
time, on the expiration date. See "The Exchange
Offer--Procedures for Tendering Outstanding
Notes." By executing the letter of transmittal,
you will represent to us that you are acquiring
the exchange notes in the ordinary course of your
business, that you are not participating, do not
intend to participate and have no arrangement or
understanding with any person to participate in
the distribution of exchange notes, and that you
are not an "affiliate" of ours. See "The Exchange
Offer--Procedures for Tendering Outstanding
Notes."
Special Procedures for
Beneficial Holders........ If you are the beneficial holder of outstanding
notes that are registered in the name of your
broker, dealer, commercial bank, trust company or
other nominee, and you wish to tender in the
exchange offer, you should contact the person in
whose name your outstanding notes are registered
promptly and instruct such person to tender on
your behalf. See "The Exchange Offer--Outstanding
Notes."
Guaranteed Delivery
Procedures................ If you wish to tender your outstanding notes and
you cannot deliver such notes, the letter of
transmittal or any other required documents to
the exchange agent before the expiration date,
you may tender your outstanding notes according
to the guaranteed delivery procedures set forth
in "The Exchange Offer--Guaranteed Delivery
Procedures."
Withdrawal Rights........... Tenders may be withdrawn at any time before 5:00
p.m., New York City time, on the expiration date.
Acceptance of Outstanding
Notes and Delivery of
Exchange Notes............ Subject to certain conditions, we will accept for
exchange any and all outstanding notes which are
properly tendered in the exchange offer before
5:00 p.m., New York City time, on the expiration
date. The exchange notes will be delivered
promptly after the expiration date. See "The
Exchange Offer--Terms of the Exchange Offer."
Certain Federal Income Tax
Considerations............ The exchange of outstanding notes for exchange
notes will not be a taxable event for federal
income tax purposes. You will not recognize any
taxable gain or loss as a result of exchanging
outstanding notes for exchange notes, and you
will have the same tax basis and holding period
in the exchange notes as you had in the
outstanding notes immediately before the
exchange. See "Certain Federal Income Tax
Considerations."
8
Use of Proceeds............. We will not receive any proceeds from the
issuance of the exchange notes.
Exchange Agent.............. The Bank of New York is serving as exchange agent
in connection with the exchange offer. The
address, telephone number and facsimile number of
the exchange agent are set forth in "The Exchange
Offer--Exchange Agent."
9
Summary of the Exchange Notes
The summary below describes the principal terms of the exchange notes.
Certain of the terms and conditions described below are subject to important
limitations and exceptions. The "Description of Notes" section of this
prospectus contains a more detailed description of the terms and conditions of
the exchange notes.
Issuer...................... Vail Resorts, Inc.
Notes Offered............... $160,000,000 aggregate principal amount of 8 3/4%
Senior Subordinated Notes due 2009.
Interest Payment Dates...... Interest will accrue in the exchange notes from
the last interest payment date on which interest
was paid on the outstanding notes surrendered in
exchange therefor or if no interest has been paid
on the outstanding notes, from November 21, 2001
and will be payable semi-annually on May 15 and
November 15 of each year, commencing May 15, 2002.
Maturity.................... May 15, 2009.
Original Issue Discount..... The outstanding Notes were offered at an original
issue discount for federal income tax purposes.
The exchange notes will have original issue
discount identical to that of the outstanding
notes. Original issue discount has accrued from
the issue date of the outstanding Notes and will
continue to accrue and will be included as
interest income periodically in a holder's gross
income for U.S. federal income tax purposes in
advance of receipt of the cash payments to which
the income is attributable. See "Certain Federal
Income Tax Considerations."
Guarantees.................. Certain of our subsidiaries other than those
treated as Unrestricted Subsidiaries will
guarantee the exchange notes on a senior
subordinated basis. Future subsidiaries which are
deemed restricted subsidiaries will also be
required to guarantee the exchange notes if they
guarantee any of our other debt. See "Description
of Notes--Guarantees."
Ranking..................... The exchange notes will be unsecured senior
subordinated obligations and will be subordinated
to all our existing and future senior debt. The
exchange notes will rank equally with all our
other existing and future senior subordinated
debt, including the existing notes, and will rank
senior to all our subordinated indebtedness.
Our subsidiaries' guarantees with respect to the
exchange notes will be general unsecured senior
subordinated obligations of such guarantors and
will be subordinated to all of such guarantors'
existing and future senior debt. The guarantees
will rank equally with any senior subordinated
indebtedness of the guarantors, including their
guarantees of the existing notes, and will rank
senior to such guarantors' subordinated debt.
10
Because the exchange notes are subordinated, in
the event of bankruptcy, liquidation or
dissolution, holders of the exchange notes will
not receive any payment until holders of senior
indebtedness have been paid in full. The term
"senior debt" is defined in the "Description of
Exchange Notes--Subordination" section of this
prospectus.
At January 31, 2002, after giving effect to the
offering and the application of the net proceeds,
we had approximately $122.1 million of senior
debt outstanding on a consolidated basis.
Redemption.................. We may redeem the exchange notes, in whole or in
part, at any time on or after May 15, 2004, at
the declining redemption prices set forth in this
prospectus plus accrued interest.
Optional Redemption......... On or prior to May 15, 2002, we may redeem up to
35% of the exchange notes with the net proceeds
of certain equity offerings at 108.75% of the
principal amount thereof, plus accrued interest,
if at least 65% of the aggregate principal amount
of the exchange notes remains outstanding. See
"Description of Exchange Notes--Optional
Redemption."
Prior to May 15, 2004, we may also redeem the
exchange notes, in whole or in part, upon the
occurrence of a change of control at a make-whole
price as described under "Description of Exchange
Notes--Optional Redemption."
Change of Control........... Upon certain change of control events, if we do
not redeem the exchange notes, each holder of
exchange notes may require us to repurchase all
or a portion of its exchange notes at a purchase
price equal to 101% of the principal amount
thereof, plus accrued interest. Our ability to
repurchase the exchange notes upon a change of
control event will be limited by the terms of our
debt agreements, including our Credit Facility.
We cannot assure you that we will have the
financial resources to repurchase the exchange
notes. See "Description of Exchange
Notes--Repurchase at the Option of
Holders--Change of Control."
Certain Covenants........... The indenture governing the exchange notes will
contain covenants that, among other things, will
limit our ability and the ability of certain of
our subsidiaries to:
. incur additional indebtedness;
. pay dividends on, redeem or repurchase
our capital stock;
. make investments;
. engage in transactions with affiliates;
. create certain liens;
11
. sell assets; or
. consolidate, merge or transfer all or
substantially all our assets and the
assets of our subsidiaries on a
consolidated basis.
These covenants are subject to important
exceptions and qualifications, which are
described in the "Description of Exchange Notes"
section of this prospectus.
Risk Factors................ See "Risk Factors" for a discussion of factors
you should carefully consider before deciding to
invest in the exchange notes.
12
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The summary historical data for the fiscal years 1997, 1998, 1999, 2000 and
2001 is derived from actual audited results for such years. On September 1,
1997, we changed our fiscal year end from September 30 to July 31. Accordingly,
our fiscal year 1998 ended on July 31, 1998 and consisted of ten months. See
the "Management's Discussion and Analysis of Financial Condition and Results of
Operations" section and our consolidated financial statements and the notes
thereto included in our Annual Report on Form 10-K incorporated by reference
herein. The summary historical data for the three months ended October 31, 2001
and 2000 is derived from our unaudited consolidated financial statements, which
included all adjustments management considers necessary to present fairly the
financial results for this interim period. All of these adjustments were of a
normal recurring nature. The results of such interim periods are not
necessarily indicative of results to be expected for the full year due to the
highly seasonal nature of our business (which ordinarily produces losses for
the first and fourth quarters). See "Risk Factors--Our business is seasonal in
Nature."
Fiscal Ten Three Three
Months Fiscal Year Months Months
Fiscal Year Ended July 31, Ended Ended Ended Ended
---------------------------- July 31, September 30, October 31, October 31,
2001 2000 1999 1998 1997 2001 2000
-------- -------- -------- ---------- ------------- ----------- -----------
(Unaudited)
(In thousands, except per share, per skier visit, percentage and ratio data)
Statement of Operations Data:
Revenues:
Resort....................................... $520,762 $499,415 $431,788 $336,547 $259,038 $ 57,421 $ 60,708
Real estate.................................. 35,243 51,684 43,912 73,722 71,485 15,850 8,976
Technology................................... 3,274 1,960 -- -- -- 1,059 743
-------- -------- -------- -------- -------- -------- --------
Total revenues............................ 559,279 553,059 475,700 410,269 330,523 74,330 70,427
Operating expenses:
Resort....................................... 402,662 386,637 345,687 222,201 177,378 81,973 79,331
Real estate.................................. 22,971 42,066 34,386 62,619 66,307 9,539 4,309
Technology................................... 5,046 1,676 -- -- -- 1,123 622
Depreciation and amortization................ 65,167 61,435 53,256 36,838 34,044 15,362 15,643
-------- -------- -------- -------- -------- -------- --------
Total operating expenses 495,846 491,814 433,329 321,658 277,729 107,997 99,905
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations................... 63,433 61,245 42,371 88,611 52,794 (33,667) (29,478)
Net income (loss)............................... 18,700 15,338 12,791 41,018 19,698 (24,420) (21,181)
Diluted net income (loss) per Common Share...... $ 0.53 $ 0.44 $ 0.37 $ 1.18 $ 0.64 $ (0.70) $ (0.61)
Other Data:
Resort
Resort EBITDA(1)............................. $118,100 $112,778 $ 86,101 $114,346 $ 81,660 $(24,552) $(18,623)
Resort EBITDA margin......................... 22.7% 22.6% 19.9% 34.0% 31.5% (42.8)% (30.7)%
Skier visits(2).............................. 4,975 4,595 4,606 4,717 4,273 10 8
Resort revenue per skier visit(3)............ $ 98.65 $ 102.35 $ 91.16 $ 71.35 $ 60.62
Real Estate.....................................
Real estate operating income(4).............. 12,272 9,618 9,526 11,103 5,178 6,311 4,667
Real estate held for sale and investment(5).. 159,177 147,172 152,508 138,916 154,925 172,962 152,364
Technology
Technology operating income (loss)........... (1,772) 284 -- -- -- (64) 121
Total EBITDA(6)................................. 128,600 122,680 95,627 125,449 86,838 (18,305) (13,835)
13
Resort capital expenditures (7)........ 57,814 77,656 65,168 80,454 51,020 21,173 16,612
Total debt to Resort EBITDA............ 3.29 3.50 4.62 2.48 3.25
Resort EBITDA to interest expense...... 3.69 3.21 3.43 6.43 4.02
Resort EBITDA to pro forma interest
expense (8)........................... 2.93
Total debt to Total EBITDA............. 3.02 3.21 4.16 2.26 3.05
Total EBITDA to interest expense....... 4.01 3.49 3.80 7.05 4.28
Total EBITDA to pro forma interest
expense (8)........................... 3.19
Ratio of earnings to fixed charges (9). 1.77 1.61 1.71 4.85 2.62
Pro forma ratio of earnings to fixed
charges (10).......................... 1.48
Balance Sheet Data (at period end):
Total assets........................ 1,180,965 1,127,818 1,089,239 912,122 855,949 1,194,367 1,143,742
Long-term debt
(including current
maturities)........................ 388,380 394,235 398,186 284,014 265,062 418,166 422,030
Stockholders' equity................ $ 519,171 $ 493,755 $ 476,775 $462,624 $405,666 $ 494,894 $ 475,405
- --------
(1) Resort EBITDA (earnings before interest expense, income tax expense,
depreciation and amortization) is defined as revenues from resort
operations less resort operating expenses. Resort EBITDA is not a term that
has an established meaning under generally accepted accounting principles
("GAAP"), and it might not be comparable to similarly titled measures
reported by other companies. We have included the information concerning
Resort EBITDA because our management believes it is an indicative measure
of a resort company's operating performance and is generally used by
investors to evaluate companies in the resort industry. Resort EBITDA does
not purport to represent cash provided by operating activities, and should
not be considered in isolation or as a substitute for measures of
performance prepared in accordance with GAAP. For information regarding our
historical cash flows from operating, investing and financing activities,
see our consolidated financial statements included elsewhere in this
prospectus.
(2) A skier visit represents one guest accessing a ski mountain for all or any
part of a day or night and includes both paid and complimentary tickets and
ski passes.
(3) Resort revenue per skier visit excludes revenue generated by Grand Teton
Lodge Company and Snake River Lodge & Spa from the calculation because
those business do not support any of our ski areas.
(4) Real estate operating income is defined as revenue from real estate
operations less real estate costs and expenses, which include selling and
holding costs, operating expenses, and an allocation of the land,
infrastructure, mountain improvement and other costs relating to property
sold. Real estate costs and expenses exclude charges for depreciation and
amortization, as we have determined that the portion of those expenses
allocable to real estate is not significant.
(5) Real estate held for sale and investment includes all land, development
costs and other improvements associated with real estate held for sale and
investment, as well as investments in real estate joint ventures.
(6) Total EBITDA represents earnings before interest expense, income tax
expense, depreciation and amortization. EBITDA 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 or cash flows prepared in
accordance with GAAP, nor should it be used as a measure of our
profitability or liquidity.
(7) We typically categorize approximately $25 million to $35 million per
calendar year of total resort capital expenditures as maintenance capital
expenditures.
14
(8) Pro forma interest expense gives effect to the offering of the notes and
the repayment of indebtedness under our old credit facility (which may be
reborrowed) with the proceeds thereof as if it occurred on July 31, 2001.
Pro forma interest expense does not give effect to the interest rates in
effect under the Credit Facility, see "Description of Certain Indebtedness."
(9) The ratio of earnings to fixed charges represents the number of times fixed
charges were covered by pre-tax earnings before provision for interest
expense. Fixed charges consist of interest expense, capitalized interest,
amortization of debt issuance costs, and a portion of the operating lease
expense deemed to be representative of the interest factor. The ratio is
not presented for the three months ended October 31, 2001 and 2000 as the
ratio is negative for these periods due to the seasonal nature of the
Company's business and is not indicative of results to be expected for a
full fiscal year.
(10) The pro forma ratio of earnings to fixed charges incorporates the use of
pro forma interest expense described in (8) in the calculation of the
ratio of earnings to fixed charges.
15
RISK FACTORS
You should carefully consider the following factors and other information in
this prospectus before deciding to invest in the notes.
We are highly leveraged. At October 31, 2001, we had $418.2 million of
indebtedness, representing approximately 45.8% of our total capitalization. See
"Capitalization." Furthermore, subject to certain restrictions in our Credit
Facility and the indenture governing the notes and the existing notes, we,
along with our subsidiaries, may incur additional indebtedness from time to
time to finance acquisitions, provide for working capital or capital
expenditures or for other purposes.
Our high level of indebtedness could have important consequences to you,
including limiting our ability to:
. obtain additional financing for acquisitions, working capital, capital
expenditures or other purposes;
. use operating cash flow in other areas of our business because we must
dedicate a substantial portion of these funds to make principal payments
and fund debt service;
. borrow additional funds or dispose of assets;
. compete with others who are not as highly leveraged; and
. react to changing market conditions, changes in our industry and
economic downturns.
We currently expect that we will be able to service our indebtedness out of
cash flow from operations. If we are unable to generate sufficient cash flow to
meet our debt service obligations, we will have to pursue one or more
alternatives, such as reducing or delaying capital expenditures, refinancing
debt, selling assets or raising equity capital. Each of these alternatives is
dependent upon financial, business and other general economic factors that
affect us, many of which are beyond our control. We cannot assure you that any
of these alternatives could be accomplished on satisfactory terms or that they
would yield sufficient funds to retire the notes and the indebtedness senior to
the notes. While we believe that our cash flow from operations will provide an
adequate source of long-term liquidity, a significant drop in operating cash
flows resulting from economic conditions, competition or other uncertainties
beyond our control would increase the need for alternative sources of
liquidity. See the "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" section of our
Annual Report on Form 10-K incorporated by reference herein.
Our future growth requires additional capital whose availability is not
assured. We intend to make significant investments in our resorts to maintain
our competitive position. We spent approximately $57.8 million and $77.7
million in the fiscal years ended July 31, 2001 and 2000, respectively, on
resort capital expenditures and expect to continue making substantial resort
capital expenditures. We could finance future expenditures from any of the
following sources:
. cash flow from operations;
. bank borrowings;
. public offerings of debt or equity;
. private placements of debt or equity; or
. some combination of the above.
We might not be able to obtain financing for future expenditures on
favorable terms.
Our recent or future acquisitions might not be successful. In recent years,
we have acquired several major ski resorts and other destination resorts and
hotel properties, including the Ritz-Carlton, Rancho Mirage, the Vail Marriott
and a number of real estate developments. Although we believe we have enhanced
our earnings and achieved cost savings by integrating these acquisitions into
our operations, we cannot assure you that we will be able to continue this
successful integration, manage these acquired properties profitably or increase
our profits from these operations. We continually evaluate and are currently
evaluating potential acquisitions and intend to
16
actively pursue acquisition opportunities, some of which could be significant.
We would face various risks from additional acquisitions, including:
. inability to integrate acquired businesses into our operations;
. potential goodwill impairment;
. diversion of our management's attention; and
. unanticipated problems or liabilities.
These problems from future acquisitions could adversely affect our
operations and financial performance.
Terrorist acts upon the United States could have a material adverse effect
on us. The terrorist acts carried out against the United States on September
11, 2001 have had an adverse effect on the global travel and leisure industry.
We cannot guarantee if or when normal travel and vacation patterns will resume.
Furthermore, additional terrorist acts against the United States and the
declaration of war by the United States could result in further degradation of
discretionary travel upon which our operations are highly dependent. Such
degradation could have a material adverse impact on our results of operations.
Due to the revenue cancellations and shortfalls relating to September 11th and
the weak economy, Resort EBITDA for the first quarter of fiscal 2002 was less
than Resort EBITDA in the first quarter of fiscal 2001. As of the date of this
prospectus, we anticipate that Resort EBITDA for fiscal 2002, excluding fiscal
2002 acquisitions, will be less than fiscal 2001 Resort EBITDA.
Our future development might not be successful. We have significant
development plans for our resort and real estate operations. We could
experience significant difficulties completing these projects, including:
. delays in completion;
. inaccurate cost estimates;
. difficulty in receiving the necessary regulatory approvals; or
. we may not benefit from the projects as we expected.
We may not be able to fund these projects with cash flow from operations and
borrowings under our Credit Facility if we faced these difficulties.
We face significant competition. The number of people who ski in the United
States (as measured in skier visits) has increased by approximately 10% since
the 1985-86 ski season and there is substantial competition among ski resorts
for these customers. The factors that we believe are important to these
customers include:
. proximity to population centers;
. availability and cost of transportation to ski areas;
. ease of travel to ski areas (including direct flights by major airlines);
. pricing of our products and services;
. snowmaking facilities;
. type and quality of skiing offered;
. duration of the ski season;
. weather conditions;
. number, quality and price of related services and lodging; and
. reputation.
17
We have many competitors for our ski vacationers, including ski resorts in
Utah, California, Nevada, New England and the other major resorts in Colorado.
Our destination guests can choose from any of these alternatives, as well as
non-skiing vacation destinations around the world. Our day skier customers can
choose from a number of nearby competitors, including Copper Mountain,
Telluride, Steamboat Springs, Winter Park and the Aspen resorts, as well as
other forms of leisure such as attendance at movies, sporting events and
participation in other indoor and outdoor recreational activities. This
competition may adversely affect our skier visits and the pricing of our
products and services.
We rely on government permits. Virtually all of our ski trails and related
activities on Vail, Breckenridge and Keystone and a substantial portion on
Beaver Creek are located on federal land. The United States Forest Service has
granted us permits to use these lands, but maintains the right to review and
approve the location, design and construction of improvements in these areas
and on many operational matters. The Forest Service can terminate most of these
permits if required in the public interest. Although we do not know of any
permit used by a major ski resort then in operation that has been terminated by
the Forest Service over the opposition of the permitee, a termination of any of
our permits would adversely affect our business and operations.
We have applied for several new permits or other approvals for improvements
and new development. While these efforts, if not successful, could impact our
expansion efforts as currently contemplated, we do not believe they would
adversely affect our results of operations or financial condition. Furthermore,
Congress may increase the fees we pay to the Forest Service for use of these
federal lands.
We operate three resort properties within Grand Teton National Park under a
concession contract with the National Park Service. The concession contract
expires at the end of December 2002, at which time the contract renewal will be
subject to a competitive bidding process. Should we not receive the renewal of
the concession contract, we would be compensated for the value of our
"possessory interest" in the assets of the three resort properties operated
under the concession contract, which is generally defined as the replacement
cost of such assets less depreciation.
We are subject to economic downturns. Skiing and tourism are discretionary
recreational activities that can be impacted by a significant economic
slowdown, which, in turn, could impact our operating results. Although
historically economic downturns have not had an adverse impact on our operating
results, there can be no assurance that a decrease in the amount of
discretionary spending by the public in the future would not have an adverse
effect on us.
We are subject to unfavorable weather conditions. The ski industry's
ability to attract visitors to its resorts is influenced by weather conditions
and the amount and timing of snowfall during the ski season. Unfavorable
weather conditions can adversely affect skier visits. In the past 20 years our
ski resorts have averaged between 20 and 30 feet of annual snowfall,
significantly in excess of the average for U.S. ski resorts. However, there is
no assurance that our resorts will receive seasonal snowfalls near the
historical average in the upcoming or future ski seasons. Also, the early ski
season snow conditions and skier perceptions of early ski season snow
conditions influence the momentum and success of the overall ski season. We
believe that poor snow conditions early in the ski season during the 1998-99
and 1999-00 ski seasons had an adverse effect on operating results for those
periods. There is no way for us to predict future weather patterns or the
impact that weather patterns may have on results of operations or visitation.
We are dependent on a seasonal workforce. Our resort operations are largely
dependent on a seasonal workforce. We recruit worldwide to fill staffing needs
each ski season, and utilize H2B visas to enable the use of foreign workers. In
addition, we manage seasonal wages and timing of the hiring process to ensure
the
18
appropriate workforce is in place. While we do not currently foresee the need
to increase seasonal wages to attract employees, we cannot guarantee that such
an increase would not be necessary in the future. In addition, we cannot
guarantee that we will be able to obtain the visas necessary to hire foreign
workers, who are an important source for the seasonal workforce. Increased
seasonal wages or an inadequate workforce could have an adverse impact on our
results of operations; however, we are unable to predict with any certainty
whether such situations will arise or the potential impact to results of
operations.
Our business is seasonal in nature. Our ski and resort operations are
seasonal in nature. In particular, revenues and profits at our ski resorts are
substantially lower and historically result in losses in the summer months due
to the closure of its ski operations. Snake River Lodge & Spa, while open
year-round, generates the majority of its revenues during the winter season.
Conversely, Grand Teton Lodge Company's peak operating season occurs during the
summer months while the winter season generally results in operating losses due
to closure of all revenue generating operations. However, revenues and profits
generated by Grand Teton Lodge Company's summer operations are not sufficient
to fully offset our off-season losses from our ski resorts. During the 2001
fiscal year, 76.5% of total resort revenues were earned during the second and
third fiscal quarters. Quarterly results may be materially affected by the
timing of snowfall and the integration of acquisitions. Therefore, the
operating results for any three-month period are not necessarily indicative of
the results that may be achieved for any subsequent fiscal quarter or for a
full fiscal year. We are taking steps to smooth our earnings cycle by investing
in additional summer activities, such as golf course development, and also
through the acquisition of new resorts, such as Grand Teton Lodge Company. (See
Note 13 of the Notes to Consolidated Financial Statements for Selected
Quarterly Financial Data included in our Annual Report on Form 10-K
incorporated by reference herein.)
Apollo Ski Partners has influence over us. Apollo Ski Partners owns
approximately 99.9% of our outstanding shares of Class A Common Stock, giving
them approximately 21% of the combined voting power with respect to all matters
submitted for a vote of all stockholders. The holders of Class A Common Stock
elect a class of directors that constitutes two-thirds of our board of
directors. Accordingly, Apollo Ski Partners and, indirectly, Apollo Advisors,
L.P. (which indirectly controls Apollo Ski Partners) will be able to elect
two-thirds of our board of directors and control the approval of matters
requiring approval by the board of directors, including mergers, liquidations
and asset acquisitions and dispositions. In addition, Apollo Ski Partners and
Apollo Advisors, L.P. may be able to significantly influence decisions on
matters submitted for stockholder consideration.
Future changes in the real estate market could affect the value of our
investments. We have extensive real estate holdings in proximity to our
mountain resorts. We have made capital expenditures of approximately $40.4
million and $39.2 million in fiscal years 2000 and 2001, respectively, in our
real estate operations. We plan to make significant additional investments in
developing property at all our resorts. The value of our real property and the
revenue from related development activities may be adversely affected by a
number of factors, including:
. national and local economic climate;
. local real estate conditions (such as an oversupply of space or a
reduction in demand for real estate in an area);
. attractiveness of the properties to prospective purchasers and tenants;
. competition from other available property or space;
. our ability to obtain adequate insurance;
. unexpected construction costs;
19
. government regulations and changes in real estate, zoning or tax laws;
. interest rate levels and the availability of financing; and
. potential liabilities under environmental and other laws.
In addition, we run the risk that our new acquisitions may fail to perform
in accordance with our expectations, and that our estimates of the costs of
improvements for such properties may prove inaccurate. While we attempt to
mitigate our exposure to these risks by selling multi-family development
parcels to third-party developers who assume the risk of construction or by
pre-selling single-family homesites or condominium residences to individual
purchasers prior to the start of our construction projects, we cannot assure
you that we will continue to do so in the future. Although we believe that the
current market for the sale of our resort property is strong, we cannot assure
you that such market conditions will continue. See the "Business--Real Estate"
section in our Annual Report on From 10-K incorporated by reference herein.
Your claims are subordinated to our and our subsidiaries' senior
debt. Payments on the notes and the guarantees are subordinated to all of our
and the guarantors' existing and future indebtedness, including amounts under
our Credit Facility, other than the existing notes and other than any future
indebtedness that expressly provides that it is equal to or subordinated in
right of payment to the notes and the guarantees. As a result, upon any
distribution to our creditors in a bankruptcy, liquidation or reorganization or
similar proceeding with respect to us or our property, the holders of our
senior debt and our guarantors' senior debt will be entitled to be paid in full
before any payment may be made with respect to the notes and the guarantees.
Claims in respect of the notes will be effectively subordinated to all
liabilities, including trade payables, of any of our subsidiaries that are not
subsidiary guarantors. At January 31, 2002, after giving effect to the offering
and the application of the net proceeds, we had approximately $122.1 million of
senior debt outstanding on a consolidated basis.
Our subsidiary, The Vail Corporation, is the borrower under our $421.0
million revolving Credit Facility and its obligations are guaranteed by us and
certain of our subsidiaries. At January 31, 2002, after giving effect to the
offering and the application of the net proceeds, we had approximately $13.0
million outstanding, $122.9 million of letters of credit issued thereunder and
remaining availability of $285.1 million (subject to limitation by the
financial covenants of the Credit Facility).
At October 31, 2001, SSI Venture, LLC, in which we have a 51.9% ownership
interest, had $20.2 million outstanding under the $25 million SSI Venture
Credit Facility, all of which was guaranteed by one of our subsidiaries.
See the "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" section in our Annual
Report on Form 10-K incorporated by reference herein.
Guarantees may be unenforceable due to fraudulent conveyance
statutes. Although laws differ among various jurisdictions, in general, under
fraudulent conveyance laws, a court could subordinate or avoid any subsidiary
guarantee if it found that:
. the guarantee was incurred with actual intent to hinder, delay or
defraud creditors; or
. the guarantor did not receive fair consideration or reasonably
equivalent value for the guarantee and the guarantor was any of the
following:
. insolvent or rendered insolvent because of the guarantee;
. engaged in business or transactions for which its remaining assets
constituted unreasonably small capital; or
. intended to incur, or believed that it would incur, debts beyond its
ability to pay at maturity.
20
If a court avoided a guarantee as a result of fraudulent conveyance, or held
it unenforceable for any other reason, noteholders would cease to have a claim
against the guarantor and would be creditors solely of Vail Resorts and the
remaining guarantors.
There are restrictions imposed by the terms of our indebtedness. The
operating and financial restrictions and covenants in our Credit Facility may
adversely affect our ability to finance future operations or capital needs or
to engage in other business activities. Our Credit Facility includes covenants
that will require us to meet certain financial ratios and financial conditions
which may require that we take action to reduce debt or to act in a manner
contrary to our business objectives. If we breach any of these restrictions or
covenants or suffer a material adverse change which restricts our borrowing
ability under our Credit Facility, we would be unable to borrow funds
thereunder without a waiver. A breach could cause a default under the notes and
our other debt. Our indebtedness may then become immediately due and payable.
We may not have or be able to obtain sufficient funds to make these accelerated
payments, including payments on the notes.
In addition, the indenture governing the notes restricts, among other
things, our ability to:
. borrow money;
. pay dividends on stock or make certain other restricted payments;
. use assets as security in other transactions;
. make investments;
. enter into certain transactions with our affiliates; and
. sell certain assets or merge with other companies.
If we fail to comply with these covenants, we would be in default under the
indenture governing the notes, and the principal and accrued interest on the
notes would become due and payable. See "Description of Notes--Certain
Covenants."
There are possible implications from original issue discount. The
outstanding notes were issued at an original issue discount ("OID") for U.S.
federal income tax purposes. OID is the excess of (i) the stated redemption
price at maturity of the notes over (ii) the issue price of the notes. U.S.
holders will be required to include the OID in income as it accrues in advance
of the receipt of cash payments attributable to such income, regardless of such
holders' regular method of accounting for United States federal income tax
purposes. The exchange notes will have original issue discount identical to
that of the outstanding notes. In addition, if a bankruptcy case is commenced
by or against us under the U.S. Bankruptcy Code after the issuance of the
notes, the claim of a holder of notes may be limited to an amount equal to the
sum of (i) the issue price and (ii) that portion of the OID which is not deemed
to constitute "unmatured interest" for purposes of the U.S. Bankruptcy Code.
Any OID that was not amortized as of the date of any such bankruptcy filing
would constitute "unmatured interest." See "Certain Federal Income Tax
Considerations" for a more detailed discussion of the U.S. federal income tax
consequences to the holders of notes of the purchase, ownership and disposition
of the notes.
We may not be able to purchase the notes upon a change of control. Upon
certain change of control events, each holder of notes may require us to
repurchase all or a portion of its notes at a purchase price equal to 101% of
the principal amount thereof, plus accrued interest. Our ability to repurchase
the notes upon a change of control event could be limited by the terms of our
debt agreements. Upon a change of control event, we may be required to repay
the outstanding principal and any accrued interest on any other amounts owed by
us under our credit facility. We cannot assure you that we would be able to
repay amounts outstanding under our credit facility or obtain necessary
consents under such facilities to repurchase these notes. Any requirement to
offer to purchase any outstanding notes may result in our having to refinance
our outstanding indebtedness, which we may not be able to do. In addition, even
if we were able to refinance such indebtedness, such financing may be on terms
unfavorable to us. Certain provisions in our credit facility may delay, defer
or prevent a merger, tender offer or other takeover attempt. The term "Change
of Control" is defined in "Description of Notes--Certain Definitions."
21
The exchange notes will be new securities for which there is currently no
public market. We do not intend to list the exchange notes on any national
securities exchange or quotation system. The initial purchasers in the offering
of outstanding notes have advised us that they currently intend to make a
market in the exchange notes, but they are not obligated to do so and, if
commenced, may discontinue such market making at any time. Accordingly, no
market may develop for the exchange notes, and if a market does develop, it may
have limited or no liquidity.
Failure to exchange your outstanding notes will leave them subject to
transfer restrictions. If you do not exchange your outstanding notes for
exchange notes, you will continue to be subject to the restrictions on transfer
of your outstanding notes set forth in their legend because the outstanding
notes were issued pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act. In general,
outstanding notes may not be offered or sold, unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. We
currently do not anticipate registering the outstanding notes under the
Securities Act. As outstanding notes are tendered and accepted in the exchange
offer, the aggregate principal amount of outstanding notes will decrease, which
will decrease their liquidity.
USE OF PROCEEDS
The exchange offer is intended to satisfy certain of our obligations under
the registration rights agreement. We will not receive any cash proceeds from
the exchange offer.
The net proceeds from the original sale of the outstanding notes were $148.1
million. We used the net proceeds from the sale of the outstanding notes to
repay indebtedness under our Credit Facility (thereby increasing our borrowing
capacity under the Credit Facility).
22
CAPITALIZATION
The following table sets forth our capitalization as of October 31, 2001,
and as adjusted to reflect the sale of the notes and the application of the
estimated net proceeds of this offering. See "Description of Certain
Indebtedness."
As
Actual Adjusted
-------- --------
(In thousands, except
share amounts)
---------------------
Cash.............................................................................. $ 21,044 $ 38,190
======== ========
Debt:
Short-term debt................................................................... $ 3,143 $ 3,143
Industrial Development Bonds...................................................... 61,700 61,700
Credit facilities(1).............................................................. 150,150 19,150
Notes offered hereby(2)........................................................... -- 152,646
Existing Notes.................................................................... 200,000 200,000
Other............................................................................. 3,173 3,173
-------- --------
Total debt................................................................. 418,166 439,812
Stockholders' equity:
Class A common stock, $0.01 par value, 20,000,000 shares authorized, 7,439,834
shares issued and outstanding................................................ 74 74
Common stock, $0.01 par value, 80,000,000 shares authorized, 27,693,821 shares
issued and outstanding....................................................... 277 277
Additional paid-in capital..................................................... 411,418 411,418
Retained earnings.............................................................. 83,125 83,125
-------- --------
Total stockholders' equity................................................. 494,894 494,894
-------- --------
Total capitalization.............................................................. $913,060 $934,706
======== ========
- --------
(1) At January 31, 2002, we had approximately $13.0 million outstanding under
the Credit Facility and approximately $17.9 million outstanding under the
SSI Venture Credit Facility.
(2) Total principal amount $160 million net of Original Issue Discount of $7.4
million.
23
THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
Exchange Offer Registration Statement. We issued the outstanding notes on
November 21, 2001. The initial purchasers have advised us that they
subsequently resold the outstanding notes to "qualified institutional buyers"
in reliance on Rule 144A under the Securities Act and to certain persons in
offshore transactions in reliance on Regulation S under the Securities Act. As
a condition to the offering of the outstanding notes, we entered into a
registration rights agreement dated November 21, 2001, pursuant to which we
agreed, for the benefit of all holders of the outstanding notes, at our own
expense, to do the following:
(1) to file the registration statement of which this prospectus is a part
with the Commission on or prior to 60 days after the closing date of the
outstanding notes,
(2) to use our commercially reasonable best efforts to cause the
registration statement to be declared effective under the Securities Act on
or prior to 180 days after the closing date of the outstanding notes,
(3) to use our commercially reasonable best efforts to keep the
registration statement effective until the closing of the exchange offer, and
(4) to use our commercially reasonable best efforts to issue, on or prior
to 60 days after the date on which the exchange offer registration statement
was declared effective by the Commission, exchange notes in exchange for all
outstanding notes tendered prior thereto.
Further, we agreed to keep the exchange offer open for acceptance for not
less than the minimum period required under applicable Federal and state
securities laws. For each outstanding Note validly tendered pursuant to the
exchange offer and not withdrawn, the holder of the outstanding Note will
receive an exchange note having a principal amount equal to that of the
tendered outstanding Note. Interest on each exchange note will accrue from the
last date on which interest was paid on the tendered outstanding Note in
exchange therefor or, if no interest was paid on such outstanding Note, from
the issue date.
The following is a summary of the registration rights agreement. It does not
purport to be complete and it does not contain all of the information you might
find useful. For further information you should read the registration rights
agreement, a copy of which has been filed as an exhibit to the registration
statement. The exchange offer is intended to satisfy certain of our obligations
under the registration rights agreement.
Transferability. We issued the outstanding notes on November 21, 2001 in a
transaction exempt from the registration requirements of the Securities Act and
applicable state securities laws. Accordingly, the outstanding notes may not be
offered or sold in the United States unless registered or pursuant to an
applicable exemption under the Securities Act and applicable state securities
laws. Based on no-action letters issued by the staff of the Commission with
respect to similar transactions, we believe that the exchange notes issued
pursuant to the exchange offer in exchange for outstanding notes may be offered
for resale, resold and otherwise transferred by holders of notes who are not
our affiliates without further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that:
(1) any exchange notes to be received by the holder were acquired in the
ordinary course of the holder's business;
(2) at the time of the commencement of the exchange offer the holder has
no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the exchange
notes; and
(3) the holder is not an "affiliate" of the Company, as defined in Rule
405 under the Securities Act, or, if it is an affiliate, that it will comply
with the registration and prospectus delivery requirements of the Securities
Act to the extent applicable.
24
However, we have not sought a no-action letter with respect to the exchange
offer and we cannot assure you that the staff of the Commission would make a
similar determination with respect to the exchange offer. Any holder who
tenders his outstanding notes in the exchange offer with any intention of
participating in a distribution of exchange notes (1) cannot rely on the
interpretation by the staff of the Commission, (2) will not be able to validly
tender outstanding notes in the exchange offer and (3) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transactions.
In addition, each broker-dealer that receives exchange notes for its own
account pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. The letter of
transmittal accompanying this prospectus states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
acting in the capacity of an "underwriter" within the meaning of Section 2(11)
of the Securities Act. This prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection with resales of
exchange notes received in exchange for outstanding notes where the outstanding
notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. Pursuant to the registration rights
agreement, we agreed to make this prospectus available to any such
broker-dealer for use in connection with any such resale.
Shelf Registration Statement. We will, at our cost, (a) file with the
Commission a shelf registration statement covering resales of the outstanding
notes as soon as practicable, but, in any event, on or prior to the 60th day
after the date we become obligated to file the shelf registration statement,
(b) use our commercially reasonable best efforts to cause the shelf
registration statement to be declared effective under the Securities Act on or
prior to the 180th day after the date we become obligated to file the shelf
registration statement and (c) use our commercially reasonable best efforts to
keep the shelf registration statement continually effective, supplemented and
amended to the extent necessary to ensure that it is available for resales of
notes by the holders of Transfer Restricted Securities for a period of at least
two years following the effective date of such shelf registration statement (or
shorter period that will terminate when all the Notes covered by such shelf
registration statement have been sold pursuant to such shelf registration
statement or are otherwise no longer Transfer Restricted Securities), if:
(1) we are not required to file the exchange offer registration statement
or not permitted to consummate the exchange offer because the exchange offer
is not permitted by applicable law or Commission policy or
(2) any initial purchaser that is a holder of Transfer Restricted
Securities notifies us prior to the 20th day following consummation of the
exchange offer that (a) it is prohibited by law or Commission policy from
participating in the exchange offer or (b) it may not resell the exchange
notes acquired by it in the exchange offer to the public without delivering
a prospectus and the prospectus contained in the exchange offer registration
statement is not appropriate or available for such resales.
We will, in the event of the filing of the shelf registration statement,
provide to each holder of the outstanding notes copies of the prospectus which
is a part of the shelf registration statement, notify each such holder when the
shelf registration statement for the outstanding notes has become effective and
take certain other action as is required to permit unrestricted resales of the
outstanding notes. A holder of outstanding notes who sells such outstanding
notes pursuant to the shelf registration statement generally will (1) be
required to be named as a selling security holder in the related prospectus,
(2) be required to deliver the prospectus to purchasers, (3) be subject to
certain of the civil liability provisions under the Securities Act in
connection with such sales and (4) be bound by the provisions of the
registration rights agreement which are applicable to the holder (including
certain indemnification obligations). In addition, each holder of the
outstanding notes will be required to deliver information to be used in
connection with the shelf registration statement and to provide comments on the
shelf registration statement within the time periods set forth in the
registration rights agreement in order to have their outstanding notes included
in the shelf registration statement and to benefit from the provisions
regarding the increase in interest rate set forth in the following paragraph.
25
Terms of the Exchange Offer
Upon satisfaction or waiver of all the conditions of the exchange offer, we
will accept any and all outstanding notes properly tendered and not withdrawn
prior to the expiration date and will issue the exchange notes promptly after
acceptance of the outstanding notes. See "--Conditions to the Exchange Offer"
and "Procedures for Tendering Private Notes." We will issue $1,000 principal
amount of exchange notes in exchange for each $1,000 principal amount of
outstanding notes accepted in the exchange offer. As of the date of this
prospectus, $160,000,000 aggregate principal amount of the notes are
outstanding. Holders may tender some or all of their outstanding notes pursuant
to the exchange offer. However, outstanding notes may be tendered only in
integral multiples of $1,000.
The exchange notes are identical to the outstanding notes except for the
elimination of certain transfer restrictions, registration rights, restrictions
on holding notes in certificated form and liquidated damages provisions. The
exchange notes will evidence the same debt as the outstanding notes and will be
issued pursuant to, and entitled to the benefits of, the indenture pursuant to
which the outstanding notes were issued and will be deemed one issue of notes,
together with the outstanding notes.
This prospectus, together with the letter of transmittal, is being sent to
all registered holders and to others believed to have beneficial interests in
the outstanding notes. Holders of outstanding notes do not have any appraisal
or dissenters' rights under the indenture in connection with the exchange
offer. We intend to conduct the exchange offer in accordance with the
applicable requirements of the Securities Act, the Exchange Act and the rules
and regulations of the Commission promulgated thereunder.
For purposes of the exchange offer, we will be deemed to have accepted
validly tendered private notes when, and as if, we have given oral or written
notice thereof to the exchange agent. The exchange agent will act as our agent
for the purpose of distributing the exchange notes from us to the tendering
holders. If we do not accept any tendered outstanding notes because of an
invalid tender, the occurrence of certain other events set forth in this
prospectus or otherwise, we will return the unaccepted outstanding notes,
without expense, to the tendering holder thereof as promptly as practicable
after the expiration date.
Holders who tender private notes in the exchange offer will not be required
to pay brokerage commissions or fees or, except as set forth below under
"--Transfer Taxes," transfer taxes with respect to the exchange of outstanding
notes pursuant to the exchange offer. We will pay all charges and expenses,
other than certain applicable taxes, in connection with the exchange offer. See
"--Fees and Expenses."
Expiration Date; Extensions; Amendments
The term "expiration date" shall mean 5:00 p.m., New York City time, on
March 27, 2002, unless we, in our sole discretion, extend the exchange offer,
in which case the term "expiration date" shall mean the latest date and time to
which the exchange offer is extended. In order to extend the exchange offer, we
will notify the exchange agent by oral or written notice and each registered
holder by means of press release or other public announcement of any extension,
in each case, prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date. We reserve the right, in our
sole discretion, (1) to delay accepting any outstanding notes, (2) to extend
the exchange offer, (3) to terminate the exchange offer if the conditions set
forth below under "--Conditions" shall not have been satisfied, or (4) to amend
the terms of the exchange offer in any manner. We will notify the exchange
agent of any delay, extension, termination or amendment by oral or written
notice. We will additionally notify each registered holder of any amendment. We
will give to the exchange agent written confirmation of any oral notice.
Exchange Date
As soon as practicable after the close of the exchange offer we will accept
for exchange all outstanding notes properly tendered and not validly withdrawn
prior to 5:00 p.m., New York City time, on the expiration date in accordance
with the terms of this prospectus and the letters of transmittal.
26
Conditions to the Exchange Offer
Notwithstanding any other provisions of the exchange offer, and subject to
our obligations under the registration rights agreement, we (1) shall not be
required to accept any outstanding notes for exchange, (2) shall not be
required to issue exchange notes in exchange for any outstanding notes and (3)
may terminate or amend the exchange offer if, at any time before the acceptance
of such exchange notes for exchange, any of the following events shall occur:
(1) any injunction, order or decree shall have been issued by any court
or any governmental agency that would prohibit, prevent or otherwise
materially impair our ability to proceed with the exchange offer;
(2) any change, or any development involving a prospective change, in our
business or financial affairs or any of our subsidiaries has occurred which,
in our sole judgment, might materially impair our ability to proceed with
the exchange offer or materially impair the contemplated benefits of the
exchange offer to us;
(3) any law, statute, rule or regulation is proposed, adopted or enacted
which, in our sole judgment, might materially impair our ability to proceed
with the exchange offer or materially impair the contemplated benefits of
the exchange offer to us;
(4) any governmental approval has not been obtained, which approval we
shall, in our sole discretion, deem necessary for the consummation of the
exchange offer as contemplated hereby; or
(5) the exchange offer will violate any applicable law or any applicable
interpretation of the staff of the Commission.
The foregoing conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition or may be
waived by us in whole or in part at any time and from time to time in our sole
discretion. Our failure at any time to exercise any of the foregoing rights
shall not be deemed a waiver of any such right and such right shall be deemed
an ongoing right which may be asserted at any time and from time to time.
In addition, we will not accept for exchange any outstanding notes tendered,
and no exchange notes will be issued in exchange for any such outstanding notes
if at such time any stop order shall be threatened by the Commission or be in
effect with respect to the registration statement of which this prospectus is a
part or the qualification of the indenture under the Trust Indenture Act of
1939, as amended.
The exchange offer is not conditioned on any minimum aggregate principal
amount of outstanding notes being tendered for exchange.
Consequences of Failure to Exchange
Any outstanding notes not tendered pursuant to the exchange offer will
remain outstanding and continue to accrue interest. The outstanding notes will
remain "restricted securities" within the meaning of the Securities Act.
Accordingly, prior to the date that is one year after the later of the issue
date and the last date on which we or any of our affiliates was the owner of
the outstanding notes, the outstanding notes may be resold only (1) to us, (2)
to a person who the seller reasonably believes is a "qualified institutional
buyer" purchasing for its own account or for the account of another "qualified
institutional buyer" in compliance with the resale limitations of Rule 144A,
(3) to an Institutional Accredited Investor that, prior to the transfer,
furnishes to the trustee a written certification containing certain
representations and agreements relating to the restrictions on transfer of the
notes (the form of this letter can be obtained from the trustee), (4) pursuant
to the limitations on resale provided by Rule 144 under the Securities Act, (5)
pursuant to the resale provisions of Rule 904 of Regulation S under the
Securities Act, (6) pursuant to an effective registration statement under the
Securities Act, or (7) pursuant to any other available exemption from the
registration requirements of the Securities Act, subject in each of the
foregoing cases to compliance with applicable state securities laws. As a
result, the liquidity of the market for non-tendered outstanding notes could be
adversely affected upon completion of the exchange offer. The foregoing
restrictions on resale will no longer apply after the first anniversary of the
issue date of the outstanding note or the purchase of the outstanding notes
from us or an affiliate.
27
Fees and Expenses
We will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. The principal solicitation is being made by
mail; however, additional solicitations may be made in person or by telephone
by our officers and employees.
Expenses incurred in connection with the exchange offer will be paid by us.
Such expenses include, among others, the fees and expenses of the trustee and
the exchange agent, accounting and legal fees, printing costs and other
miscellaneous fees and expenses.
Accounting Treatment
We will not recognize any gain or loss for accounting purposes upon the
consummation of the exchange offer. We will amortize the expenses of the
exchange offer as additional interest expense over the term of the exchange
notes.
Procedures for Tendering Outstanding Notes
The tender of outstanding notes pursuant to any of the procedures set forth
in this prospectus and in the letter of transmittal will constitute a binding
agreement between the tendering holder and us in accordance with the terms and
subject to the conditions set forth in this prospectus and in the letter of
transmittal. The tender of outstanding notes will constitute an agreement to
deliver good and marketable title to all tendered outstanding notes prior to
the expiration date free and clear of all liens, charges, claims, encumbrances,
interests and restrictions of any kind.
Except as provided in "--Guaranteed Delivery Procedures," unless the
outstanding notes being tendered are deposited by you with the exchange agent
prior to the expiration date and are accompanied by a properly completed and
duly executed letter of transmittal, we may, at our option, reject the tender.
Issuance of exchange notes will be made only against deposit of tendered
outstanding notes and delivery of all other required documents. Notwithstanding
the foregoing, DTC participants tendering through its Automated Tender Offer
Program ("ATOP") will be deemed to have made valid delivery where the exchange
agent receives an agent's message prior to the expiration date.
Accordingly, to properly tender outstanding notes, the following procedures
must be followed:
Notes held through a Custodian. Each beneficial owner holding outstanding
notes through a DTC participant must instruct the DTC participant to cause its
outstanding notes to be tendered in accordance with the procedures set forth in
this prospectus.
Notes held through DTC. Pursuant to an authorization given by DTC to the
DTC participants, each DTC participant holding outstanding notes through DTC
must (1) electronically transmit its acceptance through ATOP, and DTC will then
edit and verify the acceptance, execute a book-entry delivery to the exchange
agent's account at DTC and send an agent's message to the exchange agent for
its acceptance, or (2) comply with the guaranteed delivery procedures set forth
below and in a notice of guaranteed delivery. See "--Guaranteed Delivery
Procedures--Notes held through DTC."
The exchange agent will (promptly after the date of this prospectus)
establish accounts at DTC for purposes of the exchange offer with respect to
outstanding notes held through DTC. Any financial institution that is a DTC
participant may make book-entry delivery of interests in outstanding notes into
the exchange agent's account through ATOP. However, although delivery of
interests in the outstanding notes may be effected through book-entry transfer
into the exchange agent's account through ATOP, an agent's message in
connection with such book-entry transfer, and any other required documents,
must be, in any case, transmitted to and received by the exchange agent at its
address set forth under "--Exchange Agent," or the guaranteed delivery
procedures set forth below must be complied with, in each case, prior to the
expiration date. Delivery of documents to DTC does not constitute delivery to
the exchange agent. The confirmation of a book-entry transfer into the exchange
agent's account at DTC as described above is referred to herein as a
"Book-Entry Confirmation."
28
The term "agent's message" means a message transmitted by DTC to, and
received by, the exchange agent and forming a part of the book-entry
confirmation, which states that DTC has received an express acknowledgment from
each DTC participant tendering through ATOP that such DTC participants have
received a letter of transmittal and agree to be bound by the terms of the
letter of transmittal and that we may enforce such agreement against such DTC
participants.
Cede & Co., as the holder of the global note, will tender a portion of the
global note equal to the aggregate principal amount due at the stated maturity
for which instructions to tender are given by DTC participants.
By tendering, each holder and each DTC participant will represent to us
that, among other things, (1) it is not our affiliate, (2) it is not a
broker-dealer tendering outstanding notes acquired directly from us for its own
account, (3) it is acquiring the exchange notes in its ordinary course of
business and (4) it is not engaged in, and does not intend to engage in, and
has no arrangement or understanding with any person to participate in, a
distribution of the exchange notes.
We will not accept any alternative, conditional, irregular or contingent
tenders (unless waived by us). By executing a letter of transmittal or
transmitting an acceptance through ATOP, as the case may be, each tendering
holder waives any right to receive any notice of the acceptance for purchase of
its outstanding notes.
We will resolve all questions as to the validity, form, eligibility
(including time of receipt) and acceptance of tendered outstanding notes, and
such determination will be final and binding. We reserve the absolute right to
reject any or all tenders that are not in proper form or the acceptance of
which may, in the opinion of our counsel, be unlawful. We also reserve the
absolute right to waive any condition to the exchange offer and any
irregularities or conditions of tender as to particular outstanding notes. Our
interpretation of the terms and conditions of the exchange offer (including the
instructions in the letter of transmittal) will be final and binding. Unless
waived, any irregularities in connection with tenders must be cured within such
time as we shall determine. We, along with the exchange agent, shall be under
no duty to give notification of defects in such tenders and shall not incur
liabilities for failure to give such notification. Tenders of outstanding notes
will not be deemed to have been made until such irregularities have been cured
or waived. Any outstanding notes received by the exchange agent that are not
properly tendered and as to which the irregularities have not been cured or
waived will be returned by the exchange agent to the tendering holder, unless
otherwise provided in the letter of transmittal, as soon as practicable
following the expiration date.
LETTERS OF TRANSMITTAL AND OUTSTANDING NOTES MUST BE SENT ONLY TO THE
EXCHANGE AGENT. DO NOT SEND LETTERS OF TRANSMITTAL OR OUTSTANDING NOTES TO US
OR DTC.
The method of delivery of outstanding notes, letters of transmittal, any
required signature guaranties and all other required documents, including
delivery through DTC and any acceptance through ATOP, is at the election and
risk of the persons tendering and delivering acceptances or letters of
transmittal and, except as otherwise provided in the applicable letter of
transmittal, delivery will be deemed made only when actually received by the
exchange agent. If delivery is by mail, it is suggested that the holder use
properly insured, registered mail with return receipt requested, and that the
mailing be made sufficiently in advance of the expiration date to permit
delivery to the exchange agent prior to the expiration date.
Guaranteed Delivery Procedures
Notes held through DTC. DTC participants holding outstanding notes through
DTC who wish to cause their outstanding notes to be tendered, but who cannot
transmit their acceptances through ATOP prior to the expiration date, may cause
a tender to be effected if:
29
(1) guaranteed delivery is made by or through a firm or other entity
identified in Rule 17Ad-15 under the Exchange Act, including:
. a bank;
. a broker, dealer, municipal securities dealer, municipal securities
broker, government securities dealer or government securities broker;
. a credit union;
. a national securities exchange, registered securities association or
clearing agency; or
. a savings institution that is a participant in a Securities Transfer
Association recognized program;
(2) prior to the expiration date, the exchange agent receives from any of
the above institutions a properly completed and duly executed notice of
guaranteed delivery (by mail, hand delivery, facsimile transmission or
overnight courier) substantially in the form provided with this prospectus;
and
(3) book-entry confirmation and an agent's message in connection
therewith are received by the exchange agent within three NYSE trading days
after the date of the execution of the notice of guaranteed delivery.
Notes held by Holders. Holders who wish to tender their outstanding notes
but (1) whose outstanding notes are not immediately available and will not be
available for tendering prior to the expiration date, or (2) who cannot deliver
their outstanding notes, the letter of transmittal, or any other required
documents to the exchange agent prior to the expiration date, may effect a
tender if:
. the tender is made by or through any of the above-listed institutions;
. prior to the expiration date, the exchange agent receives from any
above-listed institution a properly completed and duly executed notice
of guaranteed delivery, whether by mail, hand delivery, facsimile
transmission or overnight courier, substantially in the form provided
with this prospectus; and
. a properly completed and executed letter of transmittal, as well as the
certificate(s) representing all tendered outstanding notes in proper
form for transfer, and all other documents required by the letter of
transmittal, are received by the exchange agent within three NYSE
trading days after the date of the execution of the notice of guaranteed
delivery.
Withdrawal Rights
You may withdraw tenders of outstanding notes, or any portion of your
outstanding notes, in integral multiples of $1,000 principal amount due at the
stated maturity, at any time prior to 5:00 p.m., New York City time, on the
expiration date. Any outstanding notes properly withdrawn will be deemed to be
not validly tendered for purposes of the exchange offer.
Notes held through DTC. DTC participants holding outstanding notes who have
transmitted their acceptances through ATOP may, prior to 5:00 p.m., New York
City time, on the expiration date, withdraw the instruction given thereby by
delivering to the exchange agent, at its address set forth under "--Exchange
Agent," a written, telegraphic or facsimile notice of withdrawal of such
instruction. Such notice of withdrawal must contain the name and number of the
DTC participant, the principal amount due at the stated maturity of outstanding
notes to which such withdrawal relates and the signature of the DTC
participant. Receipt of such written notice of withdrawal by the exchange agent
effectuates a withdrawal.
Notes held by Holders. Holders may withdraw their tender of outstanding
notes, prior to 5:00 p.m., New York City time, on the expiration date, by
delivering to the exchange agent, at its address set forth under "--Exchange
Agent," a written, telegraphic or facsimile notice of withdrawal. Any such
notice of withdrawal must (1) specify the name of the person who tendered the
outstanding notes to be withdrawn, (2) contain a description of the outstanding
notes to be withdrawn and identify the certificate number or numbers shown on
the
30
particular certificates evidencing such outstanding notes and the aggregate
principal amount due at the stated maturity represented by such outstanding
notes and (3) be signed by the holder of such outstanding notes in the same
manner as the original signature on the letter of transmittal by which such
outstanding notes were tendered (including any required signature guaranties),
or be accompanied by (x) documents of transfer in a form acceptable to us, in
our sole discretion, and (y) a properly completed irrevocable proxy that
authorized such person to effect such revocation on behalf such holder. If the
outstanding notes to be withdrawn have been delivered or otherwise identified
to the exchange agent, a signed notice of withdrawal is effective immediately
upon written, telegraphic or facsimile notice of withdrawal even if physical
release is not yet effected.
All signatures on a notice of withdrawal must be guaranteed by a recognized
participant in the Securities Transfer Agents Medalion Program, the New York
Stock Exchange Medallion Signature Program or the Stock Exchange Medallion
Program; provided, however, that signatures on the notice of withdrawal need
not be guaranteed if the outstanding notes being withdrawn are held for the
account of any of the institutions listed above under "--Guaranteed Delivery
Procedures."
A withdrawal of an instruction or a withdrawal of a tender must be executed
by a DTC participant or a holder of outstanding notes, as the case may be, in
the same manner as the person's name appears on its transmission through ATOP
or letter of transmittal, as the case may be, to which such withdrawal relates.
If a notice of withdrawal is signed by a trustee, partner, executor,
administrator, guardian, attorney-in-fact, agent, officer of a corporation or
other person acting in a fiduciary or representative capacity, such person must
so indicate when signing and must submit with the revocation appropriate
evidence of authority to execute the notice of withdrawal. A DTC participant or
a holder may withdraw an instruction or a tender, as the case may be, only if
such withdrawal complies with the provisions of this prospectus.
A withdrawal of a tender of outstanding notes by a DTC participant or a
holder, as the case may be, may be rescinded only by a new transmission of an
acceptance through ATOP or execution and delivery of a new letter of
transmittal, as the case may be, in accordance with the procedures described
herein.
Exchange Agent
The Bank of New York has been appointed as exchange agent for the exchange
offer. Questions, requests for assistance and requests for additional copies of
this prospectus or of the letter of transmittal should be directed to the
exchange agent addressed as follows:
By Registered or Certified Mail:
The Bank of New York,
c/o United States Trust Company of New York
P.O. Box 84
Bowling Green Station
New York, NY 10274-0084
By Hand Delivery to 4:30 p.m.:
The Bank of New York
c/o United States Trust Company of New York
30 Broad Street, B-Level
New York, NY 10004-2304
By Overnight Courier and by Hand Delivery After 4:30 p.m of Expiration Date:
The Bank of New York
c/o United States Trust Company of New York
30 Broad Street, 14/th/ Floor
New York, New York 10004-2304
Facsimile: (646) 458-8111
Telephone: (800) 548-6565
Attention: Customer Service
The exchange agent also acts as trustee under the Indenture.
31
Transfer Taxes
Holders of outstanding notes who tender their outstanding notes for exchange
notes will not be obligated to pay any transfer taxes in connection therewith,
except that holders who instruct us to register exchange notes in the name of,
or request that outstanding notes not tendered or not accepted in the exchange
offer be returned to, a person other than the registered tendering holder will
be responsible for the payment of any applicable transfer tax thereon.
32
DESCRIPTION OF NOTES
General
The outstanding notes were and the exchange notes will be issued pursuant to
an Indenture (the "Original Indenture"), dated as of November 21, 2001, as
amended by the First Supplemental Indenture, dated as of January 16, 2002 (the
"Supplemental Indenture" and together with the Original Indenture, the
"Indenture"), among the Company, as Issuer, The Vail Corporation, Vail
Holdings, Inc. and each of the other Guarantors, as guarantors, and The Bank of
New York, as trustee (the "Trustee"). The terms of the exchange notes are
identical in all material respects to the outstanding notes, except that the
exchange notes have been registered under the Securities Act and, therefore,
will not bear legends restricting their transfer and will not contain certain
provisions providing for liquidated damages under certain circumstances
described in the Registration Rights Agreement, the provisions of which will
terminate upon the consummation of the exchange offer. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (the "Trust Indenture Act"). The
Notes are subject to all such terms, and Holders of Notes are referred to the
Indenture and the Trust Indenture Act for a statement thereof. The following
summary of the material provisions of the Indenture does not purport to be
complete and is qualified in its entirety by reference to the Indenture,
including the definitions therein of certain terms used below. Copies of the
Indenture and Registration Rights Agreement can be requested by prospective
investors from the Company at the address and telephone number set forth under
"Where You Can Find More Information." The definitions of certain terms used in
the following summary are set forth below under "Certain Definitions." For
purposes of this "Description of Notes," the term "Company" refers only to Vail
Resorts, Inc. and not to any of its Subsidiaries and the term "Notes" refers to
both the outstanding notes and the exchange notes.
The Notes are general unsecured obligations of the Company and are
subordinated in right of payment to all existing and future Senior Debt of the
Company. As of October 31, 2001, after giving pro forma effect to the offering
of the outstanding notes (the "Offering") and the application of the net
proceeds therefrom, the Company and the Guarantors would have had consolidated
Senior Debt of approximately $87.2 million outstanding. The Indenture, subject
to certain limitations, permits the incurrence of additional Senior Debt in the
future. As of the date of the Indenture, all of the Company's consolidated
Subsidiaries will be Restricted Subsidiaries, other than Boulder/Beaver, LLC,
Colter Bay Corporation, Eagle Park Reservoir Company, Forest Ridge Holdings,
Inc., Gros Ventre Utility Company, Jackson Lake Lodge Corporation, Jenny Lake
Lodge, Inc., Mountain Thunder, Inc., Resort Technology Partners, LLC, RT
Partners, Inc., SSI Venture, LLC, Vail Associates Investments, Inc. and VR
Holdings, Inc. However, under certain circumstances, the Company is able to
designate current or future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indenture.
The obligations of the Company under the Notes are guaranteed, jointly and
severally on a senior subordinated basis, by the Guarantors. The Subsidiary
Guarantee of each Guarantor is subordinated in right of payment to all existing
and future Senior Debt of such Guarantor. See "--Subsidiary Guarantees."
Principal, Maturity and Interest
The Notes are limited in aggregate principal amount to $300,000,000 (of
which $160,000,000 were issued in the Offering) and will mature on May 15,
2009. Interest on the Notes will accrue at the rate of 8 3/4% per annum and
will be payable semi-annually in arrears on May 15 and November 15 of each
year, commencing on May 15, 2002, to Holders of record on the immediately
preceding May 1 and November 1, respectively. Interest on the Notes will accrue
from the most recent date to which interest has been paid or, if no interest
has been paid, from the date of original issuance. Interest will be computed on
the basis of a 360-day year comprised of twelve 30-day months. Principal of and
premium, if any, interest and Liquidated Damages, if any, on the Notes will be
payable at the office or agency of the Company maintained for such purpose or,
at the option of the Company, payment of interest and Liquidated Damages may be
made by check mailed to the Holders of the Notes at their respective addresses
set forth in the register of Holders of Notes; provided that all payments of
principal,
33
premium, if any, interest and Liquidated Damages, if any, with respect to Notes
the Holders of which have given wire transfer instructions to the Company will
be required to be made by wire transfer of immediately available funds to the
accounts specified by the Holders thereof. Until otherwise designated by the
Company, the Company's office or agency will be the office of the Trustee
maintained for such purpose. The Notes will be issued in denominations of
$1,000 and integral multiples thereof.
Subordination
The payment (by set-off, redemption, repurchase or otherwise) of principal
of and premium, if any, interest and Liquidated Damages, if any, on the Notes
(including with respect to any repurchases of the Notes) is subordinated in
right of payment, as set forth in the Indenture, to the prior payment in full
in cash or, at the option of the holders of Senior Debt of the Company, in Cash
Equivalents of all Obligations in respect of Senior Debt of the Company,
whether outstanding on the date of the Indenture or thereafter incurred.
Upon any distribution to creditors of the Company upon any liquidation,
dissolution or winding up of the Company or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the Company or its
property, whether voluntary or involuntary, an assignment for the benefit of
creditors or any marshalling of the Company's assets and liabilities, the
holders of Senior Debt of the Company are entitled to receive payment in full
in cash or, at the option of the holders of Senior Debt of the Company, in Cash
Equivalents of all Obligations due or to become due in respect of such Senior
Debt (including interest after the commencement of any such proceeding, at the
rate specified in the applicable Senior Debt) before the Holders of Notes are
entitled to receive any payment of principal of or premium, if any, interest or
Liquidated Damages, if any, on the Notes, and until all Obligations with
respect to Senior Debt of the Company are paid in full in cash or, at the
option of the holders of Senior Debt of the Company, in Cash Equivalents, any
distribution of any kind or character to which the Holders of Notes would be
entitled shall be made to the holders of Senior Debt of the Company (except
that Holders of Notes may receive Permitted Junior Securities and payments made
from the trust described under "--Legal Defeasance and Covenant Defeasance" or
"--Satisfaction and Discharge of Indenture").
The Company also shall not, directly or indirectly, (x) make any payment of
principal of or premium, if any, interest or Liquidated Damages, if any, on the
Notes (except in Permitted Junior Securities or from the trust described under
"--Legal Defeasance and Covenant Defeasance" or "--Satisfaction and Discharge
of Indenture," if no default of the kind referred to in clause (i) below had
occurred and was continuing, and no Payment Blockage Notice (as defined below)
was in effect, at the time amounts were deposited with the Trustee as described
therein) or (y) acquire any of the Notes for cash or property or otherwise or
make any other distribution with respect to the Notes if (i) any default occurs
and is continuing in the payment when due, whether at maturity, upon any
redemption, by declaration or otherwise, of any principal of, or premium, if
any, or interest on, any Designated Senior Debt of the Company or (ii) any
other default occurs and is continuing with respect to Designated Senior Debt
of the Company that permits holders of the Designated Senior Debt of the
Company as to which such default relates to accelerate its maturity and the
Trustee receives a notice of such default (a "Payment Blockage Notice") from
the holders of such Designated Senior Debt of the Company. Payments on the
Notes may and shall be resumed (a) in the case of a payment default, upon the
date on which such default is cured or waived or otherwise has ceased to exist
and (b) in the case of a nonpayment default, upon the earlier of the date on
which such nonpayment default is cured or waived or otherwise has ceased to
exist or 179 days after the date on which the applicable Payment Blockage
Notice is received, unless the maturity of any Designated Senior Debt of the
Company has been accelerated and such acceleration remains in full force and
effect. No new period of payment blockage may be commenced unless and until 360
days have elapsed since the effectiveness of the immediately prior Payment
Blockage Notice. No nonpayment default that existed or was continuing on the
date of delivery of any Payment Blockage Notice to the Trustee shall be, or be
made, the basis for a subsequent Payment Blockage Notice unless such nonpayment
default shall have been waived for a period of not less than 90 days. Each
Holder by such Holder's acceptance of a Note irrevocably agrees that if any
payment or payments shall be made pursuant to the Indenture and the amount or
total amount of such payment or payments exceeds the
34
amount, if any, that such Holder would be entitled to receive upon the proper
application of the subordination provisions of the Indenture, then such Holder
will be obliged to pay over the amount of such excess payment to the holders of
Senior Debt of the Person that made such payment or payments or their
representative or representatives, as instructed in a written notice of such
excess payment, within ten days of receiving such notice.
The Indenture further requires that the Company promptly notify holders of
Senior Debt of the Company and the Guarantors if payment of the Notes is
accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the Company who are holders of Senior Debt. On a pro forma basis,
after giving effect to the Offering and the application of the net proceeds
therefrom, the principal amount of consolidated Senior Debt of the Company and
Guarantors outstanding at October 31, 2001 would have been approximately $87.2
million. The Indenture limits, through certain financial tests, the amount of
additional Indebtedness, including Senior Debt, that the Company and its
Restricted Subsidiaries can incur. See "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock."
"Designated Senior Debt" of any Person means (i) any Indebtedness of such
Person outstanding under the Credit Agreement and (ii) any other Senior Debt of
such Person, the principal amount of which is $25 million or more and that has
been designated by the Company as "Designated Senior Debt" of such Person.
"Permitted Junior Securities" means Equity Interests (other than
Disqualified Stock) in the Company or debt securities that are subordinated to
all Senior Debt of the issuer of such debt securities (and any debt securities
issued in exchange for Senior Debt of the issuer of such debt securities) to
substantially the same extent as, or to a greater extent than, the Notes are
subordinated to Senior Debt.
"Senior Debt" of any Person means (i) the Obligations of such Person under
the Credit Agreement, including, without limitation, Hedging Obligations and
reimbursement obligations in respect of letters of credit and bankers
acceptances, and (ii) any other Indebtedness of such Person, unless the
instrument under which such Indebtedness is incurred expressly provides that it
is on a parity with or subordinated in right of payment to the Notes.
Notwithstanding anything to the contrary in the foregoing, Senior Debt of a
Person will not include (u) any Indebtedness represented by the Existing Notes
or by any Guarantee of the Existing Notes, (v) any obligation to, in respect of
or imposed by any environmental, landfill, waste management or other regulatory
governmental agency, statute, law or court order, (w) any liability for
federal, state, local or other taxes, (x) any Indebtedness of such Person to
any of its Subsidiaries or other Affiliates, (y) any trade payables or (z) any
Indebtedness that is incurred by such Person in violation of the Indenture
(except to the extent that the original holder thereof relied in good faith
after being provided with a copy of the Indenture upon an Officer's Certificate
of such Person to the effect that the incurrence of such Indebtedness did not
violate the Indenture).
Subsidiary Guarantees
The Company's payment obligations under the Notes are jointly and severally
guaranteed (the "Subsidiary Guarantees") by all of the Company's consolidated
Subsidiaries existing on the Closing Date, other than Boulder/Beaver, LLC,
Colter Bay Corporation, Eagle Park Reservoir Company, Forest Ridge Holdings,
Inc., Gros Ventre Utility Company, Jackson Lake Lodge Corporation, Jenny Lake
Lodge, Inc., Mountain Thunder, Inc., Resort Technology Partners, LLC, RT
Partners, Inc., SSI Venture, LLC, Vail Associates Investments, Inc. and VR
Holdings, Inc. See Note 14 to "Consolidated Financial Statements" included in
our Annual Report on Form 10-K incorporated by reference herein. In addition,
VA Rancho Mirage Resort, L.P. and Rockresorts International, LLC (and its
subsidiaries), each of which was acquired by the Company on November 15, 2001,
and VAMHC, Inc., which was acquired by the Company on December 17, 2001, became
Guarantors pursuant to the Supplemental Indenture on January 16, 2002. The
Subsidiary Guarantee of each Guarantor are subordinated in right of payment to
the same extent as the obligations of the Company in respect of the Notes, as
set forth in
35
the Indenture, to the prior payment in full in cash or, at the option of the
holders of Senior Debt of such Guarantor, in Cash Equivalents of all Senior
Debt of such Guarantor, which would include any Guarantee issued by such
Guarantor that constitutes Senior Debt of such Guarantor, including Guarantees
of Indebtedness under the Credit Agreement. The Indenture provides that if the
Company or any of its Restricted Subsidiaries shall acquire or create another
Restricted Subsidiary after the Closing Date, or any Unrestricted Subsidiary
shall cease to be an Unrestricted Subsidiary and shall become a Restricted
Subsidiary, then, unless such Subsidiary is not required to guarantee and has
not guaranteed the Company's Obligations under the Credit Agreement and has not
guaranteed any other Indebtedness of the Company or any Restricted Subsidiary,
such Subsidiary shall become a Guarantor in accordance with the terms of the
Indenture. A Subsidiary shall, without limitation, be deemed to have guaranteed
Indebtedness of another Person if such Subsidiary has Indebtedness of the kind
described in clause (ii) or clause (iii) of the definition of the term
"Indebtedness." The obligations of each Guarantor under its Subsidiary
Guarantee will be limited to the maximum amount that would not result in the
obligations of such Guarantor under its Subsidiary Guarantee constituting a
fraudulent conveyance under applicable law.
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person) another Person,
whether or not affiliated with such Guarantor, or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions to another Person,
unless (i) the Person formed by or surviving such consolidation or merger (if
other than such Guarantor) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made is a Person organized and
existing under the laws of the United States of America, any state thereof or
the District of Columbia and expressly assumes all the obligations of such
Guarantor, pursuant to a supplemental indenture in form and substance
reasonably satisfactory to the Trustee, under the Notes and the Indenture and
(ii) immediately after giving effect to such transaction, no Default or Event
of Default exists. The provisions of clause (i) of the preceding sentence shall
not apply if the Person formed by or surviving the relevant consolidation or
merger or to which the relevant sale, assignment, transfer, lease, conveyance
or other disposition shall have been made is the Company, a Guarantor or a
Person that is not, after giving effect to such transaction, a Restricted
Subsidiary of the Company.
The Indenture provides that in the event of (i) a merger or consolidation to
which a Guarantor is a party, then the Person formed by or surviving such
merger or consolidation (if, after giving effect to such transaction, other
than the Company or a Restricted Subsidiary of the Company) shall be released
and discharged from the obligations of such Guarantor under its Subsidiary
Guarantee, (ii) a sale or other disposition (whether by merger, consolidation
or otherwise) of all of the Equity Interests of a Guarantor at the time owned
by the Company and its Restricted Subsidiaries to any Person that, after giving
effect to such transaction, is neither the Company nor a Restricted Subsidiary
of the Company, or (iii) the release and discharge of a Guarantor from all
obligations under Guarantees of (x) Obligations under the Credit Agreement and
(y) any other Indebtedness of the Company or any of its Restricted
Subsidiaries, then in each such case such Guarantor shall be released and
discharged from its obligations under its Subsidiary Guarantee; provided that,
in the case of each of clauses (i) and (ii), (a) the relevant transaction is in
compliance with the Indenture, and (b) the Person being released and discharged
shall have been released and discharged from all obligations it might otherwise
have under Guarantees of Indebtedness of the Company or any of its Restricted
Subsidiaries and, in the case of each of clauses (i), (ii) and (iii),
immediately after giving effect to such transaction, no Default or Event of
Default shall exist.
Optional Redemption
Except as described below, the Notes are not redeemable at the Company's
option prior to May 15, 2004. Thereafter, the Notes will be subject to
redemption at any time at the option of the Company, in whole or in part, upon
not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued
and unpaid interest and Liquidated Damages, if any, thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on May 15
of the years indicated below:
36
Year Percentage
---- ----------
2004............... 104.375%
2005............... 102.916%
2006............... 101.458%
2007 and thereafter 100.000%
Notwithstanding the foregoing, at any time on or prior to May 15, 2002, the
Company may on any one or more occasions redeem up to 35% of the aggregate
principal amount of Notes theretofore issued under the Indenture at a
redemption price equal to 108.75% of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages, if any, thereon to the redemption
date, with the net cash proceeds of one or more Equity Offerings; provided that
(i) at least 65% of the aggregate principal amount of Notes theretofore issued
remain outstanding immediately following each such redemption and (ii) such
redemption shall occur within 60 days of the closing of any such Equity
Offering.
In addition, upon the occurrence of a Change of Control (as defined below)
at any time prior to May 15, 2004, the Notes will be subject to redemption at
any time at the option of the Company, in whole or in part, upon not less than
30 nor more than 60 days' notice given within 30 days following such Change of
Control, at the Make-Whole Price, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the applicable redemption date.
Selection and Notice
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed, or, if the Notes are not so listed, on a pro rata basis,
by lot or by such method as the Trustee shall deem fair and appropriate;
provided that no Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each Holder of Notes to be redeemed at its
registered address. If any note is to be redeemed in part only, the notice of
redemption that relates to such note shall state the portion of the principal
amount thereof to be redeemed. A new note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original note. Notes called for redemption become due
on the date fixed for redemption. On and after the redemption date, interest
shall cease to accrue on Notes or portions of Notes called for redemption.
Mandatory Redemption
Except as set forth below under "--Repurchase at the Option of Holders," the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, unless notice of redemption of
the notes in whole has been given pursuant to the provisions of the Indenture
described above under "Optional Redemption," the Company will be obligated to
make an offer (a "Change of Control Offer") to each Holder of Notes to
repurchase all or any part (equal to $1,000 or an integral multiple thereof) of
such Holder's Notes at an offer price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of purchase (the "Change of Control
Payment"). Within 30 days following a Change of Control, the Company will mail
a notice to each Holder with a copy to the Trustee describing the transaction
or transactions that constitute the Change of Control and offering to
repurchase Notes on the date specified in such notice, which date shall be no
earlier than 30 days and no later than 60 days from the date such notice is
mailed
37
(the "Change of Control Payment Date"), pursuant to the procedures required by
the Indenture and described in such notice. In addition, the Company will
comply with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Notes or portions thereof being purchased by
the Company. The Paying Agent will promptly mail or deliver to each Holder of
Notes so tendered the Change of Control Payment for such Notes, and the Trustee
will promptly authenticate and mail (or cause to be transferred by book entry)
to each Holder a new Note equal in principal amount to any unpurchased portion
of the Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The Company is not required to make a Change of Control Offer following a
Change of Control if a third party makes such a Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all notes validly tendered and not withdrawn pursuant to
such Change of Control Offer.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction. However, restrictions in the Indenture
described herein on the ability of the Company and its Restricted Subsidiaries
to incur additional Indebtedness, to grant Liens on their respective
properties, to make Restricted Payments and to make Asset Sales may also make
more difficult or discourage a takeover of the Company, whether favored or
opposed by the management of the Company. Consummation of any such transaction
in certain circumstances may require repurchase of the Notes, and there can be
no assurance that the Company or the acquiring party will have sufficient
financial resources to effect such repurchase. Such restrictions and the
restrictions on transactions with Affiliates may, in certain circumstances,
make more difficult or discourage any leveraged buyout of the Company or any of
its Subsidiaries by their management. While such restrictions cover a wide
variety of arrangements which have traditionally been used to effect highly
leveraged transactions, the Indenture may not afford the Holders of Notes
protection in all circumstances from the adverse aspects of a highly leveraged
transaction, reorganization, restructuring, merger or similar transaction.
The Credit Agreement prohibits the Company from repurchasing any Notes
without the prior written consent of lenders holding a majority of the
commitments under the Credit Agreement. Any other credit agreements or other
agreements governing indebtedness to which the Company becomes a party may
contain similar restrictions and provisions and may, like the Credit Agreement,
provide that certain change of control events with respect to the Company would
constitute events of default thereunder. In the event a Change of Control
occurs at a time when the Company is prohibited from repurchasing Notes, the
Company could seek the consent of its lenders to the repurchase of Notes or
could attempt to refinance or repay the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will remain prohibited from repurchasing Notes. In such
case, the Company's failure to repurchase tendered Notes would constitute an
Event of Default under the Indenture which would, in turn, constitute a default
under the Credit Agreement. In such circumstances, the subordination provisions
in the Indenture would likely restrict payments to the Holders of the Notes.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Restricted Subsidiaries taken as
38
a whole. Although there is case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of Notes to require the Company to
repurchase such Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Restricted Subsidiaries taken as a whole to another Person or group may be
uncertain.
Asset Sales
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, consummate an Asset
Sale unless (i) the Company (or such Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the
fair market value (evidenced by a Board Resolution) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of (x) cash or Cash Equivalents or (y) a controlling interest in
another business or fixed or other long-term assets, in each case, in a Similar
Business; provided that the amount of (a) any liabilities (as shown on the
Company's or such Restricted Subsidiary's most recent balance sheet) of the
Company or such Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any Guarantee
thereof) that are assumed by the transferee of any such assets or Equity
Interests such that the Company or such Restricted Subsidiary are released from
further liability and (b) any securities, Notes or other obligations received
by the Company or such Restricted Subsidiary from such transferee that are
converted by the Company or such Restricted Subsidiary into cash within 90 days
or are guaranteed (by means of a letter of credit or otherwise) by an
institution specified in the definition of "Cash Equivalents" (to the extent of
the cash received or the obligations so guaranteed) shall be deemed to be cash
or Cash Equivalents for purposes of this provision, subject to application as
provided in the following paragraph.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Company, at its option, may (i) apply such Net Proceeds to permanently
prepay, repay or reduce any Senior Debt of the Company (and to correspondingly
reduce commitments with respect thereto in the case of revolving borrowings) or
(ii) apply such Net Proceeds to the acquisition of a controlling interest in
another business, the making of a capital expenditure or the acquisition of
other long-term assets, in each case, in a Similar Business, or determine to
retain such Net Proceeds to the extent such Net Proceeds constitute such a
controlling interest or long-term asset in a Similar Business. Pending the
final application of any such Net Proceeds, the Company may invest such Net
Proceeds in any manner that is not prohibited by the Indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph will be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $10 million,
the Company will be required to make an offer to all Holders of Notes (and
holders of other Indebtedness of the Company, including the Existing Notes, to
the extent required by the terms of such other Indebtedness) (an "Asset Sale
Offer") to purchase the maximum principal amount of Notes (and such other
Indebtedness) that does not exceed the Excess Proceeds at an offer price in
cash in an amount equal to 100% of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages, if any, thereon to the date of
purchase, in accordance with the procedures set forth in the Indenture. To the
extent that the aggregate principal amount of Notes (and such other
Indebtedness) tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of Notes (and such other
Indebtedness) tendered exceeds the amount of Excess Proceeds, the Notes (and
such other Indebtedness) to be purchased will be selected on a pro rata basis.
Upon completion of an Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero. The Asset Sale Offer must be commenced within 60 days following
the date on which the aggregate amount of Excess Proceeds exceeds $10 million
and remain open for at least 30 and not more than 40 days (unless otherwise
required by applicable law). The Company will comply with the requirements of
Rule 14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of notes pursuant to an Asset Sale Offer.
39
The Credit Agreement prohibits the Company from repurchasing any Notes
without the prior written consent of lenders holding a majority of the
commitments under the Credit Agreement. Any other credit agreements or other
agreements governing indebtedness to which the Company becomes a party may
contain similar restrictions and provisions. In the event the Company is
required to make an Asset Sale Offer at a time when the Company is prohibited
from repurchasing Notes, the Company could seek the consent of its lenders to
the repurchase of Notes or could attempt to refinance or repay the borrowings
that contain such prohibition. If the Company does not obtain such a consent or
repay such borrowings, the Company will remain prohibited from repurchasing
Notes. In such case, the Company's failure to repurchase tendered Notes would
constitute an Event of Default under the Indenture which would, in turn,
constitute a default under the Credit Agreement. In such circumstances, the
subordination provisions in the Indenture would likely restrict payments to the
Holders of the Notes.
Any other credit agreements or other agreements governing indebtedness to
which the Company becomes a party may require that the Company and its
Subsidiaries apply all proceeds from certain asset sales to repay in full
outstanding obligations thereunder prior to the application of such proceeds to
repurchase outstanding Notes.
Certain Covenants
Restricted Payments
The Indenture provides that neither the Company nor any of its Restricted
Subsidiaries will, directly or indirectly, (i) declare or pay any dividend or
make any other payment or distribution on account of the Company's Equity
Interests (including, without limitation, any payment in connection with any
merger or consolidation involving the Company) or to any direct or indirect
holders of the Company's Equity Interests in their capacity as such (other than
dividends or distributions (a) payable in Equity Interests (other than
Disqualified Stock) of the Company, (b) payable in Capital Stock or assets of
an Unrestricted Subsidiary of the Company or (c) payable to the Company or any
Restricted Subsidiary of the Company); (ii) purchase, redeem or otherwise
acquire or retire for value (including, without limitation, in connection with
any merger or consolidation involving the Company) any Equity Interests of the
Company, or any Equity Interests of any of its Restricted Subsidiaries held by
any Affiliate of the Company (other than any such Equity Interests owned by the
Company or any Restricted Subsidiary of the Company, any Equity Interests then
being issued by the Company or a Restricted Subsidiary of the Company or any
Investment in a Person that, after giving effect to such Investment, is a
Restricted Subsidiary of the Company); (iii) make any payment on or with
respect to, or purchase, redeem, repay, defease or otherwise acquire or retire
for value, any Indebtedness of the Company or any Guarantor that is
subordinated in right of payment to the Notes or any Guarantee thereof, except
a regularly scheduled payment of interest or principal or sinking fund payment
(other than the purchase or other acquisition of such subordinated Indebtedness
made in anticipation of satisfying any sinking fund payment due within one year
from the date of acquisition); or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of and
after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the
Consolidated Interest Coverage Ratio test set forth in the first paragraph
of the covenant described below under the caption "Incurrence of
Indebtedness and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments declared or made by the Company and its Restricted
Subsidiaries after May 11, 1999 (without duplication and excluding
Restricted Payments permitted by clauses (ii) and (iii) of the following
paragraph), is less than the sum of (1) 50% of the Consolidated Net Income
of the Company for the period (taken as one
40
accounting period) from the beginning of the first fiscal quarter commencing
after May 11, 1999 to the end of the Company's most recently ended fiscal
quarter for which internal financial statements are available at the time of
such Restricted Payment (or, if such Consolidated Net Income for such period
is a deficit, less 100% of such deficit); plus (2) 100% of the aggregate net
cash proceeds and the fair market value of any assets or property (as
determined in good faith by the Board of Directors of the Company) received
by the Company from the issue or sale since May 11, 1999 of Equity Interests
of the Company (other than Disqualified Stock), or of Disqualified Stock or
debt securities of the Company that have been converted into such Equity
Interests (other than Equity Interests or Disqualified Stock or convertible
debt securities sold to a Subsidiary of the Company and other than
Disqualified Stock or convertible debt securities that have been converted
into Disqualified Stock); plus (3) with respect to Restricted Investments
made after May 11, 1999, the net reduction of such Restricted Investments as
a result of (x) any disposition of any such Restricted Investments sold or
otherwise liquidated or repaid, to the extent of the net cash proceeds and
the fair market value of any assets or property (as determined in good faith
by the Board of Directors of the Company) received, (y) dividends, repayment
of loans or advances or other transfers of assets to the Company or any
Restricted Subsidiary of the Company or (z) the portion (proportionate to
the Company's interest in the equity of a Person) of the fair market value
of the net assets of an Unrestricted Subsidiary or other Person immediately
prior to the time such Unrestricted Subsidiary or other Person is designated
or becomes a Restricted Subsidiary of the Company (but only to the extent
not included in subclause (1) of this clause (c)); provided that the sum of
items (x), (y) and (z) of this subclause (3) shall not exceed, in the
aggregate, the aggregate amount of such Restricted Investments made after
May 11, 1999.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture, (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
in exchange for, or out of the net cash proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Company) of, Equity
Interests of the Company (other than any Disqualified Stock, except to the
extent that such Disqualified Stock is issued in exchange for other
Disqualified Stock or the net cash proceeds of such Disqualified Stock is used
to redeem, repurchase, retire or otherwise acquire other Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for
any such redemption, repurchase, retirement, defeasance or other acquisition
shall be excluded from clause (c)(2) of the preceding paragraph; (iii) the
defeasance, redemption, repurchase or other acquisition of subordinated
Indebtedness in exchange for, or out of the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness; (iv) the repurchase,
redemption or other acquisition or retirement for value of any Equity Interests
of the Company or any Restricted Subsidiary of the Company held by any
employees, officers or directors of the Company or any of its Restricted
Subsidiaries or, upon the death, disability or termination of employment of
such officers, directors and employees, their authorized representatives in an
aggregate amount not to exceed in any twelve month period, $2.0 million plus
the aggregate net cash proceeds from any issuance during such period of Equity
Interests by the Company to such employees, officers, directors, or
representatives plus the aggregate net cash proceeds from any payments on life
insurance policies in which the Company or its Restricted Subsidiaries is the
beneficiary with respect to such employees, officers or directors the proceeds
of which are used to repurchase, redeem or acquire Equity Interests of the
Company held by such employees, officers, directors or representative; (v) the
repurchase of Equity Interests of the Company deemed to occur upon the exercise
of stock options or similar arrangement if such Equity Interests represents a
portion of the exercise price thereof; or (vi) additional Restricted Payments
in an amount not to exceed $15 million (less the amount, if any, of any
Restricted Payments made after May 11, 1999 and on or prior to the Closing Date
that would not have been permitted under any of the foregoing clauses);
provided, however, that at the time of, and after giving effect to, any
Restricted Payment permitted under clause (iv) or (vi) no Default or Event of
Default shall have occurred and be continuing.
In the case of any Restricted Payments made other than in cash, the amount
thereof shall be the fair market value on the date of such Restricted Payment
of the asset(s) or securities proposed to be transferred or issued by the
Company or such Restricted Subsidiary, as the case may be, pursuant to the
Restricted Payment. The fair
41
market value of any such asset(s) or securities shall be determined in good
faith by the Board of Directors of the Company. Where the amount of any
Investment made other than in cash is otherwise required to be determined for
purposes of the Indenture, then unless otherwise specified such amount shall be
the fair market value thereof on the date of such Investment, and fair market
value shall be determined in good faith by the Board of Directors of the
Company.
Designation of Unrestricted Subsidiaries
The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would not cause
a Default. For purposes of making such determination, all outstanding
Investments (including without limitation any direct or indirect obligation to
subscribe for additional Equity Interests or maintain or preserve such
subsidiary's financial condition or to cause such person to achieve any
specified level of operating results) by the Company and its Restricted
Subsidiaries (except to the extent repaid) in the Subsidiary so designated will
be deemed to be Investments at the time of such designation and, except to the
extent, if any, that such Investments are Permitted Investments at such time,
will reduce the amount otherwise available for Restricted Payments. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the fair market value of such Investments at the time of such
designation. Such designation will only be permitted if such Investment would
be permitted at such time and if such Restricted Subsidiary otherwise meets (or
would meet concurrently with the effectiveness of such designation) the
definition of an Unrestricted Subsidiary.
Any such designation by the Board of Directors of the Company shall be
evidenced to the Trustee by filing with the Trustee a Board Resolution giving
effect to such designation. The Board of Directors of the Company may at any
time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under the covenant described
under the caption "Incurrence of Indebtedness and Issuance of Preferred Stock,"
and (ii) no Default or Event of Default would be in existence following such
designation.
To the extent that Unrestricted Subsidiaries were designated as such under
the Existing Note Indenture after the issuance of the Existing notes on May 11,
1999 and on or prior to the date of the Indenture, and such designation
resulted in or constituted Restricted Payments and/or Permitted Investments
under the Existing note Indenture, such designations shall be deemed to have
resulted in or constituted Restricted Payments and/or Permitted Investments
under the Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that neither the Company nor any of its Restricted
Subsidiaries will, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company's Restricted Subsidiaries will not issue
any shares of Preferred Stock (other than to the Company or a Restricted
Subsidiary of the Company); provided, however, that the Company and the
Restricted Subsidiaries may incur Indebtedness (including Acquired Debt) if the
Consolidated Interest Coverage Ratio for the Company's most recently ended four
full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is
incurred would have been equal to or greater than 2 to 1, determined on a pro
forma basis, as if the additional Indebtedness had been incurred at the
beginning of such four-quarter period and no Event of Default shall have
occurred and be continuing after giving effect on a pro forma basis to such
incurrence.
The provisions of the first paragraph of this covenant will not apply to the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
42
(i) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness under the Credit Agreement in an aggregate amount outstanding
(with letters of credit being deemed for all purposes of the Indenture to
have a principal amount equal to the maximum potential liability of the
Company and its Restricted Subsidiaries in respect thereof) at any time not
to exceed the greater of (x) $450 million and (y) 3.5 times Consolidated
Resort EBITDA for the Company's most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date on which such Indebtedness is being incurred less, in
each case, the aggregate amount of such Indebtedness permanently repaid with
the Net Proceeds of any Asset Sale;
(ii) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness represented by (x) the Notes (including the exchange notes),
the Guarantees thereof and the Indenture in the principal amount of Notes
originally issued on the Closing Date and (y) the Existing notes, the
Guarantees thereof and the Existing note Indenture;
(iii) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
(iv) the incurrence by the Company and its Restricted Subsidiaries of
additional Indebtedness (other than Hedging Obligations) after May 11, 1999
in an aggregate principal amount not to exceed $50 million at any time
outstanding;
(v) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness after May 11, 1999 in connection with the acquisition of assets
or a new Restricted Subsidiary (including Indebtedness that was incurred by
the prior owner of such assets or by such Restricted Subsidiary prior to
such acquisition by the Company and its Restricted Subsidiaries); provided
that the aggregate principal amount of Indebtedness incurred after May 11,
1999 pursuant to this clause (v) does not exceed $20 million at any time
outstanding;
(vi) the incurrence by the Company and its Restricted Subsidiaries of
Permitted Refinancing Indebtedness;
(vii) the incurrence by the Company or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Company and its Restricted
Subsidiaries; provided, however, that any subsequent issuance or transfer of
Equity Interests that results in any such Indebtedness being held by a
Person other than the Company or a Restricted Subsidiary of the Company, and
any sale or other transfer of any such Indebtedness to a Person that is not
the Company or a Restricted Subsidiary of the Company, shall be deemed, in
each case, to constitute an incurrence of such Indebtedness by the Company
or such Restricted Subsidiary, as the case may be;
(viii) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations incurred for the purpose of hedging
against fluctuations in currency values or for the purpose of fixing or
hedging interest rate risk with respect to any floating rate Indebtedness of
the Company or any of its Restricted Subsidiaries permitted by the
Indenture; provided that the notional principal amount of any Hedging
Obligations does not significantly exceed the principal amount of
Indebtedness to which such agreement relates;
(ix) the Guarantee by the Company or any of its Restricted Subsidiaries
of Indebtedness of the Company or a Restricted Subsidiary of the Company
permitted by the Indenture;
(x) the incurrence of Indebtedness arising from agreements providing for
indemnification, adjustment of purchase price, earn out or other similar
obligations, in each case incurred in connection with the acquisition or
disposition of any business or assets or subsidiaries of the Company
permitted by the Indenture;
(xi) the Indebtedness incurred from time to time under a revolving Credit
Facility of SSI Venture in an aggregate amount outstanding at any time not
to exceed $10 million, so long as SSI Venture remains a Restricted
Subsidiary of the Company (as of the Closing Date, SSI Venture is an
Unrestricted Subsidiary); and
43
(xii) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness not covered by any other clause of this paragraph which is
outstanding on the Closing Date and was incurred subsequent to May 11, 1999
in compliance with the Existing Note Indenture.
For purposes of determining the amount of any Indebtedness of any Person
under this covenant, (a) the principal amount of any Indebtedness of such
Person arising by reason of such Person having granted or assumed a Lien on its
property to secure Indebtedness of another Person shall be the lower of the
fair market value of such property and the principal amount of such
Indebtedness outstanding (or committed to be advanced) at the time of
determination; (b) the amount of any Indebtedness of such Person arising by
reason of such Person having Guaranteed Indebtedness of another Person where
the amount of such Guarantee is limited to an amount less than the principal
amount of the Indebtedness so Guaranteed shall be such amount as so limited;
and (c) Indebtedness shall not include a non-recourse pledge by the Company or
any of its Restricted Subsidiaries of Investments in any Person that is not a
Restricted Subsidiary of the Company to secure the Indebtedness of such Person.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories
of Permitted Debt described in clauses (i) through (xii) above or is entitled
to be incurred pursuant to the first paragraph of this covenant, the Company,
in its sole discretion, either (a) shall classify (and may later reclassify)
such item of Indebtedness in one of such categories in any manner that complies
with this covenant or (b) shall divide and classify (and may later redivide and
reclassify) such item of Indebtedness into more than one of such categories
pursuant to such first paragraph.
Liens
The Indenture provides that neither the Company nor any of its Restricted
Subsidiaries will, directly or indirectly, create, incur, assume or suffer to
exist any Lien securing Indebtedness on any asset now owned or here after
acquired, or any income or profits therefrom or assign or convey any right to
receive income therefrom, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that neither the Company nor any of its Restricted
Subsidiaries will, directly or indirectly, create or otherwise cause or suffer
to exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary to (i) (a) pay dividends or make any other
distributions to the Company or any of its Restricted Subsidiaries (1) on its
Capital Stock or (2) with respect to any other interest or participation in, or
measured by, its profits, or (b) pay any indebtedness or other obligations owed
to the Company or any of its Restricted Subsidiaries, (ii) make loans or
advances to the Company or any of its Restricted Subsidiaries, (iii) transfer
any of its properties or assets to the Company or any of its Restricted
Subsidiaries or (iv) guarantee the Notes or any renewals or refinancings
thereof, in each case except for such encumbrances or restrictions (other than
encumbrances and restrictions in respect of clause (iv) of this sentence)
existing under or by reason of (a) Existing Indebtedness as in effect on May
11, 1999, (b) the Credit Agreement (as defined in the Existing Note Indenture)
as in effect on May 11, 1999, and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereof; provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacement or refinancings are no more
restrictive with respect to such dividend and other payment restrictions than
those contained in the Credit Agreement (as defined in the Existing Note
Indenture) as in effect on May 11, 1999, (c) (x) the Existing notes, any
Guarantee thereof and the Existing note Indenture and (y) the Notes, any
Guarantee thereof and the Indenture, (d) applicable law, (e) any instrument
governing Indebtedness or Equity Interests of a Person acquired by the Company
or any of its Restricted Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness or Equity Interests were
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the Equity
Interests, properties or assets of any Person, other than the Person, or the
Equity Interests, property or assets of the Person, so acquired; provided that,
in the case of Indebtedness, such Indebtedness was permitted by the Indenture,
(f) by
44
reason of customary nonassignment provisions in leases entered into in the
ordinary course of business and consistent with past practices, (g) purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired or proceeds therefrom, (h) customary restrictions in asset
or stock sale agreements limiting transfer of such assets or stock pending the
closing of such sale, (i) customary non-assignment provisions in contracts
entered into in the ordinary course of business, or (j) Permitted Refinancing
Indebtedness; provided that the restrictions contained in the agreements
governing such Permitted Refinancing Indebtedness are no more restrictive than
those contained in the agreements governing the Indebtedness being refinanced.
Merger, Consolidation or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with or
into (whether or not the Company is the surviving Person), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions to, another Person
unless (i) the Company is the surviving Person or the Person formed by or
surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a Person organized or existing under the laws of the
United States, any state thereof or the District of Columbia; (ii) the Person
formed by or surviving any such consolidation or merger (if other than the
Company) or the Person to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made assumes all the
obligations of the Company under the Notes and the Indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee; (iii)
immediately after giving effect to such transaction no Default or Event of
Default exists; and (iv) except in the case of a merger of the Company with or
into a Restricted Subsidiary of the Company, the Company or the Person formed
by or surviving any such consolidation or merger (if other than the Company),
or to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made, (a) will have Consolidated Net Worth
immediately after the transaction equal to or greater than the Consolidated Net
Worth of the Company, immediately preceding the transaction and (b) will, at
the time of such transaction and after giving pro forma effect thereto as if
such transaction had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Consolidated Interest Coverage Ratio test set forth in the
first paragraph of the covenant described above under the caption "Incurrence
of Indebtedness and Issuance of Preferred Stock."
Nothing contained in the foregoing paragraph shall prohibit (i) any
Restricted Subsidiary from consolidating with, merging with or into, or
transferring all or part of its properties and assets to the Company or (ii)
the Company from merging with an Affiliate for the purpose of reincorporating
the Company in another jurisdiction to realize tax or other benefits; provided,
however, that in connection with any such merger, consolidation or asset
transfer no consideration, other than common stock (that is not Disqualified
Stock) in the surviving Person or the Company shall be issued or distributed.
Transactions with Affiliates
The Indenture provides that neither the Company nor any of its Restricted
Subsidiaries will make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless
(i) such Affiliate Transaction is on terms that are no less favorable to
Company or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the
Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate payments or consideration in excess
of $5.0 million, a Board Resolution authorizing and determining the fairness of
such Affiliate Transaction approved by a majority of the independent members of
the Board of Directors of the Company and (b) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving
45
aggregate payments or consideration in excess of $15.0 million, an opinion as
to the fairness to the Company or such Restricted Subsidiary of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal
or investment banking firm of national standing.
The foregoing provisions will not prohibit (i) reasonable fees and
compensation paid to and indemnity provided on behalf of officers, directors,
employees, agents or consultants of the Company or any Restricted Subsidiary of
the Company as determined in good faith by the Company's Board of Directors or
senior management including, without limitation, any issuance of Equity
Interests of the Company pursuant to stock option, stock ownership or similar
plans; (ii) transactions between or among the Company and/or its Restricted
Subsidiaries; (iii) any agreement or arrangement as in effect on May 11, 1999
and publicly disclosed or any amendment thereto or any transaction contemplated
thereby (including pursuant to any amendment thereto) in any replacement
agreement or arrangement thereto so long as any such amendment or replacement
agreement or arrangement is not more disadvantageous to the Company or its
Restricted Subsidiaries, as the case may be, in any material respect than the
original agreement as in effect on May 11, 1999; (iv) loans or advances to
employees and officers of the Company and its Restricted Subsidiaries not in
excess of $5 million at any time outstanding; and (v) any Permitted Investment
or any Restricted Payment that is permitted by the provisions of the Indenture
described above under the caption "Restricted Payments."
Limitation on Layering Debt
The Indenture provides that (a) the Company will not, directly or
indirectly, incur, create, issue, assume, guarantee or otherwise become liable
for any Indebtedness that is by its terms subordinate or junior in right of
payment to any Senior Debt of the Company and senior in any respect in right of
payment to the Notes and (b) no Guarantor will, directly or indirectly, incur,
create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is by its terms subordinate or junior in right of payment to
any Senior Debt of such Guarantor and senior in any respect in right of payment
to the Subsidiary Guarantee of such Guarantor.
Additional Subsidiary Guarantees
The Indenture provides that if any Restricted Subsidiary of the Company
after the date of the Indenture shall become or be required to become a
guarantor under the Credit Agreement or shall become a guarantor of any other
Indebtedness of the Company or any Restricted Subsidiary, then such Restricted
Subsidiary shall become a Guarantor, in accordance with the terms of the
Indenture; provided that if such Restricted Subsidiary is released and
discharged from all obligations under such guarantees, it shall be released and
discharged from its obligations under its Subsidiary Guarantee as described
under "--Subsidiary Guarantees" above.
Payments for Consent
The Indenture provides that neither the Company nor any of its Restricted
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
any Notes for or as an inducement to any consent, waiver or amendment of any of
the terms or provisions of the Indenture or the Notes unless such consideration
is offered to be paid or is paid to all Holders of the Notes that consent,
waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the
Company will furnish to the Holders of Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file such
forms and, with respect to the annual information only, a report thereon by the
Company's certified independent accountants and (ii) all current reports that
would be required to
46
be filed with the Commission on Form 8-K if the Company were required to file
such reports. In addition, whether or not required by the rules and regulations
of the Commission, the Company will file a copy of all such information and
reports with the Commission for public availability (unless the Commission will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request. In addition, the Company and
its Restricted Subsidiaries will agree that, for so long as any Notes remain
outstanding, they will furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Act.
Events of Default and Remedies
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Notes (whether or not
prohibited by the subordination provisions of the Indenture); (ii) default in
payment when due (whether payable at maturity, upon redemption or repurchase or
otherwise) of the principal of or premium, if any, on the Notes (whether or not
prohibited by the subordination provisions of the Indenture); (iii) failure by
the Company or any of its Restricted Subsidiaries to comply with the provisions
described under the caption "Merger, Consolidation or Sale of Assets"; (iv)
failure by the Company to comply with the provisions described under the
captions "Change of Control" or "Asset Sale" (whether or not prohibited by the
subordination provisions of the Indenture) (other than a failure to purchase
notes pursuant to an offer commenced under such provisions, which shall be
subject to clause (ii) above) for 30 days after written notice by the Trustee
or the Holders of at least 25% in principal amount of the then outstanding
Notes; (v) failure by the Company or any of its Restricted Subsidiaries for 60
days after written notice by the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes to comply with any of its other
agreements in the Indenture or the Notes other than those referred to in
clauses (i), (ii), (iii) or (iv) above; (vi) default under any mortgage,
indenture or instrument under which there may be issued or by which there may
be secured or evidenced any Indebtedness for money borrowed by the Company or
any of its Significant Subsidiaries (or the payment of which is guaranteed by
the Company or any of its Significant Subsidiaries), whether such Indebtedness
or guarantee now exists, or is created after the Closing Date, which default
(a) is caused by a failure to pay principal after final maturity of such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (b) results
in the acceleration of such Indebtedness prior to its express maturity and, in
each case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$10 million or more without such Indebtedness being discharged or such
acceleration having been cured, waived or rescinded within 30 days of
acceleration; (vii) failure by the Company or any of its Significant
Subsidiaries to pay final judgments aggregating in excess of $10 million and
either (a) any creditor commences enforcement proceedings upon any such
judgment or (b) such judgments are not paid, discharged or stayed for a period
of 60 days; (viii) except as permitted by the Indenture, any Guarantee of the
Notes by a Significant Subsidiary shall be held in any judicial proceeding to
be unenforceable or invalid or shall cease for any reason to be in full force
and effect, or any Guarantor which is a Significant Subsidiary or any Person
acting on behalf of any such Guarantor, shall deny or disaffirm its obligations
under its Guarantee of the Notes; and (ix) certain events of bankruptcy or
insolvency with respect to the Company or any of its Significant Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes and all other Obligations thereunder to be due and payable
immediately. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency, with respect to the
Company, all outstanding Notes will become due and payable without further
action or notice. Holders of the Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal, premium, if any, interest or Liquidated Damages, if any) if it
determines that withholding notice is in their interest.
47
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company or any
Guarantor with the intention of avoiding payment of the premium that the
Company would have had to pay if the Company then had elected to redeem the
Notes pursuant to the optional redemption provisions of the Indenture, an
equivalent premium shall also become and be immediately due and payable to the
extent permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
principal, premium, if any, interest or Liquidated Damages, if any, on the
Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required, upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees, Incorporators and
Stockholders
No director, officer, employee, incorporator or stockholder of the Company
or any Guarantor, as such, shall have any liability for any obligations of the
Company or such Guarantor under the Notes, the Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
Holder of Notes by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Notes.
Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such a waiver is
against public policy.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of and premium, if any, interest
and Liquidated Damages, if any, on the Notes when such payments are due from
the trust referred to below, (ii) the Company's obligations with respect to the
Notes concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights,
powers, trusts, duties and immunities of the Trustee, and the Company's
obligations in connection therewith and (iv) the Legal Defeasance provisions of
the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of and premium, if any, interest and Liquidated Damages,
if any, on the outstanding Notes on the Stated Maturity or on the applicable
redemption date, as the case may be, and the Company must specify whether the
Notes are being defeased to maturity or to a particular redemption date; (ii)
in the case of Legal Defeasance, the Company shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to the
Trustee confirming that (a) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since the Closing
Date, there has been a change in the applicable federal income tax law, in
either
48
case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes, as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit (other than a Default or Event of Default resulting
from the borrowing of funds to be applied to such deposit); (v) such Legal
Defeasance or Covenant Defeasance will not result in a breach or violation of,
or constitute a default under, any material agreement or instrument (other than
the Indenture) to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound; (vi) the Company shall
have delivered to the Trustee an opinion of counsel to the effect that after
the 91st day following the deposit, the trust fund will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; (vii) the Company must deliver to the
Trustee an Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders of Notes over the other
creditors of the Company with the intent of defeating, hindering, delaying or
defrauding creditors of the Company or others; and (viii) the Company must
deliver to the Trustee an Officers' Certificate and an opinion of counsel, each
stating that all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
Satisfaction and Discharge of the Indenture
The obligations of the Company and the other Guarantors under the Indenture
will terminate when (i) either (a) all outstanding Notes have been delivered to
the Trustee for cancellation, or (b) all such Notes not theretofore delivered
to the Trustee for cancellation have become due and payable, will become due
and payable within one year or are to be called for redemption within one year
under irrevocable arrangements satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the name and at the expense of the
Company and the Company has irrevocably deposited or caused to be deposited
with the Trustee, in trust, funds in an amount sufficient to pay and discharge
the entire indebtedness on the Notes not theretofore delivered to the Trustee
for cancellation, for principal of (and premium, if any, on) and interest and
Liquidated Damages, if any, to the date of maturity or date of redemption, (ii)
the Company has paid or caused to be paid all sums payable by the Company under
the Indenture, and (iii) the Company has delivered an Officers' Certificate and
an Opinion of Counsel relating to compliance with the conditions set forth in
the Indenture.
Transfer and Exchange
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note
selected for redemption. Also, the Company is not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture, or the
49
Notes thereof may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Notes (including consents obtained in
connection with a tender offer or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver; (ii) reduce the principal of or change the fixed maturity
of any note or alter the provisions with respect to the price to be paid, or
the timing of redemption or payment, upon redemption of the Notes or, after the
Company has become obligated to make a Change of Control Offer or an Asset Sale
Offer, amend, change or modify the obligation of the Company to make or
consummate such Change of Control Offer or Asset Sale Offer; (iii) reduce the
rate of or change the time for payment of interest or Liquidated Damages, if
any, on any Note; (iv) waive a Default or Event of Default in the payment of
principal of or premium, interest or Liquidated Damages, if any, on the Notes
(except a rescission of acceleration of the notes by the Holders of at least a
majority in aggregate principal amount of the Notes and a waiver of the payment
default that resulted from such acceleration); (v) make any Note payable in
money other than that stated in the Notes; (vi) except pursuant to the terms of
the Indenture, release any Guarantor from its Guarantee of the Notes; (vii)
make any change in the subordination provisions in the Indenture that adversely
affects the rights of any Holder of any Notes in any material respect or any
change to any other provision thereof that adversely affects the rights of any
Holder of Notes under the subordination provisions of the Indenture in any
material respect (it being understood that amendments to the provisions of the
Indenture described above under the caption "Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock" which may have the effect of
increasing the amount of Senior Debt that the Company and its Restricted
Subsidiaries may incur shall not, for purposes of this clause (vii), be deemed
to be a change that adversely affects in a material respect the rights of any
Holder of Notes under the subordination provisions of the Indenture); or (viii)
make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company, the Guarantors and the Trustee may amend or supplement the
Indenture, the Notes to cure any ambiguity, defect or inconsistency, to provide
for uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's or any Guarantor's obligations to
Holders of Notes in the case of a merger, consolidation or sale of assets, to
provide security for the Notes, to add a Guarantor, to make any change that
would provide any additional rights or benefits to the Holders of Notes or that
does not adversely affect the legal rights under the Indenture of any such
Holder in any material respect, or to comply with requirements of the
Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act.
The consent of the Holders of the Notes is not necessary under the Indenture
to approve the particular form of any proposed amendment. It is sufficient if
such consent approves the substance of the proposed amendment.
Concerning the Trustee
The Trustee has been appointed by the Company as Registrar and Paying Agent
with respect to the Notes.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days and apply to the Commission for
permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of
50
its rights or powers under the Indenture at the request of any Holder of Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to the Trustee against any loss, liability or expense.
Book-Entry, Delivery and Form
Book-Entry
The outstanding notes were sold to "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act) in reliance on Rule 144A under
the Securities Act. The outstanding notes are represented by a note in
registered, global form without interest coupons (the "Rule 144A Global Note").
The Rule 144A Global Note was deposited upon issuance with the Trustee as
custodian for the Depositary Trust Company ("DTC") and registered in the name
of Cede & Co., as nominee of DTC, for credit to the accounts of DTC
participants or indirect participants (each as defined below). The new notes
will be represented by one or more notes in registered, global form without
interest coupons (the "Exchange Global Notes" and, together with the Rule 144A
Global Note, the "Global Notes"). The Exchange Global Notes will be deposited
on the date of the acceptance for exchange of the outstanding notes and the
issuance of the exchange notes with the Trustee as custodian for DTC and
registered in the name of Cede & Co. as nominee of DTC, in each case for credit
to the accounts of DTC "participants" and "indirect participants" (each as
defined below).
Except as set forth below, the Global Notes may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for
Notes in certificated form except in the limited circumstances described below.
See "--Certificated Certificates."
The Exchange Global Notes
The descriptions of the operations and procedures of DTC, Euroclear and
Clearstream set forth below are provided solely as a matter of convenience.
These operations and procedures are solely within the control of the respective
settlement systems and are subject to change by them from time to time. Neither
the Company nor the initial purchasers take any responsibility for these
operations or procedures, and we urge you to contact the relevant system or one
of its participants directly to discuss these matters.
The Company expects that pursuant to procedures established by DTC (i) upon
the issuance of the Exchange Global Notes, DTC or its custodian will credit, on
its internal system, the principal amount at maturity of the individual
beneficial interests represented by such Exchange Global Notes to the
respective accounts of persons who have accounts with such depositary and (ii)
ownership of beneficial interests in the Exchange Global Notes will be shown
on, and the transfer of such ownership will be effected only through, records
maintained by DTC or its nominee (with respect to interests of participants)
and the records of participants (with respect to interests of persons other
than participants). Ownership of beneficial interests in the Exchange Global
Notes will be limited to persons who have accounts with DTC ("participants") or
persons who hold interests through participants ("indirect participants").
Holders may hold their interests in the Exchange Global Notes directly through
DTC if they are participants in such system, or indirectly through
organizations that are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Exchange Notes, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Exchange Notes represented by such Exchange Global
Notes for all purposes under the indenture. No beneficial owner of an interest
in the Global Notes will be able to transfer that interest except in accordance
with DTC's procedures, in addition to those provided for under the indenture
with respect to the Notes.
Payments of the principal of, premium (if any), interest (including
Liquidated Damages) on, the Exchange Global Notes will be made to DTC or its
nominee, as the case may be, as the registered owner thereof. Neither
51
the Company, the Trustee or any Paying Agent will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Exchange Global Notes or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, interest (including Liquidated Damages) on the
Exchange Global Notes, will credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of the Exchange Global Notes as shown on the records of DTC or its
nominee. The Company also expects that payments by participants to owners of
beneficial interests in the Exchange Global Notes held through such
participants will be governed by standing instructions and customary practice,
as is now the case with securities held for the accounts of customers
registered in the names of nominees for such customers. Such payments will be
the responsibility of such participants.
Redemption notices will be sent to DTC. If less than all of the Exchange
Notes are to be redeemed, DTC's practice is to determine by lot the amount of
the interest of each Participant in issues like the Exchange Notes to be
redeemed. Consequently, the Exchange Notes may not be redeemed pro rata from
each holder of securities entitlements in the Exchange Notes.
The Company expects that transfers between participants in DTC will be
effected in the ordinary way through DTC's same-day funds system in accordance
with DTC rules and will be settled in same-day funds. Transfers between
participants in Euroclear or Clearstream will be effected in the ordinary way
in accordance with their respective rules and operating procedures.
Because of time zone differences, the securities amount of a Euroclear or
Clearstream participant purchasing a security entitlement in a Exchange Global
Note from a Participant in DTC will be credited, and any such crediting will be
reported to the relevant Euroclear or Clearstream participant, during the
securities settlement processing day (which must be a business day for
Euroclear and Clearstream) immediately following the settlement date of DTC.
Cash received in Euroclear or Clearstream as a result of sales of security
entitlements in a Global Security by or through a Euroclear or Clearstream
participant to a Participant in DTC will be received with value on the
settlement date of DTC but will be available in the relevant Euroclear or
Clearstream cash account only as of the business day for Euroclear or
Clearstream following DTC's settlement date.
If a holder requires physical delivery of a Certificated Security for any
reason, including to sell Notes to persons in states which require physical
delivery of the Notes, or to pledge such securities, such holder must transfer
its interest in a Exchange Global Note, in accordance with the normal
procedures of DTC and with the procedures set forth in the indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Exchange Notes (including the presentation of Exchange
Notes for exchange as described below) only at the direction of one or more
participants to whose account the DTC interests in the Exchange Global Notes
are credited and only in respect of such portion of the aggregate principal
amount of Exchange Notes as to which such participant or participants has or
have given such direction. However, if there is an Event of Default under the
Indenture, DTC will exchange the Global Notes for Certificated Securities,
which it will distribute to its participants and which will be legended as set
forth under "Transfer Restrictions."
Subject to compliance with the transfer restrictions applicable to the
Exchange Notes, cross-market transfers between the Participants in DTC, on the
one hand, and Euroclear or Clearstream participants, on the other hand, will be
effected through DTC in accordance with DTC's rules on behalf of Euroclear or
Clearstream, as the case may be, by its respective depositary; however, such
cross-market transactions will require delivery of instructions to Euroclear or
Clearstream, as the case may be, by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or Clearstream, as the case may be,
will, if the transaction meets its settlement requirements, deliver
instructions to its respective
52
depositary to take action to effect final settlement on its behalf by
delivering or receiving security entitlements in the relevant Exchange Global
Notes in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. Euroclear
participants and Clearstream participants may not deliver instructions directly
to the depositories for Euroclear or Clearstream.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and certain other organizations, including
Euroclear and Clearstream. Indirect access to the DTC system is available to
others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures in order to facilitate transfers of interests in the Global Note
among participants of DTC, Euroclear and Clearstream, they are under no
obligation to perform such procedures, and such procedures may be discontinued
at any time. Neither the Company nor the Trustee will have any responsibility
for the performance by DTC, Euroclear and Clearstream or their respective
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
Certificated Securities
Certificated Securities shall be issued in exchange for beneficial interests
in the Exchange Global Notes (i) if requested by a holder of such interests,
(ii) the Company, at its option, notifies the trustee in writing that it elects
to cause the issuance of Certificated Exchange Notes under the indenture or
(iii) if DTC is at any time unwilling or unable to continue as a depositary for
the Exchange Global Notes and a successor depositary is not appointed by the
Company within 90 days. Neither the Company nor the trustee shall be liable for
any delay by DTC or any Participant or Indirect Participant in identifying the
owners of security entitlements in the related Exchange Notes and the Company
and the trustee may conclusively rely on, and shall be protected in relying on,
instructions from DTC for all purposes (including with respect to the
registration and delivery, and the respective principal amounts, of the
Exchange Notes to be issued).
Transfer Agent, Registrar, Paying Agent and Exchange Agent
The Trustee acts as the transfer agent, registrar, paying agent and exchange
agent for the Notes. The Trustee, in its capacity as the paying agent, may
appoint co-paying agents, which must be acceptable to the Company.
Registration of transfers or exchanges of the Notes are effected without
charge by or on behalf of the Company, but any holder transferring any interest
in a note is required to pay to the trustee or the Company, as appropriate, any
tax or other governmental charges that may be imposed in connection with that
transfer or exchange. The Company is not required to register or cause to be
registered the transfer of any note after it has been called for redemption.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
53
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness or preferred stock of any other Person existing at the time such
other Person is merged with or into or became a Subsidiary of such specified
Person, including, without limitation, Indebtedness or preferred stock incurred
in connection with, or in contemplation of, such other Person merging with or
into or becoming a Subsidiary of such specified Person and (ii) Indebtedness
secured by a Lien encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition
(collectively, "dispositions") of any assets or rights (including, without
limitation, by way of a Sale and Leaseback Transaction), other than
dispositions of inventory or sales or leases of real estate constituting Real
Estate Held for Sale in the ordinary course of business, and (ii) the issuance
of Equity Interests by any Restricted Subsidiary or the disposition by the
Company or a Restricted Subsidiary of Equity Interests in any of the Company's
Restricted Subsidiaries (other than directors' qualifying shares or shares
required by applicable law to be held by a Person other than the Company or a
Restricted Subsidiary of the Company), in the case of either clause (i) or
(ii), whether in a single transaction or a series of related transactions (a)
that have a fair market value in excess of $3.0 million or (b) for net proceeds
in excess of $3.0 million. Notwithstanding the foregoing, the following will be
deemed not to be Asset Sales: (i) a transfer of assets by the Company to a
Restricted Subsidiary or by a Restricted Subsidiary to the Company or to
another Restricted Subsidiary; (ii) an issuance of Equity Interests by a
Restricted Subsidiary to the Company or to another Restricted Subsidiary; (iii)
a Permitted Investment or Restricted Payment that is permitted by the covenant
described above under the caption "Restricted Payment"; (iv) a disposition of
Cash Equivalents solely for cash or other Cash Equivalents; (v) a disposition
in the ordinary course of business of used, worn-out, obsolete, damaged or
replaced equipment; (vi) the grant of licenses to third parties in respect of
intellectual property in the ordinary course of business of the Company or any
of its Restricted Subsidiaries, as applicable; (vii) any disposition of
properties or assets that is governed by the provisions described under "Change
of Control" or "Merger, Consolidation or Sale of Asset"; and (viii) the
granting or incurrence of any Permitted Lien.
"Board Resolution" means a duly adopted resolution of the Board of Directors
of the Company in full force and effect at the time of determination and
certified as such by the Secretary or an Assistant Secretary of the Company and
delivered to the Trustee.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
"Cash Equivalents" means (a) marketable obligations issued or
unconditionally guaranteed by the U.S. or issued by any of its agencies and
backed by the full faith and credit of the U.S., in each case maturing within
one year from the date of acquisition; (b) short-term investment grade domestic
and eurodollar certificates of deposit or time deposits that are fully insured
by the Federal Deposit Insurance Corporation or are issued by commercial
54
banks organized under the laws of the U.S. or any of its states having combined
capital, surplus, and undivided profits of not less than $100,000,000 (as shown
on its most recently published statement of condition); (c) commercial paper
and similar obligations rated "P-1" by Moody's Investors Service, Inc.
("Moody's") or "A-1" by Standard & Poor's Rating Services, a division of The
McGraw-Hill Companies, Inc. ("S&P"); (d) readily marketable tax-free municipal
bonds of domestic issuer rated "A-2" or better by Moody's or "A" or better by
S&P, and maturing within one year from the date of issuance; and (e) mutual
funds or money market accounts investing primarily in items described in
clauses (a) through (d) above.
"Change of Control" means, with respect to the Company or any successor
Person permitted under the covenant "Merger, Consolidation or Sale of Assets,"
the occurrence of any of the following: (a) any "person" or "group" (as such
terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than
Apollo and its Affiliates, acquires "beneficial ownership" (as determined in
accordance with Rule 13d-3 under the Exchange Act), directly or indirectly, of
more than 50% of the total outstanding shares of Voting Stock (as defined)
except to the extent that, and so long as, Apollo and its affiliates hold the
right, by voting power, contract or otherwise, to elect or designate, and do so
elect or designate, a majority of the Company's Board of Directors; (b) the
Company consolidates with or merges into any other corporation, or conveys,
transfers or leases all or substantially all of its assets to any person, or
any other corporation merges into the Company and, in the case of any such
transaction, the outstanding common stock of the Company is changed or
exchanged as a result, unless the shareholders of the Company immediately
before such transaction own, directly or indirectly, at least 51% of the
outstanding shares of Voting Stock of the corporation resulting from such
transaction in substantially the same proportion as their ownership of the
Voting Stock immediately before such transaction (except to the extent that,
and so long as, Apollo and its affiliates hold the right, by voting power or
otherwise, to elect or designate, and do so elect or designate, a majority of
the Board of Directors of the corporation resulting from such transaction); or
(c) the first day on which more than a majority of the members of the Board of
Directors of the Company are not Continuing Directors.
"Closing Date" means the date of the closing of the sale of the notes
initially issued pursuant to the Indenture.
"Consolidated EBITDA" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period plus, to the extent
deducted in computing such Consolidated Net Income, (i) an amount equal to any
extraordinary loss plus any net loss realized in connection with an Asset Sale,
(ii) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, (iii) Consolidated Interest Expense,
and (iv) depreciation and amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses that were
paid in a prior period) and other non-cash expenses (excluding any such
non-cash expense to the extent that it represents an accrual of or reserve for
cash expenses in any future period or amortization of a prepaid cash expense
that was paid in a prior period) of such Person and its Restricted Subsidiaries
for such period to the extent that such depreciation, amortization and other
non-cash expenses were deducted in computing such Consolidated Net Income,
minus (v) non-cash items increasing such Consolidated Net Income, in each case,
for such period without duplication on a consolidated basis and determined in
accordance with GAAP.
"Consolidated Interest Coverage Ratio" means with respect to any Person for
any period, the ratio of the Consolidated Resort EBITDA of such Person for such
period to the Consolidated Interest Expense of such Person and its Restricted
Subsidiaries for such period. In the event that the Company or any of its
Restricted Subsidiaries incurs, assumes, Guarantees, redeems, repays or
otherwise retires any Indebtedness (other than revolving credit borrowings)
subsequent to the commencement of the period for which the Consolidated
Interest Coverage Ratio is being calculated but prior to the date on which the
event for which the calculation of the Consolidated Interest Coverage Ratio is
made (the "Calculation Date"), then the Consolidated Interest Coverage Ratio
shall be calculated giving pro forma effect to such incurrence, assumption,
Guarantee, redemption, repayment or retirement of Indebtedness as if the same
had occurred at the beginning of the applicable four-quarter reference period.
In addition, for purposes of making the computation referred to above
(i)(a) acquisitions
55
that have been made by the Company or any of its Restricted Subsidiaries,
including through mergers or consolidations and including any related financing
transactions and (b) other transactions consummated by the Company or any of
its Restricted Subsidiaries with respect to which pro forma effect may be given
pursuant to Article 11 of Regulation S-X under the Securities Act, in each case
during the four-quarter reference period or subsequent to such reference period
and on or prior to the Calculation Date shall be deemed to have occurred on the
first day of the four-quarter reference period and Consolidated Resort EBITDA
for such reference period shall be calculated without giving effect to clause
(iii) of the proviso set forth in the definition of Consolidated Net Income,
(ii) the Consolidated Resort EBITDA attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded and (iii) the Consolidated
Interest Expense attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent (x) that the
obligations giving rise to such Consolidated Interest Expense will not be
obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date, or (without duplication) (y) such Consolidated
Interest Expense is less than the Consolidated Resort EBITDA attributable to
such discontinued operations for the same period.
"Consolidated Interest Expense" means with respect to any Person for any
period the sum, without duplication, of (i) the consolidated interest expense
of such Person and its Restricted Subsidiaries for such period, whether paid or
accrued (including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations), (ii)
the consolidated interest expense of such Person and its Restricted
Subsidiaries that was capitalized during such period, (iii) any interest
expense for such period on Indebtedness of another Person that is guaranteed by
such Person or one of its Restricted Subsidiaries or secured by a Lien on
assets of such Person or one of its Restricted Subsidiaries (whether or not
such Guarantee or Lien is called upon), in each case, on a consolidated basis
and in accordance with GAAP, and (iv) any Preferred Stock dividends paid in
cash by the Company or any of its Restricted Subsidiaries to a Person other
than the Company or any of its Restricted Subsidiaries, determined, in each
case, on a consolidated basis and in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the net income (but not loss) of any Person that is not a
Restricted Subsidiary of such Person or that is accounted for by the equity
method of accounting shall be included only to the extent of the amount of
dividends or distributions paid in cash by such Person during such period to
the referent Person or a Restricted Subsidiary thereof, (ii) the net income
(but not loss) of any Restricted Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by that
Restricted Subsidiary of that net income is not at the date of determination
permitted by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders, (iii) the Net
Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded, and (iv) the
cumulative effect of a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the consolidated stockholders' equity of such Person and its consolidated
Restricted Subsidiaries as of such date, less (without duplication) amounts
attributable to Disqualified Stock of such Person, in each case determined in
accordance with GAAP.
"Consolidated Resort EBITDA" means, with respect to any Person for any
period, the Consolidated EBITDA of such Person for such period minus
consolidated real estate revenue of such Person and its Restricted Subsidiaries
for such period plus consolidated real estate operating expenses of such Person
and its Restricted Subsidiaries for such period minus any portion of such
Consolidated EBITDA attributable to Unrestricted
56
Subsidiaries of such Person for such period, in each case as reported on such
Person's consolidated statement of operations and determined on a consolidated
basis and in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on May 11, 1999 or (ii) was nominated for election or elected to such
Board of Directors with the approval of a majority of the Continuing Directors
who were members of such Board at the time of such nomination or election.
"Credit Agreement" means that certain Second Amended and Restated Credit
Agreement, dated as of November 13, 2001, by and among The Vail Corporation,
the Lenders named therein, Bank of America, N.A., as Agent, and Banc of America
Securities LLC, including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith, and in each case,
as amended, restated, modified, renewed, refunded, replaced or refinanced in
whole or in part from time to time.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable at the option of the holder), or upon the happening of any event,
matures or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or redeemable at the option of the holder thereof, in whole or in
part, on or prior to the date that is 91 days after the date on which the Notes
mature; provided, however, that any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require such Person to purchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or "change of control" occurring on or prior to
91 days after the date on which the Notes mature shall not constitute
Disqualified Stock if (1) the "asset sale" or "change of control" provisions
applicable to such Capital Stock are not more favorable in any respect to the
holders of such Capital Stock than the terms applicable to the Notes and
described under the captions "Repurchase at the Option of Holders--Asset Sales"
and "Repurchase at the Option of Holders--Change of Control"; and (2) any such
requirement only becomes operative after compliance with such terms applicable
to the Notes, including the purchase of any Notes tendered pursuant thereto.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means (1) a public or private sale of Capital Stock of the
Company and (ii) the sale of other securities convertible or exchangeable into
Capital Stock (other than Disqualified Stock) of the Company; provided, an
Equity Offering shall be deemed to occur with respect to all or a portion of
such securities only upon the conversion or exchange of such securities into
Capital Stock.
"Existing Indebtedness" means Indebtedness of the Company and the Company's
Subsidiaries (other than Indebtedness under the Credit Agreement and the
Existing Notes) in existence on May 11, 1999.
"Existing Note Indenture" means the Indenture dated as of May 11, 1999 among
the Company, the trustee named therein and the guarantors named therein
relating to the Existing Notes, as supplemented on or before the Closing Date.
"Existing Notes" means the $200.0 million aggregate principal amount of
8 3/4% Senior Subordinated Notes due 2009 issued by the Company under the
Existing Note Indenture and outstanding on the Closing Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as
57
have been approved by a significant segment of the accounting profession, which
are in effect in the United States from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor" means (i) each of the Company's Restricted Subsidiaries that is
a party to the Indenture on the date of execution and delivery of the Indenture
and (ii) each other Person that becomes a guarantor of the obligations of the
Company under the Notes and the Indenture from time to time in accordance with
the provisions of the Indenture described under the caption "Certain
Covenants--Additional Subsidiary Guarantees," and their respective successors
and assigns; provided, however, that "Guarantor" shall not include any Person
that is released from its Guarantee of the obligations of the Company under the
Notes and the Indenture as described under "Subsidiary Guarantees."
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) currency exchange or interest rate swap, cap or collar
agreements and (ii) other agreements or arrangements designed to protect such
Person against fluctuations in currency exchange or interest rates.
"Indebtedness" means, with respect to any Person, without duplication, (i)
any indebtedness of such Person, whether or not contingent, in respect of
borrowed money or evidenced by bonds, notes, debentures or similar instruments
or letters of credit (or reimbursement agreements in respect thereof) or
bankers' acceptances or representing Capital Lease Obligations or the balance
deferred and unpaid of the purchase price of any property (which purchase price
is due more than one year after taking title to such property) or services or
representing any Hedging Obligations, except any such balance that constitutes
an accrued expense or trade payable, if and to the extent any of the foregoing
indebtedness (other than letters of credit and Hedging Obligations) would
appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP; (ii) all indebtedness of others secured by a Lien on any
asset of such Person (whether or not such indebtedness is assumed by such
Person the amount of such obligation, to the extent it is without recourse to
such Person, being deemed to be the lesser of the value of such property or
assets or the amount of the obligation so secured); (iii) to the extent not
otherwise included, the Guarantee by such Person of any Indebtedness of any
other Person; provided, however, that (1) the amount outstanding at any time of
any Indebtedness issued with original issue discount is the face amount of such
indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with
GAAP; and (2) Indebtedness shall not include any liability for federal, state,
local or other taxes; and (iv) with respect to any Restricted Subsidiary of the
Company, Preferred Stock of such Person (in an amount equal to the greater of
(x) the sum of all obligations of such Person with respect to redemption,
repayment or repurchase thereof and (y) the book value of such Preferred Stock
as reflected on the most recent financial statements of such Person).
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP,
excluding, however, trade accounts receivable and bank deposits made in the
ordinary course of business consistent with past practice. If the Company or
any Restricted Subsidiary of the Company sells or otherwise disposes of any
Equity Interests of any direct or indirect Restricted Subsidiary of the Company
such that, after giving effect to any such sale or disposition, such Person is
no longer a Restricted Subsidiary of the Company shall be deemed to have made
an Investment on the date of any such sale or disposition equal to the fair
market value of the Equity Interests of such Restricted Subsidiary not sold or
disposed of in an amount determined as provided in the penultimate paragraph of
the covenant described above under the caption "Restricted Payments."
58
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional, sale or other title retention agreement, any lease in the
nature thereof, and any option or other agreement to sell or give a Lien).
"Make-Whole Amount" means, with respect to any note, an amount equal to the
excess, if any, of (a) the present value of the remaining principal, premium,
if any, and interest (other than accrued interest otherwise payable upon
redemption) payments that would be payable with respect to such note if such
note were redeemed on May 15, 2004, computed using a discount rate equal to the
Treasury Rate plus 50 basis points, over (b) the principal amount of such note.
"Make-Whole Average Life" means, with respect to any date of redemption of
Notes, the number of years (calculated to the nearest one-twelfth) from such
redemption date to May 15, 2004.
"Make-Whole Price" means, with respect to any Note, the greater of (a) the
sum of the principal amount of and Make-Whole Amount with respect to such Note,
and (b) the redemption price of such note on May 15, 2004.
"Net Income" means, with respect to any Person, the net income (or loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of Preferred Stock dividends, excluding, however, (i) any gain (or
loss), together with any related provision for taxes on such gain (or loss),
realized in connection with (a) any Asset Sale (including, without limitation,
dispositions pursuant to Sale and Leaseback Transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries
and (ii) any extraordinary or nonrecurring gain (or loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain (or
loss).
"Net Proceeds" means the aggregate cash proceeds or Cash Equivalents
proceeds received by the Company or any of its Restricted Subsidiaries in
respect of any Asset Sale (including, without limitation, any cash received
upon the sale or other disposition of any non-cash consideration received in
any Asset Sale, but only as and when received, and any proceeds deemed to be
cash or Cash Equivalents pursuant to clause (b) of the first paragraph under
the caption "Asset Sales"), net of (i) the direct costs relating to such Asset
Sale (including, without limitation, legal, accounting and investment banking
fees, and sales commissions) and any relocation expenses incurred as a result
thereof, (ii) taxes paid or payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing
arrangements), (iii) amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets that were the subject of
such Asset Sale, (iv) all distributions and other payments required to be made
to minority interest holders of a Restricted Subsidiary or joint venture as a
result of such Asset Sale, and (v) any reserve for adjustment in respect of the
sale price of such asset or assets established in accordance with GAAP.
"Obligations" means any principal, interest (including post-petition
interest), penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Permitted Holder" means Apollo Advisors, L.P., a Delaware limited
partnership, or any fund, investment vehicle or account managed, advised or
controlled by Apollo Advisors, L.P., or any of its Affiliates.
"Permitted Investments" means (i) any Investment in the Company or a
Restricted Subsidiary of the Company; (ii) any Investment in Cash Equivalents;
(iii) any Investment by the Company or any Restricted Subsidiary of the Company
in a Person, if as a result of such Investment (a) such Person becomes a
Restricted Subsidiary of the Company and, to the extent required under the
Indenture, a Guarantor or (b) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Restricted Subsidiary of the
Company; (iv) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with the
59
covenant described above under the caption "Repurchase at the Option of
Holders--Asset Sales"; (v) any acquisition of assets received solely in
exchange for the issuance of Equity Interests (other than Disqualified Stock)
of the Company; (vi) any Investment in a Similar Business (including any
Investment made in any Unrestricted Subsidiaries in a Similar Business) if,
after giving effect to such Investment, the aggregate amount of all Investments
made after May 11, 1999 pursuant to this clause (vi) then constituting
Unrestricted Investments Outstanding does not exceed the greater of (x) $75
million and (y) 7.5% of Total Consolidated Assets of the Company at the time of
such Investment; (vii) contributions of Real Estate Held for Sale to Real
Estate Joint Ventures; provided, in the case of any Investment made pursuant to
this clause (vii) or the preceding clause (vi), that after giving effect to
such Investment (a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof, and (b) the Company would,
at the time of such Investment and after giving pro forma effect thereto as if
such Investment had been made at the beginning of the applicable four-quarter
period, have been permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Consolidated Interest Coverage Ratio test set forth in the
first paragraph of the covenant described under the caption "Incurrence of
Indebtedness and Issuance of Preferred Stock"; and (viii) Investments received
in connection with the settlement of any ordinary course obligations owed to
the Company or any of its Restricted Subsidiaries.
"Permitted Liens" means (i) Liens in favor of the Company or any of its
Restricted Subsidiaries; (ii) Liens securing Senior Debt of the Company or any
Restricted Subsidiary of the Company; (iii) Liens on property or Equity
Interests of a Person existing at the time such Person is merged into or
consolidated with the Company or any Restricted Subsidiary of the Company;
provided that such Liens were in existence prior to the contemplation of such
merger or consolidation and do not extend to any assets or Equity Interests
other than those of the Person merged into or consolidated with the Company;
(iv) Liens on property existing at the time of acquisition thereof by the
Company or any Restricted Subsidiary of the Company; provided that such Liens
were in existence prior to the contemplation of such acquisition; (v) Liens
incurred or pledges and deposits made in connection with worker's compensation,
unemployment insurance and other social security benefits, statutory
obligations, bid, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business (other
than contracts in respect of borrowed money and other Indebtedness); (vi) Liens
existing on May 11, 1999; (vii) Liens for taxes, assessments or governmental
charges or claims that are not yet delinquent or that are being contested in
good faith by appropriate proceedings promptly instituted and diligently
concluded; provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefore; (viii) Liens
securing the Notes or any Guarantee thereof; (ix) Liens securing Permitted
Refinancing Indebtedness to the extent that the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded was permitted to be secured
by a Lien; provided that such Liens do not extend to any assets other than
those that secured the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (x) Liens incurred in the ordinary course of
business of the Company or any Restricted Subsidiary of the Company with
respect to obligations that do not exceed $5.0 million at any one time
outstanding and that (a) are not incurred in connection with the borrowing of
money or the obtaining of advances or credit (other than trade credit in the
ordinary course of business) and (b) do not in the aggregate materially detract
from the value of the property or materially impair the use thereof in the
operation of business by the Company or such Restricted Subsidiary; (xi) Liens
securing Capital Lease Obligations; provided that such Liens do not extend to
any property or assets which are not leased property subject to such
Capitalized Lease Obligation; (xii) judgment liens not giving rise to an Event
of Default so long as such Lien is adequately bonded and any appropriate legal
proceedings that may have been duly initiated for the review of such judgment,
degree or order shall not have been finally terminated or the period within
such proceedings may be initiated shall not have expired; (xiii) Liens securing
obligations of the Company under Hedging Obligations; (xiv) purchase money
Liens securing Purchase Money Obligations; provided that the related
Indebtedness shall not be secured by any property or assets of the Company or
any Restricted Subsidiary other than the property or assets so acquired
pursuant to such Purchase Money Obligation; (xv) Liens upon specific items of
inventory or other goods and proceeds of any Person securing such Person's
obligations in respect of bankers' acceptances issued or created for the
account of such Person to facilitate the purchase, shipment or storage of such
inventory or other goods; (xvi) Liens encumbering deposits made to secure
obligations arising from statutory, regulatory, contractual, or warranty
requirements of
60
the Company or any of its Restricted Subsidiaries, including rights of offset
and set-off; (xvii) Liens arising from filing Uniform Commercial Code financing
statements regarding leases; provided that such Liens do not extend to any
property or assets which are not leased property subject to such leases or
subleases; and (xviii) Liens created for the benefit of all of the Notes and/or
any Guarantees thereof.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness (other than Hedging Obligations and other than
Indebtedness permitted to be incurred pursuant to clause (i), clause (iv) or
clause (vii) of the second paragraph under "--Incurrence of Indebtedness and
Issuance of Preferred Stock") of the Company or any of its Restricted
Subsidiaries; provided that: (i) the principal amount (or accreted value, if
applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount of (or accreted value, if applicable), plus premium and
accrued interest on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date equal to or later than the final maturity date of, and has
a Weighted Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of, the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; (iii) if the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded is subordinated
in right of payment to the Notes or any Guarantee thereof, such Permitted
Refinancing Indebtedness is subordinated in right of payment to the Notes or
such Guarantee on terms at least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness
is incurred either by the Company or by the Restricted Subsidiary that is an
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Person" means an individual, limited or general partnership, corporation,
limited liability company, association, unincorporated organization, trust,
joint stock company, joint venture or other entity, or a government or any
agency or political subdivisions thereof.
"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such Person.
"Purchase Money Obligations" of any Person means any obligations of such
Person or any of its Subsidiaries to any seller or any other person incurred or
assumed in connection with the purchase of real or personal property to be used
in the business of such person or any of its subsidiaries within 180 days of
such purchase.
"Real Estate Held for Sale" means, with respect to any Person, the real
estate of such Person and its Restricted Subsidiaries classified for financial
reporting purposes as Real Estate Held for Sale on May 11, 1999 or thereafter
acquired as Real Estate Held for Sale.
"Real Estate Joint Venture" means any Person engaged exclusively in the
acquisition, development and operation or resale of any real estate asset or
group of related real estate assets (and directly related activities).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means an arrangement relating to property
now owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
61
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation was in effect on
the date of the Existing Note Indenture.
"Similar Business" means any business conducted by the Company or any of its
Subsidiaries as of May 11, 1999 or any other recreation, leisure and/or
hospitality business including without limitation ski mountain resort
operations, or any business or activity that is reasonably similar thereto or a
reasonable extension, development or expansion thereof or is reasonably
ancillary thereto.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of at least a majority of the
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other Subsidiaries
of that Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or one or more Subsidiaries of such Person (or any combination thereof).
"Total Consolidated Assets" means, with respect to any Person as of any
date, the book value of the assets of such Person and its Restricted
Subsidiaries as shown on the most recent consolidated balance sheet of such
Person.
"Treasury Rate" means, at any time of computation, the yield to maturity at
such time (as compiled by and published in the most recent statistical release
(or any successor release) of the Federal Reserve Bank of New York, which has
become publicly available at least two business days prior to the date of the
redemption notice or, if such statistical release (or successor release) is no
longer published, any generally recognized publicly available source of similar
market data) of United States Treasury securities with a constant maturity most
nearly equal to the Make-Whole Average Life; provided, however, that if the
Make-Whole Average Life is not equal to the constant maturity of the United
States Treasury security for which a weekly average yield is given, the
Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given, except that if the
Make-Whole Average Life is less than one year, the weekly average yield on
actually traded United States Treasury securities adjusted to a constant
maturity of one year shall be used.
"Unrestricted Investments Outstanding" means, at any time of determination,
in respect of all Permitted Investments made pursuant to clause (vi) of the
definition of the term Permitted Investments, the excess, if any, of (i) the
sum of all Permitted Investments theretofore made by the Company or any
Restricted Subsidiary on or after May 11, 1999 pursuant to clause (vi) of the
definition of Permitted Investments over (ii) the amount of all cash, and the
fair market value of any assets or property, distributed as dividends and
distributions to the Company or a Restricted Subsidiary of the Company (to the
extent that the Company does not elect to include the amount of such dividends
and distributions in the computation of Consolidated Net Income pursuant to the
parenthetical of clause (i) of the definition thereof at the time of
determination), and all repayments of the principal amount of loans or
advances, the net cash proceeds, and the fair market value of assets or
property, received from sales or transfers, in respect of such Investments to
the Company or any of its Restricted Subsidiaries and any other reduction made
in cash of such Investments in such Person.
"Unrestricted Subsidiary" means Boulder/Beaver, LLC, Colter Bay Corporation,
Eagle Park Reservoir Company, Forest Ridge Holdings, Inc., Gros Ventre Utility
Company, Jackson Lake Lodge Corporation, Jenny
62
Lake Lodge, Inc., Mountain Thunder, Inc., Resort Technology Partners, LLC, RT
Partners, Inc., SSI Venture, LLC, Vail Associates Investments, Inc. and VR
Holdings, Inc. and any other Subsidiary that is designated by the Board of
Directors as an Unrestricted Subsidiary pursuant to a Board Resolution, but
only to the extent that such Subsidiary is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding comply with the covenant set forth under
"Transactions with Affiliates."
"Voting Stock" of any Person as of any date means classes of the Capital
Stock of such Person that is at the time entitled to vote in the election of at
least a majority of the directors, managers, trustees or other governing body
of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
63
DESCRIPTION OF CERTAIN INDEBTEDNESS
New Credit Facility
On November 13, 2001, we entered into a revolving Credit Facility (the
"Credit Facility") to replace our existing Credit Facility. Our subsidiary, The
Vail Corporation, is the borrower under the Credit Facility, with Bank of
America, N.A., as agent (the "Agent"), certain other financial institutions, as
lenders, and Banc of America Securities LLC. The Credit Facility provides for
debt financing up to an aggregate principal amount of $421.0 million. The
proceeds of the loans made under the Credit Facility may be used to fund our
working capital needs, capital expenditures, permitted investments and other
general corporate purposes, including the issuance of letters of credit.
Borrowings under the Credit Facility bear interest annually at the
borrower's option at the rate of (i) LIBOR (the London interbank offered rate
for a given interest period) plus a margin (ranging from 1.50% to 2.50%) or
(ii) the Base Rate (defined as the higher of the Federal Funds Rate, as
published by the Federal Reserve Bank of New York, plus 0.50%, or the Agent's
prime lending rate) plus a margin of up to 0.75%. In addition, the borrower
must pay a fee on the face amount of each commercial letter of credit equal to
1/8 of 1.0% of the actual daily available amount under each such letter of
credit and for each standby letter of credit the borrower must pay a rate equal
to the applicable margin for LIBOR loans times the actual daily amount
available to be drawn under such letter of credit. The borrower must also pay a
quarterly unused commitment fee ranging from 0.35% to 0.50%. The interest
margins and fees described in this paragraph fluctuate based upon the ratio of
Funded Debt (as defined) to Adjusted EBITDA (as defined). The Credit Facility
terminates on November 13, 2004.
The Vail Corporation's obligations under the Credit Facility are guaranteed
by us and certain of our subsidiaries. In addition, The Vail Corporation's
obligations under the Credit Facility are secured by a pledge of all of the
capital stock of The Vail Corporation and substantially all of its subsidiaries.
The Credit Facility contains various covenants that limit, among other
things, subject to certain exceptions, indebtedness, liens, transactions with
affiliates, loans, advances and investments, acquisitions, mergers, and
dissolutions, sales of assets, management fees and distributions and certain
other business activities. The Credit Facility also contains certain financial
covenants, including Funded Debt to Adjusted EBITDA, Senior Debt to EBITDA, a
Minimum Fixed Charge Coverage Ratio, an Interest Coverage Ratio and limitations
on the types and amounts of Capital Expenditures (each as defined in the Credit
Facility).
Industrial Revenue Bonds
Pursuant to an indenture (the "IRB Indenture") dated as of April 1, 1998,
between Eagle County, Colorado, as issuer (the "IRB Issuer"), and U.S. Bank
National Association, as trustee (the "IRB Trustee"), $41.2 million aggregate
principal amount of industrial revenue bonds (the "IRBs") were issued for the
purpose of providing funds to The Vail Corporation d/b/a Vail Associates, Inc.
("VAI") to refinance certain existing industrial revenue bonds. Pursuant to a
financing agreement (the "IRB Agreement") dated as of April 1, 1998, among the
IRB Issuer and VAI, the IRB Issuer loaned to VAI the proceeds of the issuance
of the IRBs and VAI agreed to make payments in the aggregate amount, bearing
interest at rates and payable at times, corresponding to the principal amount
of, interest rates on and due dates under the IRBs. The obligations of VAI
under the IRB Indenture, the IRB Agreement and the IRBs are secured by certain
multi-party agreements between VAI, the IRB Trustee and the U.S. Forest Service
(the "Permit Agreements") relating to the Vail Mountain and Beaver Creek
Mountain Forest Service Permits (the "Permits"). The Permit Agreements provide
that the U.S. Forest Service will cooperate with the IRB Trustee in obtaining a
new holder of the Permits (acceptable to the U.S. Forest Service in its sole
discretion) in the event of a default by VAI with respect to its obligations
under the IRBs. However, the Permit Agreements expressly provide that no
security interest is created in or collateral assignment made with respect to
the Permits.
64
The IRBs mature, subject to prior redemption, on August 1, 2019. The IRBs
bear interest at the rate of 6.95% per annum, with interest payable
semi-annually on February 1 and August 1. The IRBs are subject to redemption at
the option of VAI, at any time and from time to time on or after August 1,
2008, and are subject to mandatory redemption if interest payments on the IRBs
lose their tax exempt status. Furthermore, in the event that VAI or one of its
affiliates incurs additional indebtedness with (1) senior or superior rights to
the Permits or (2) equivalent rights with respect to the Permits above an
aggregate principal amount of $250,000,000 (including the unpaid principal
amount of the IRBs) the IRBs will bear an interest rate of 7.45% per annum or,
under certain limited circumstances, may be subject to mandatory redemption.
We also have indebtedness in connection with $22.0 million of outstanding
industrial revenue bonds which we assumed in connection with our acquisition of
Keystone and Breckenridge. These IRBs consist of two series of refunding bonds
which were originally issued to finance the cost of sports and recreational
facilities at Keystone. The Series 1990 Sports Facilities Refunding Revenue
Bonds have an aggregate outstanding principal amount of $19.0 million. The
principal matures in installments in 2006 and 2008. These bonds bear interest
at a rate of 7.75% for bonds maturing in 2006 and 7.875% for bonds maturing in
2008. The Series 1991 Sports Facilities Refunding Revenue Bonds have an
aggregate outstanding principal amount of $3 million and bear interest at
7.125% for bonds maturing in 2002 and 7.375% for bonds maturing in 2010.
SSI Venture Credit Facility
SSI Venture has a credit facility that provides debt financing up to an
aggregate principal amount of $25 million. The SSI Venture Credit Facility
consists of (i) a $15 million Tranche A Revolving Credit Facility and (ii) a
$10 million Tranche B Term Loan Facility (of which $7.3 million was outstanding
as of October 31, 2001). The SSI Venture Credit Facility matures on the earlier
of December 31, 2003 or the termination date of the Credit Facility discussed
above. The Vail Corporation guarantees the SSI Venture Credit Facility. Minimum
amortization under the Tranche B Term Loan Facility is $1 million in each of
fiscal 2002 and 2003 and the outstanding due on the termination date. The SSI
Venture Credit Facility bears interest annually at the rates prescribed above
for the Credit Facility. SSI Venture also pays a quarterly unused commitment
fee at the same rates as the unused commitment fee for the Credit Facility.
65
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. This prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of exchange notes received in exchange for outstanding
notes where such outstanding notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. We have agreed
that for a period of 30 days after effectiveness of the exchange offer
registration statement, we will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
such resale.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the exchange notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such exchange notes. Any
broker-dealer that resells exchange notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such exchange notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of exchange notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The letter of transmittal states that, by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
By acceptance of the exchange offer, each broker-dealer that receives exchange
notes pursuant to the exchange offer hereby agrees to notify us prior to using
this prospectus in connection with the sale or transfer of exchange notes, and
acknowledges and agrees that, upon receipt of notice from us of the happening
of any event which makes any statement in this prospectus untrue in any
material respect or which requires the making of any changes in this prospectus
in order to make the statements herein not misleading (which notice we agree to
deliver promptly to such broker-dealer), such broker-dealer will suspend use of
this prospectus until we have amended or supplemented the prospectus to correct
such misstatement or omission and have furnished copies of the amended or
supplemented prospectus to such broker-dealer.
For a period of 30 days after effectiveness of the exchange offer
registration statement, we will promptly upon request send additional copies of
this prospectus and any amendment or supplement thereto to any broker-dealer
that requests such documents in the letter of transmittal. We have agreed to
pay all expenses incident to the exchange offer (including the expenses of any
one special counsel for the Holders of the Notes) other than commissions or
concessions of any brokers or dealers and will indemnify the Holders of the
Notes participating in the exchange offer (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
66
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
General
The following is a discussion of certain U.S. federal income tax and estate
tax consequences of the ownership and disposition of the exchange notes by
holders who acquired the exchange notes in the exchange offer. For purposes of
this discussion, a "U.S. Holder" is a Holder that is for U.S. federal income
tax purposes an individual who is a citizen or resident of the United States, a
corporation that is organized in or under the laws of the United States or any
state thereof, an estate the income of which is includable in gross income for
U.S. tax purposes regardless of its source or, a trust (1) the administration
of which is subject to the primary supervision of a United States court and as
to which one or more United States persons have the authority to control all
substantial decisions of the trust or (2) which has made a valid election to be
treated as a U.S. person. A "Non-U.S. Holder" is a Holder that for U.S. federal
income tax purposes is a non-resident alien or a corporation, estate or trust
that is not a U.S. Holder. For United States federal income tax purposes,
income earned through a foreign or domestic partnership or similar entity is
generally attributed to the entity's owners. This summary applies only to
exchange notes held as capital assets within the meaning of Section 1221 of the
Internal Revenue Code of 1986, as amended (the "Code"). It does not discuss all
of the tax consequences that may be relevant to a holder in light of its
particular circumstances or to holders subject to special rules, such as
tax-exempt organizations, dealers in securities or foreign currencies,
financial institutions, partnerships or other pass-through entities, life
insurance companies, or regulated investment companies, or to holders whose
functional currency is not the United States dollar or who hold the exchange
notes as part of a synthetic security, conversion transaction, or certain
"straddle" or hedging transactions.
The U.S. federal income tax and estate tax considerations set forth below
are based upon the Code and regulations, rulings and judicial decisions
thereunder as of the date hereof, and such authorities may be repealed, revoked
or modified, possibly with retroactive effect, so as to result in U.S. federal
income tax consequences different from those presented below.
Exchange Offer. The exchange of outstanding notes for exchange notes will
not be a taxable event for federal income tax purposes. A holder will not be
recognize any taxable gain or loss as a result of exchanging outstanding notes
for exchange notes, and the holder will have the same tax basis and holding
period in the exchange notes as he had in the outstanding notes immediately
before exchange.
U.S. Holders
Stated Interest. Stated interest on an exchange note will be taxable to a
U.S. Holder as ordinary interest income in accordance with the U.S. Holder's
method of accounting for U.S. federal income tax purposes.
Original Issue Discount. The outstanding notes were issued with OID for
U.S. federal income tax purposes. Because the exchange notes will be treated as
a continuation of the U.S. Holder's investment in the outstanding notes, the
exchange notes will also be considered as issued with OID. OID is the excess of
(i) the stated redemption price at maturity of a note over (ii) its issue
price. The amount of OID is deemed to be zero if such excess is less than a de
minimis amount (generally 1/4 of 1% of the note's stated redemption price at
maturity multiplied by the number of complete years to its maturity from its
issue date).
The "stated redemption price at maturity" of a note is the sum of all
payments provided by the instrument, other than qualified stated interest. The
"issue price" of a note is the first price at which a substantial amount of the
notes are sold to the public (excluding sales to bond houses, brokers or
similar persons or organizations acting in the capacity as underwriters,
placement agents or wholesalers). The term "qualified stated interest"
generally means stated interest that is unconditionally payable in cash or
property (other than debt instruments of the issuer) at least annually at a
single fixed rate. The stated interest payable on the exchange notes will be
qualified stated interest and the amount of OID on the exchange notes will not
be de minimis.
67
Since the exchange notes will be issued with OID in excess of a de minimis
amount, a U.S. Holder will be required to include OID in gross income as
ordinary interest as it accrues under a constant yield method in advance of
receipt of the cash payments attributable to such income, regardless of such
U.S. Holder's regular method of accounting. In general, the amount of OID
included in income by the holder of a note is the sum of the daily portions of
OID for each day during the taxable year (or portion of the taxable year) on
which such holder held such note, including the purchase date and excluding the
disposition date. The "daily portion" is determined by allocating the OID for
an accrual period equally to each day in that accrual period. The "accrual
period" for a note may be of any length and may vary in length over the term of
a note, provided that each accrual period is no longer than one year and each
scheduled payment of principal or interest occurs either on the first or final
day of an accrual period.
The amount of OID for an accrual period is generally equal to the excess of
(i) the product of the note's adjusted issue price at the beginning of such
accrual period and its yield to maturity over (ii) the qualified stated
interest allocable to such accrual period. The "adjusted issue price" of a note
at the beginning of any accrual period is the sum of the issue price of the
note plus the amount of OID allocable to all prior accrual periods minus the
amount of any prior payments on the note (other than payments of qualified
stated interest). Under those rules, a U.S. Holder generally will have to
include in income increasingly greater amounts of OID in successive accrual
periods. The "yield to maturity" of a note is the discount rate that, when used
in computing the present value of all payments to be made on a note, produces
an amount equal to the issue price of the note.
Sale, Exchange or Redemption of a Note. A U.S. Holder will recognize gain
or loss, if any, on the sale, redemption or other taxable disposition of an
exchange note in an amount equal to the difference, if any, between the U.S.
Holder's adjusted tax basis in the exchange note and the amount received
therefor (other than amounts attributable to accrued and unpaid interest on the
notes, which will be taxable as ordinary income unless previously included in
income). A U.S. Holders adjusted tax basis in a exchange note generally will
equal the cost of the outstanding Note which it was exchanged to the U.S.
Holder increased by any OID included in income through the date of disposition
and decreased by any payments received on the notes (other than payments of
qualified stated interest). Subject to the market discount rules noted under
"--U.S. Holders--Market Discount and Bond Premium" below, gain or loss, if any,
recognized on the sale, redemption or other taxable disposition of a exchange
note generally should be long-term capital gain or loss if the exchange note
was held as a capital asset and was held for more than one year as of the date
of disposition.
Market Discount and Acquisition Premium. If a U.S. Holder acquires an note
(or purchased an outstanding Note for which the exchange not was exchanged
subsequent to its original issuance) and the note's adjusted issue price at the
time of purchase exceeds the U.S. Holder's initial tax basis in the note by
more than a de minimis amount, the U.S. Holder will be treated as having
acquired the note at a "market discount" equal to such excess. In addition, if
a U.S. Holder's initial tax basis in a note exceeds the adjusted issue price of
the note, the U.S. Holder will generally be treated as having acquired the note
with "premium" or "acquisition premium" in an amount equal to such excess. U.S.
Holders should consult their tax advisors regarding the existence, if any, and
the tax consequences of market discount, premium and acquisition premium.
Backup Withholding and Information Reporting. A U.S. Holder of an note may
be subject to information reporting and possible backup withholding. If
applicable, backup withholding would apply at a rate of 30.5% (30% after
December 31, 2001 and subject to periodic reductions through 2006) with respect
to interest on (including OID), or the proceeds of a sale, exchange,
redemption, retirement, or other disposition of, such exchange note, unless
such U.S. Holder (i) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact, or (ii) provides a
taxpayer identification number, certifies as to no loss of exemption from
backup withholding, and otherwise complies with applicable backup withholding
rules.
We will furnish annually to the IRS and to record holders of the notes (to
whom it is required to furnish such information) information relating to the
amount of OID and interest, as applicable.
68
Non-U.S. Holders
The Exchange Notes. The payment of interest (including OID) on an exchange
note will generally not be subject to U.S. federal income tax (or to
withholding of tax), if (1) the interest and/or OID is not effectively
connected with the conduct of a trade or business within the United States or,
if a tax treaty applies, the interest is not attributable to a permanent
establishment or fixed base in the United States, (2) the Non-U.S. Holder does
not actually or constructively own 10% or more of the total combined voting
power of all classes of our stock entitled to vote, (3) the Non-U.S. Holder is
not a controlled foreign corporation that is related to us actually or
constructively through stock ownership and (4) either (i) the beneficial owner
of the exchange note certifies to us or our agent, under penalties of perjury,
that it is not a U.S. Holder and provides its name and address on U.S. Treasury
Form W-8 BEN (or on a suitable substitute form) or (ii) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "financial
institution") and holds the exchange note certifies under penalties of perjury
that such a Form W-8 BEN (or suitable substitute form) has been received from
the beneficial owner or a qualified intermediary by it and furnishes the payer
with a copy thereof.
A Non-U.S. Holder will generally not be subject to U.S. federal income tax
on any gain realized in connection with the sale, exchange, retirement, or
other disposition of an exchange note, unless (i) the gain is effectively
connected with a trade or business of the Non-U.S. Holder in the United States
(or, if a tax treaty applies, the gain is attributable to a permanent
establishment or a fixed base in the United States); (ii) in the case of a
Non-U.S. Holder who is an individual and holds the exchange note as a capital
asset, such holder is present in the United States for 183 or more days in the
taxable year of the disposition and either (a) has a "tax home" for United
States federal income tax purposes in the United States or (b) has an office or
other fixed place of business in the United States to which the gain is
attributable; or (iii) the Non-U.S. Holder is subject to tax pursuant to the
provisions of United States federal income tax laws applicable to certain
United States expatriates.
An exchange note held directly by an individual who, at the time of death,
is not a citizen or resident of the United States should not be includable in
such individual's gross estate for U.S. estate tax purposes as a result of such
individual's death if the individual does not actually or constructively own
10% or more of the total combined voting power of all classes of our stock
entitled to vote and, at the time of the individual's death, if payments with
respect to such exchange note would not have been effectively connected with
the conduct by such individual of a trade or business in the United States.
Even if the exchange note was includable in the gross estate under the
foregoing rules, the exchange note may be excluded under the provisions of an
applicable estate tax treaty.
Backup Withholding and Information Reporting. We must report annually to
the IRS and to each Non-U.S. Holder the amount of interest paid on an exchange
note, regardless of whether withholding was required, and any tax withheld with
respect to the interest. Under the provisions of an income tax treaty and other
applicable agreements, copies of these information returns may be made
available to the tax authorities of the country in which the Non-U.S. Holder
resides.
Interest payments on the exchange notes made by us or any paying agent of
ours to Non-U.S. Holders generally will not be subject to "backup withholding"
if the certification described under "--Non-U.S. Holders--The Exchange Notes"
above is received or an exemption is otherwise established, provided in each
case that the payer does not have actual knowledge that the holder is a U.S.
Holder.
Payment of proceeds from a sale of an exchange note to or through the U.S.
office of a broker is subject to information reporting and backup withholding
unless the Non-U.S. Holder certifies as to its non-U.S. status or otherwise
establishes an exemption from information reporting and backup withholding.
Payment outside the United States of the proceeds of the sale of an exchange
note to or through a foreign office of a "broker" (as defined in applicable
U.S. Treasury Regulations) should not be subject to information reporting or
backup
69
withholding, except that if the broker is a U.S. person, a controlled foreign
corporation for U.S. federal income tax purposes or a foreign person 50% or
more of whose gross income is from a U.S. trade or business, information
reporting should apply to such payment unless the broker has documentary
evidence in its records that the beneficial owner is not a U.S. Holder and
certain other conditions are met or the beneficial owner otherwise establishes
an exemption.
THE U.S. FEDERAL INCOME TAX AND ESTATE TAX DISCUSSION SET FORTH ABOVE IS
INTENDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE TO A PARTICULAR
HOLDER'S SITUATION. PERSONS CONSIDERING A PURCHASE OF THE NOTES SHOULD CONSULT
THEIR OWN TAX ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES OF PURCHASING,
OWNING AND DISPOSING OF THE NOTES, INCLUDING THE TAX CONSEQUENCES UNDER STATE,
LOCAL OR FOREIGN LAWS AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES
(POSSIBLY INCLUDING RETROACTIVE CHANGES) IN U.S. FEDERAL AND OTHER TAX LAWS.
LEGAL MATTERS
Certain legal matters with respect to the exchange notes and the guarantees
will be passed upon for us by Cahill Gordon & Reindel, New York, New York and
by Martha D. Rehm, Esq., General Counsel to the Company.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of Vail Resorts, Inc. and subsidiaries
as of July 31, 2000 and 2001, included in our Annual Report on Form 10-K
incorporated by reference herein have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, which is incorporated by reference in reliance upon the authority of
said firm as experts in giving said report. The financial statements of Olympus
Rancho Mirage, L.P. and Vail Marriott Mountain Resort, included in the
Registration Statement, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.
70
INDEX TO FINANCIAL STATEMENTS
Page
Olympus Rancho Mirage, L.P. ----
Report of Independent Public Accountants......................... F-2
Balance Sheets as of September 30, 2001 (unaudited) and
December 31, 2000.............................................. F-3
Statements of Operations for the Nine Months Ended September 30,
2001 (unaudited) and 2000 (unaudited) and the Years Ended
December 31, 2000 and 1999..................................... F-4
Statements of Changes in Partners' Capital for the Nine Months
Ended September 30, 2001 (unaudited) and the Years Ended
December 31, 2000 and 1999..................................... F-5
Statements of Cash Flows for the Nine Months Ended September 30,
2001 (unaudited) and 2000 (unaudited) and the Years Ended
December 31, 2000 and 1999..................................... F-6
Notes to Financial Statements.................................... F-7
Vail Marriott Mountain Resort
Report of Independent Public Accountants......................... F-13
Balance Sheets as of September 30, 2001 (unaudited) and
December 31, 2000.............................................. F-14
Statements of Operations and Owner's Capital for the Nine Months
Ended September 30, 2001 (unaudited) and 2000 (unaudited)
and the Year Ended December 31, 2000........................... F-15
Statements of Cash Flows for the Nine Months Ended September 30,
2001 (unaudited) and 2000 (unaudited) and the Year Ended
December 31, 2000.............................................. F-16
Notes to Financial Statements.................................... F-17
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Olympus Rancho Mirage, L.P.:
We have audited the accompanying balance sheets of Olympus Rancho Mirage,
L.P. (a Delaware limited partnership) (the "Partnership") as of December 31,
2000 and 1999, and the related statements of operations, changes in partners'
capital, and cash flows for the years then ended. These financial statements
are the responsibility of the Partnership's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial position of Olympus Rancho Mirage, L.P.
as of December 31, 2000 and 1999, and the results of its operations and its
cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States.
The financial statements of Olympus Rancho Mirage, L.P. as of September 30,
2001, and for the nine months ended September 30, 2001 and 2000, were not
audited by us and, accordingly, we do not express an opinion on them.
ARTHUR ANDERSEN LLP
Dallas, Texas,
January 26, 2001.
F-2
OLYMPUS RANCHO MIRAGE, L.P.
BALANCE SHEETS
December 31,
September 30, --------------------------
2001 2000 1999
------------- ------------ ------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents....................... $ 8,486,538 $ 7,870,401 $ 5,854,984
Accounts receivable, net........................ 640,701 2,284,849 1,154,244
Inventories..................................... 301,888 402,570 405,032
Prepaid expenses................................ 149,718 235,084 169,519
------------ ------------ ------------
Total current assets........................ 9,578,845 10,792,904 7,583,779
------------ ------------ ------------
PROPERTY AND EQUIPMENT:
Land............................................ 3,033,988 3,033,988 3,033,988
Building and improvements....................... 18,765,281 18,765,281 18,765,281
Furniture, fixtures, and equipment.............. 12,830,003 11,470,117 10,356,277
Construction in progress........................ 5,046,266 4,732,643 4,071,974
------------ ------------ ------------
39,675,538 38,002,029 36,227,520
Accumulated depreciation........................ (13,219,663) (12,030,513) (10,056,649)
------------ ------------ ------------
Total property and equipment, net........... 26,455,875 25,971,516 26,170,871
------------ ------------ ------------
RESTRICTED CASH.................................... 535,700 447,903 649,538
------------ ------------ ------------
Total assets................................ $ 36,570,420 $ 37,212,323 $ 34,404,188
============ ============ ============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable and accrued liabilities........ $ 1,022,234 $ 2,783,167 $ 2,089,158
Accrued interest................................ 70,309 113,839 102,714
Advance deposits................................ 603,780 929,622 880,450
Current portion of capital lease obligation..... 86,275 -- --
Mortgage note payable........................... 12,824,000 13,064,000 13,328,000
------------ ------------ ------------
Total current liabilities................... 14,606,598 16,890,628 16,400,322
COMMITMENTS AND CONTINGENCIES
LONG-TERM LIABILITIES:
Capital lease obligation........................ 648,820 -- --
------------ ------------ ------------
Total liabilities........................... 15,255,418 16,890,628 16,400,322
------------ ------------ ------------
PARTNERS' CAPITAL.................................. 21,315,002 20,321,695 18,003,866
------------ ------------ ------------
Total liabilities and partners' capital..... $ 36,570,420 $ 37,212,323 $ 34,404,188
============ ============ ============
The accompanying notes are an integral part of these statements.
F-3
OLYMPUS RANCHO MIRAGE, L.P.
STATEMENTS OF OPERATIONS
For the Nine Months Ended For the Years Ended
September 30, December 31,
------------------------- -----------------------
2001 2000 2000 1999
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
REVENUES:
Rooms........................................ $10,234,083 $10,075,272 $13,322,420 $12,404,137
Food and beverage............................ 7,542,518 8,608,317 11,952,599 11,374,347
Other departments............................ 2,872,450 3,121,752 4,190,744 4,150,511
----------- ----------- ----------- -----------
Total revenues......................... 20,649,051 21,805,341 29,465,763 27,928,995
----------- ----------- ----------- -----------
OPERATING COSTS AND EXPENSES:
Departmental costs and expenses
Rooms...................................... 2,945,643 2,932,266 3,864,319 3,845,571
Food and beverage.......................... 5,843,334 6,112,656 8,477,422 8,688,149
Other departments.......................... 1,661,304 1,807,796 2,364,620 2,379,289
OTHER OPERATING EXPENSES:
Administrative and general................. 1,526,610 1,583,993 2,121,098 2,086,075
Marketing.................................. 1,938,853 2,071,398 2,780,479 2,410,058
Property operation and maintenance......... 945,225 907,471 1,216,882 1,142,086
Utilities.................................. 632,745 440,250 593,251 544,181
Management fees............................ 417,737 517,449 855,754 765,062
Administrative fee......................... 155,376 150,401 203,593 207,200
Property taxes and insurance............... 798,294 762,493 1,037,803 1,098,875
Other...................................... 730,766 341,497 584,947 418,342
Depreciation and amortization.............. 1,189,150 1,605,865 1,973,864 2,565,323
----------- ----------- ----------- -----------
Total operating costs and expenses..... 18,785,037 19,233,535 26,074,032 26,150,211
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS........................ 1,864,014 2,571,806 3,391,731 1,778,784
INTEREST EXPENSE.............................. 870,707 859,241 1,073,902 1,113,928
----------- ----------- ----------- -----------
NET INCOME.................................... $ 993,307 $ 1,712,565 $ 2,317,829 $ 664,856
=========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
F-4
OLYMPUS RANCHO MIRAGE, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
General Limited
Partners Partners Total
-------- ----------- -----------
BALANCE, December 31, 1998............. $173,390 $17,165,620 $17,339,010
Net income.......................... 6,649 658,207 664,856
-------- ----------- -----------
BALANCE, December 31, 1999............. 180,039 17,823,827 18,003,866
Net income.......................... 23,178 2,294,651 2,317,829
-------- ----------- -----------
BALANCE, December 31, 2000............. 203,217 20,118,478 20,321,695
Net income (unaudited).............. 9,933 983,374 993,307
-------- ----------- -----------
BALANCE, September 30, 2001 (unaudited) $213,150 $21,101,852 $21,315,002
======== =========== ===========
The accompanying notes are an integral part of these statements.
F-5
OLYMPUS RANCHO MIRAGE, L.P.
STATEMENTS OF CASH FLOWS
For the Nine Months Ended For the Years Ended
September 30, December 31,
------------------------ ------------------------
2001 2000 2000 1999
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $ 993,307 $ 1,712,565 $ 2,317,829 $ 664,856
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation expense.......................... 1,189,150 1,605,865 1,973,864 2,457,403
Amortization of deferred costs and other
assets...................................... -- -- -- 107,920
(Increase) decrease in accounts receivable, net... 1,644,148 (230,856) (1,130,605) 1,008,763
(Increase) decrease in inventories................ 100,682 16,605 2,462 (97,942)
(Increase) decrease in prepaid expenses........... 85,366 (200,274) (65,565) 33,811
Increase in other assets.......................... -- -- -- 205,140
Increase (decrease) in accounts payable and
accrued liabilities and accrued interest........ (1,804,463) 95,146 705,134 418,996
Increase (decrease) in advance deposits........... (325,842) (163,832) 49,172 168,936
----------- ----------- ----------- -----------
Net cash provided by operating activities..... 1,882,348 2,835,219 3,852,291 4,967,883
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment............... (885,709) (1,247,954) (1,774,509) (2,725,499)
(Increase) decrease in restricted cash............ (87,797) 113,976 201,635 2,805
----------- ----------- ----------- -----------
Net cash used in investing activities......... (973,506) (1,133,978) (1,572,874) (2,722,694)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on mortgage note payable................. (240,000) (216,000) (264,000) (288,000)
Payments on capital lease obligation.............. (52,705) -- -- --
----------- ----------- ----------- -----------
Net cash used in financing activities......... (292,705) (216,000) (264,000) (288,000)
----------- ----------- ----------- -----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS........................................ 616,137 1,485,241 2,015,417 1,957,189
CASH AND CASH EQUIVALENTS,
beginning of period................................ 7,870,401 5,854,984 5,854,984 3,897,795
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
end of period...................................... $ 8,486,538 $ 7,340,225 $ 7,870,401 $ 5,854,984
=========== =========== =========== ===========
CASH PAID FOR INTEREST............................... $ 914,237 $ 853,252 $ 1,062,777 $ 1,145,119
=========== =========== =========== ===========
PROPERTY AND EQUIPMENT ADDITIONS
FINANCED THROUGH A CAPITAL LEASE................... $ 787,800 $ -- $ -- $ --
=========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
F-6
OLYMPUS RANCHO MIRAGE, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
1. ORGANIZATION:
Olympus Rancho Mirage, L.P. (the "Partnership"), was formed on January 17,
1995, for the purpose of owning and operating the Ritz-Carlton, Rancho Mirage
Hotel (the "Hotel") in Rancho Mirage, California.
The Partnership was originally formed with one general partner and three
limited partners. These partners made cash contributions to fund all of the
working capital assets and liabilities of the Hotel and initial operations of
the Hotel. The partners contributed cash of $12,010,200 and funded a loan in
the amount of $15,000,000 (the "Partner Loan"). On August 3, 1995, $14,000,000
of the Partner Loan was repaid with proceeds from a mortgage note payable (Note
4). The remaining $1,000,000 Partner Loan balance was converted to capital.
Since the initial acquisition, the partners have made additional cash
contributions totaling $1,375,121.
During 1995, the partnership agreement was amended to provide for the
admission of an additional general partner and additional limited partners, the
withdrawal of certain limited partners, and granting of interests in residual
profits for services rendered by certain partners. In connection with the
amendment, transfers of interests occurred, in addition to and including the
transfer of interests in residual profits, all of which were effective January
17, 1995.
Effective March 29, 1996, the partnership agreement was amended to provide
for the admission of an additional limited partner. In connection with the
amendment, additional transfers of interests occurred, including the transfer
of residual profits interests. Effective as of the amendment date, the
Partnership consists of two general partners, Olympus Rancho Mirage, Inc.
(ORMI) and HMTF/O Rancho Mirage, L.P. (HMTF/O RMLP), and various limited
partners.
The Hotel's liquor licenses are held by an entity whose sole shareholder is
an employee of an affiliate of the Partnership (the "Concession Entity"). The
Partnership has leased the food and beverage operations of the Hotel to the
Concession Entity, which has contracted with the Hotel's manager to manage the
food and beverage operations. The rental payments received under the lease
approximate the net profit generated by the food and beverage operations. Since
the Partnership receives all the economic benefit of the food and beverage
operations, the accompanying financial statements are shown on a gross basis
and include all food and beverage activity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation and Use of Estimates
The accompanying financial statements were prepared in conformity with
accounting principles generally accepted in the United States. The preparation
of financial statements in conformity with accounting principles generally
accepted in the United States 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.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
F-7
OLYMPUS RANCHO MIRAGE, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Concentration of Credit Risk
At December 31, 2000 and 1999, there were cash balances with banks in excess
of the FDIC-insured limits by $7,362,492 and $4,755,293, respectively. At
September 30, 2001, there were cash balances with banks in excess of
FDIC-insured limits by $7,456,557 (unaudited). The Partnership has not
experienced any losses in its cash accounts and believes it is not exposed to
any significant credit risk on cash and cash equivalents.
Restricted Cash
The Partnership is required to maintain funds for the replacement of
furniture, fixtures, and equipment. A provision of the Partnership's loan
agreement requires regular deposits to a reserve for a certain percentage of
gross revenues, as defined (Note 4).
Inventories
Inventories consist primarily of food, beverages, merchandise, and operating
supplies and are stated at the lower of cost (generally first-in, first-out) or
market.
Property and Equipment
Property and equipment is stated at the lower of depreciated cost or net
realizable value. Net realizable value for financial reporting purposes is
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the Hotel may not be recoverable. Impairment is
recognized when estimated expected future cash flows (undiscounted and without
interest charges) are less than the carrying amount of the Hotel. The
estimation of expected future net cash flows is inherently uncertain and relies
to a considerable extent on assumptions regarding current and future economics
and market conditions and the availability of capital. If, in future periods,
there are changes in the estimates or assumptions incorporated into the
impairment review analysis, the changes could result in an adjustment to the
carrying amount of the Partnership's long-lived assets. To the extent that an
impairment has occurred, the excess of the carrying amount of the Hotel over
its estimated fair value, less estimated selling costs, would be charged to
income. As of September 30, 2001, management of the Partnership believed there
was no impairment of the carrying value of the Hotel.
Depreciation and amortization are calculated using the straight-line method
over the estimated useful lives of the assets. The estimated lives are as
follows:
Building and improvements......... 40 years
Furniture, fixtures, and equipment 5 years
The cost of building and improvements includes the purchase price of the
Hotel, associated legal fees, and acquisition costs.
Expenditures for maintenance and repairs are charged to operations as
incurred. Significant renovations or betterments that extend the economic
useful life of assets are capitalized.
The Partnership is currently planning to develop an 18-hole golf course in
the general area of the Hotel. As such, the Partnership has started to
accumulate land parcels on which the course will be built and retained various
consultants to assist in the entitlement, planning, and development of the
planned golf course (see Note 7). As of December 31, 2000 and 1999, total costs
of $4,732,643 and $4,071,974, respectively, had been incurred related to the
planned golf course and are included in construction in progress on the
accompanying balance sheets. As of September 30, 2001, total costs of
$5,046,266 (unaudited) had been incurred related to the planned golf course and
are included in construction in progress on the accompanying balance sheet.
F-8
OLYMPUS RANCHO MIRAGE, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Income Taxes
No provision for income taxes has been recorded in the financial statements
as the partners are required to report their share of the Partnership's
earnings in their respective income tax returns. The Partnership's tax returns
and the amounts of allocable income or loss are subject to examination by
federal and state taxing authorities. If such examinations result in changes to
income or loss, the tax liability of the partners could be changed accordingly.
Revenue Recognition
Revenue is recognized as earned. Ongoing credit evaluations are performed
and an allowance for doubtful accounts has been provided for the portion of
accounts receivable which is estimated to be uncollectible.
Advertising Costs
Advertising costs are expensed the first time the advertising takes place.
Earnings Per Share
The provisions of SFAS No. 128, "Earnings Per Share" are not applicable to
the Partnership. As such, the items required for presentation pursuant to SFAS
No. 128 are not reflected in the accompanying financial statements.
Fair Value of Financial Instruments
The recorded amounts for cash and cash equivalents, receivables, other
current assets, and payables and liabilities approximate fair value due to
their short-term nature. The fair value of the mortgage note payable
approximates book value due to the variable nature of the interest rate
associated with that debt.
Distributions of Cash Flow and Allocation of Net Income (Loss)
No distributions were made to the partners during the nine months ended
September 30, 2001, or the years ended December 31, 2000 and 1999.
Net income (loss) of the Partnership is allocated in accordance with the
terms of the partnership agreement.
3. MANAGEMENT AND ASSET MANAGEMENT AGREEMENTS:
On January 19, 1995, the Partnership entered into an operating agreement
with Ritz-Carlton Hotel Company (the "Manager") for the management and
operations of the Hotel. The operating agreement has a term of fifteen years,
which expires in January 2010. Under the operating agreement, the Partnership
is required to pay the Manager a base fee equal to 2% of Gross Revenues, as
defined. The Partnership incurred a base fee of $588,470 and $556,820 for the
years ended 2000 and 1999, respectively. The Partnership incurred a base fee of
$417,737 (unaudited) and $436,309 (unaudited) for the nine months ended
September 30, 2001 and 2000, respectively. Additionally, the Partnership is
required to pay the Manager a group service fee of up to 1% of Gross Revenues,
as defined, which totaled $294,710 and $211,766 for the years ended 2000 and
1999, respectively. The group service fee totaled $208,869 (unaudited) and
$218,629 (unaudited) for the nine months ended September 30, 2001 and 2000,
respectively. The group service fee is included in operating expenses in the
accompanying financial statements. The Partnership is also required to pay an
incentive fee equal to 10% of Net Cash Flow, as defined, up to $1,000,000, and
10% of Net Cash Flow over $1,000,000, until such time the Partnership has
received a 15% internal rate of return, in which case the Manager will receive
15% of Net Cash Flow over $1,000,000. The Partnership incurred incentive fees
of $267,284 and $208,242 for the years ended 2000 and 1999, respectively. For
the nine months ended September 30, 2000, the Partnership incurred incentive
fees of $81,140 (unaudited). No such fees were incurred for the nine months
ended September 30, 2001.
F-9
OLYMPUS RANCHO MIRAGE, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
On February 1, 2000, the Partnership entered into an asset management
agreement with Gemstone Hospitality, LLC ("Gemstone"). In accordance with this
agreement, the Partnership is required to pay Gemstone a monthly fee of $16,667
along with reasonable expense reimbursements. The agreement has an original
term of nine months but can be extended on a month-to-month basis. The
agreement has been extended through September 2001. For the year ended December
31, 2000, the Partnership incurred and paid approximately $194,000 to Gemstone
under this agreement. For the nine months ended September 30, 2001 and 2000,
the Partnership incurred and paid approximately $171,000 (unaudited) and
$141,000 (unaudited), respectively, to Gemstone under this agreement.
4. MORTGAGE NOTE PAYABLE:
On August 3, 1995, the Partnership executed a loan agreement and related
promissory note with a French banking corporation (the "Bank") to refinance a
portion of the acquisition cost of the Hotel (the "Mortgage Note"). The
Mortgage Note has a face amount of $14,000,000, an initial maturity date of
July 31, 1999, and an extended maturity date of July 31, 2000, if certain
conditions are met. The Partnership met all the conditions during 1999 and
extended the maturity to July 31, 2000. In 2000, the Partnership negotiated
with the Bank to extend the Mortgage Note for an additional year to July 31,
2001. During 2001, the maturity date was extended again to June 29, 2002
(unaudited). Management is considering a number of alternatives regarding the
refinancing of the Mortgage Note. These alternatives include refinancing the
mortgage note with the current lender or arranging financing with a new lender.
Management believes that current operations of the Hotel are such that they
will be able to refinance or otherwise payoff the existing mortgage debt prior
to maturity.
As of September 30, 2001, future minimum principal payments through the
maturity date are as follows (unaudited):
2001............................................. $ 72,000
2002............................................. 12,752,000
-----------
$12,824,000
===========
Interest on the Mortgage Note is payable monthly in arrears. The initial
rate of interest pursuant to the loan agreement was the greater of bank prime
or the Federal Funds Rate plus .5%. Pursuant to the terms of the loan
agreement, the Partnership exercised its option to convert to an interest rate
of LIBOR plus 3% (6.58% (unaudited), 9.82%, and 8.16% at September 30, 2001,
December 31, 2000 and 1999, respectively). As a condition to the loan
agreement, the Partnership was required to obtain interest rate protection. To
meet this requirement, the Partnership entered into an interest rate cap
agreement (the "Cap") with the Bank on August 7, 1995. The Cap was effective
beginning on August 1, 1996, and continuing until July 31, 1999. The Cap had an
initial notional amount of $14,000,000 and amortized to an amount of
$13,448,000 on July 31, 1999. The Cap provided for a maximum rate for LIBOR of
9.0%.
Pursuant to the loan agreement, the Partnership must establish and maintain
a capital expenditure reserve (the "CAPEX Reserve"). On the date of funding of
the Mortgage Note, the Partnership established a CAPEX Reserve by depositing
$250,000 into a separate bank account. Commencing November 1, 1995, and on the
31st day following each calendar quarter thereafter, the Partnership is
required to deposit 3% of the Gross Revenues of the Hotel, as defined, into the
CAPEX Reserve. The CAPEX Reserve is to be used to complete the improvements
specified in the loan agreement, other capital improvements, and for the
purchase of furniture, fixtures, and equipment. This balance is $447,903 and
$649,538 as of December 31, 2000 and 1999, respectively. As of September 30,
2001, this balance is $535,700 (unaudited).
The Mortgage Note is collateralized by, among other things, the Hotel and
related property, the assignment of leases, the assignment of management
agreements for the operation of the Hotel and the concession entity, a cash
collateral agreement, the amenities agreement, an environmental indemnity, and
the pledge of stock in the Concession Entity.
F-10
OLYMPUS RANCHO MIRAGE, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Mortgage Note provides for the maintenance of certain financial and
nonfinancial covenants. At December 31, 2000, management believed the
Partnership was in compliance with these covenants.
5. RELATED-PARTY TRANSACTIONS:
Pursuant to the administrative fee agreement and related amendment, the
Partnership is required to pay to an Olympus affiliate an annual administrative
fee equal to .75% of the Cost of the Acquired Asset, as defined, for
administrative services. For the years ended December 31, 2000 and 1999, the
Partnership incurred and paid administrative fees of $203,593 and $207,200,
respectively. For the nine months ended September 30, 2001 and 2000, the
Partnership incurred and paid administrative fees of $155,376 (unaudited) and
$150,401 (unaudited), respectively.
6. FUTURE RENTAL RECEIPTS:
The Partnership entered into lease agreements with three tenants to lease
retail space in the Hotel. The agreements have initial terms ranging from one
to five years with the longest lease ending December 31, 2002. Future minimum
base rentals, under noncancelable leases, due to the Partnership as of December
31, 2000, are as follows:
2001....................................... $77,180
2002....................................... 19,750
-------
$96,930
=======
In addition to base rent, the tenants are required to pay their pro rata
share of Operating Costs, as defined, and percentage rent based on criteria
defined in their respective lease agreements.
7. COMMITMENTS AND CONTINGENCIES:
Operating Leases
During 2001, the Partnership entered into a lease agreement to lease
equipment under operating leases with terms ranging from two to five years.
Future minimum lease payments under noncancelable operating leases as of
December 31, 2000, are as follows:
2001....................................... $113,953
2002....................................... 109,092
2003....................................... 95,302
2004....................................... 85,452
2005....................................... 14,242
--------
$418,041
========
Capital Leases
The Partnership leases equipment under a capital lease with a remaining term
of seven years. Future minimum payments under the capital lease obligation as
of September 30, 2001 (unaudited), are as follows:
2001................................... $ 39,847
2002................................... 159,387
2003................................... 159,387
2004................................... 159,387
2005................................... 159,387
Thereafter............................. 332,129
----------
Total minimum lease payments........... 1,009,524
Less-Amounts representing interest..... (274,429)
----------
Present value of minimum lease payments $ 735,095
==========
All operating and capital leases are collateralized by the respective lease
equipment.
F-11
OLYMPUS RANCHO MIRAGE, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Other Commitments and Contingencies
The Partnership may be obligated for an additional $2,000,000 (the "Deferred
Purchase Price") in connection with the acquisition of the Hotel if the
Partnership, or an affiliate, has built an 18-hole golf course located in the
general area of the Hotel and is available for use by Hotel guests on a
nonexclusive basis. The Deferred Purchase Price obligation terminates if the
golf course has not been completed on or before the earlier of (a) ten years
after the initial acquisition or (b) the sale of the Hotel to an unrelated
third party any time after five years from the date of the Initial Acquisition.
The Partnership has retained consultants to assist in the entitlement,
planning, and development of the planned golf course. On October 20, 1995, the
Partnership entered into a Development Management/Construction Management
Agreement with Winchester Development Company, L.L.C. ("Winchester"). This
agreement was amended effective in June 1997. Pursuant to the amended
agreement, prior to the construction of the golf course, Winchester is paid a
fee equal to the lessor of (i) $150 per hour for all hours worked by Winchester
employees as approved by the Partnership or (ii) $16,000 per month. Upon
commencement of golf course construction, Winchester is to be paid a fee equal
to the lesser of (i) 5% of the cost to construct the golf course or (ii)
$450,000 and the lesser of (i) 8% of the cost of the clubhouse or (ii)
$160,000. If the golf course is partially or completely abandoned at any time
during the term of the above discussed agreement, Olympus, in its sole
discretion, may terminate all or a portion of the agreement by giving 30 days
prior written notice. The Partnership has paid approximately $75,000 and
$91,000 for the years ended December 31, 2000 and 1999, respectively, to
Winchester under the amended agreement. For the nine months ended September 30,
2001 and 2000, the Partnership has paid approximately $75,000 (unaudited) and
$73,000 (unaudited), respectively. The Partnership has incurred total costs
related to the golf course of approximately $661,000 and $1,476,000 for the
years ended December 31, 2000 and 1999, respectively. The Partnership has
incurred total costs related to the golf course of approximately $313,623
(unaudited) and $457,570 (unaudited) for the nine months ended September 30,
2001 and 2000, respectively. All of these costs, including fees paid to
Winchester, have been capitalized and are included in construction in progress
on the accompanying balance sheets.
The Partnership may be subject to certain litigation and claims in the
ordinary course of business, which are generally covered by insurance policies.
In management's opinion, litigation and claims will not have a material adverse
effect upon the financial position or results of operations of the Partnership.
8. SUBSEQUENT EVENT (UNAUDITED):
In November 2001, the Partnership sold the Hotel and related assets and
liabilities to a wholly owned subsidiary of Vail Resorts, Inc. for a total
sales price of approximately $45 million in cash. $20 million was received at
closing with the remaining $25 million to be received approximately two years
from closing.
F-12
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Management of
Vail Resorts, Inc.:
We have audited the accompanying balance sheets of the Vail Marriott
Mountain Resort (a wholly-owned subsidiary of Host Marriott L.P.--the "Hotel")
as of December 31, 2000, and the related statements of operations and changes
in owner's capital, and cash flows for the year then ended. These financial
statements are the responsibility of the Hotel's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 Vail Marriott Mountain
Resort as of December 31, 2000, and the results of its operations and its cash
flows for the year then ended in conformity with accounting principles
generally accepted in the United States.
The financial statements of the Vail Marriott Mountain Resort as of
September 30, 2001, and for the nine months ended September 30, 2001 and 2000,
were not audited by us and, accordingly, we do not express an opinion on them.
ARTHUR ANDERSEN LLP
Denver, Colorado
January 11, 2002.
F-13
VAIL MARRIOTT MOUNTAIN RESORT
BALANCE SHEETS
September 30, December 31,
2001 2000
------------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................... $ 315,449 $ 682,779
Accounts receivable, net...................... 2,108,237 862,458
Other receivables............................. 13,000,000 20,242,488
Due from Parent............................... 321,269 2,782,413
Inventories................................... 77,853 75,010
Other current assets.......................... 17,984 66,301
----------- -----------
Total current assets...................... 15,840,792 24,711,449
----------- -----------
PROPERTY AND EQUIPMENT:
Land.......................................... 4,407,150 4,407,150
Building and improvements..................... 20,860,027 20,850,939
Furniture, fixtures, equipment and vehicles... 4,285,354 4,266,231
Construction-in-progress...................... 11,933,307 --
----------- -----------
41,485,838 29,524,320
Accumulated depreciation...................... (7,058,222) (6,363,395)
----------- -----------
Total property and equipment, net......... 34,427,616 23,160,925
----------- -----------
Total assets.............................. $50,268,408 $47,872,374
=========== ===========
LIABILITIES AND OWNER'S CAPITAL
CURRENT LIABILITIES:
Accounts payable and accrued liabilities...... $ 370,790 $ 886,634
Advance deposits.............................. 337,515 900,148
Advance insurance proceeds.................... -- 2,285,013
Total current liabilities................. 708,305 4,071,795
----------- -----------
COMMITMENTS AND CONTINGENCIES
OWNER'S CAPITAL.................................. 49,560,103 43,800,579
----------- -----------
Total liabilities and owner's capital..... $50,268,408 $47,872,374
=========== ===========
The accompanying notes are an integral part of these statements.
F-14
VAIL MARRIOTT MOUNTAIN RESORT
STATEMENTS OF OPERATIONS AND OWNER'S CAPITAL
Nine Months Ended Year Ended
September 30, December 31,
----------------------- ------------
2001 2000 2000
----------- ----------- ------------
(Unaudited) (Unaudited)
REVENUES:
Rooms...................................... $ 7,215,943 $11,226,382 $ 12,721,393
Food and beverage.......................... 2,905,611 3,544,321 4,134,808
Other departments.......................... 4,014,998 916,594 1,815,970
----------- ----------- ------------
Total revenues......................... 14,136,552 15,687,297 18,672,171
OPERATING COSTS AND EXPENSES:
Departmental costs and expenses
Rooms.................................. 2,868,813 3,549,493 4,536,696
Food and beverage...................... 2,089,909 2,555,848 3,129,390
Other departments...................... 2,669,177 571,411 772,267
OTHER OPERATING EXPENSES:
Administrative and general................. 1,394,952 1,488,889 1,940,222
Marketing.................................. 932,605 1,045,322 1,282,150
Property operation and maintenance......... 756,173 855,943 1,103,017
Utilities.................................. 305,590 275,865 352,083
Management fees............................ 1,057,579 777,206 982,585
Property taxes and insurance............... 293,603 262,270 383,830
Other...................................... 149,426 150,703 167,364
Depreciation and amortization.............. 764,983 1,113,774 1,490,934
----------- ----------- ------------
Total operating costs and expenses..... 13,282,810 12,646,724 16,140,538
----------- ----------- ------------
INCOME FROM OPERATIONS........................ 853,742 3,040,573 2,531,633
----------- ----------- ------------
OTHER EXPENSES:
Gain recognized on fire.................... -- -- (12,766,046)
Loss on disposal of fixed assets........... 70,441 -- --
----------- ----------- ------------
Total other expenses....................... 70,441 -- (12,766,046)
----------- ----------- ------------
NET INCOME.................................... 783,301 3,040,573 15,297,679
OWNER'S CAPITAL--BEGINNING.................... 43,800,579 32,488,179 32,488,179
CASH RECEIVED FROM (PAID TO) OWNER, net....... 4,976,223 (4,016,074) (3,985,279)
----------- ----------- ------------
OWNER'S CAPITAL--ENDING....................... $49,560,103 $31,512,678 $ 43,800,579
=========== =========== ============
The accompanying notes are an integral part of these statements.
F-15
VAIL MARRIOTT MOUNTAIN RESORT
STATEMENTS OF CASH FLOWS
Nine Months Ended Year Ended
September 30, December 31,
------------------------- ------------
2001 2000 2000
------------ ----------- ------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................. $ 783,301 $ 3,040,573 $ 15,297,679
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization.......................... 764,983 1,113,774 1,490,934
(Gain)/Loss on fire.................................... -- -- (12,766,046)
Loss on disposal of fixed assets....................... 70,441 -- --
(Increase) decrease in accounts receivable, net........ (1,245,779) 61,265 182,940
Decrease in insurance receivable....................... 7,242,488 -- --
Decrease (increase) in inventories..................... (2,843) 34,893 19,065
(Increase) decrease in due from Parent................. 2,461,144 (48,455) (2,633,811)
Increase in other assets............................... 48,317 (2,965) (4,490)
Increase (decrease) in accounts payable and accrued
liabilities.......................................... (515,844) (171,725) 114,101
Increase (decrease) in deferred revenue................ (2,285,013) -- 2,285,013
Decrease in advance deposits........................... (562,633) (1,497,810) (1,317,257)
------------ ----------- ------------
Net cash provided by operating activities............ 6,758,562 2,529,550 2,668,128
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures....................................... (12,102,115) (102,215) (278,200)
------------ ----------- ------------
Net cash used in investing activities.................. (12,102,115) (102,215) (278,200)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash received from (paid to) to Parent, net................ 4,976,223 (4,016,074) (3,985,279)
------------ ----------- ------------
Net cash used in financing activities.................. 4,976,223 (4,016,074) (3,985,279)
------------ ----------- ------------
NET DECREASE IN CASH AND CASH
EQUIVALENTS............................................... (367,330) (1,588,739) (1,595,351)
CASH AND CASH EQUIVALENTS,
beginning of period....................................... 682,779 2,278,130 2,278,130
CASH AND CASH EQUIVALENTS,
end of period............................................. $ 315,449 $ 689,391 $ 682,779
============ =========== ============
The accompanying notes are an integral part of these statements.
F-16
VAIL MARRIOTT MOUNTAIN RESORT
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
1. ORGANIZATION AND BUSINESS:
The Vail Marriott Mountain Resort (the "Hotel") is located at the base of
Vail Mountain, in Vail, Colorado. The Hotel was originally opened in 1972, and
was acquired by Host Marriott, L.P. ("Host") in 1994. The Hotel operated as a
wholly-owned property of Host until December of 2001, at which time it was
acquired by a subsidiary Vail Resorts, Inc. ("Vail").
The Hotel maintains approximately 350 guest rooms, including a number of
condominium units and caters to both group and individual guests. The Hotel
maintains 14 meeting rooms, covering over 16,000 square feet of meeting space.
The Hotel provides guests with an on-site restaurant, room service, a cocktail
lounge, laundry facilities, a hair salon, concierge service, a full business
center, a full spa and health club.
Occupancy at the Hotel is seasonal with the winter ski season accounting for
a greater portion of the Hotel's operating results. The Hotel competes with a
number of properties located throughout the Vail Valley and Beaver Creek as
well as other parts of Colorado.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation and Use of Estimates
The accompanying financial statements were prepared in conformity with
accounting principles generally accepted in the United States. The preparation
of financial statements in conformity with accounting principles generally
accepted in the United States 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.
Cash and Cash Equivalents
The Hotel considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Fair Value of Financial Instruments
The carrying amounts of cash equivalents, trade receivables and trade
payables approximate their valued due to their short-term nature.
Inventories
Inventories consist primarily of food, beverages, merchandise, and operating
supplies and are stated at the lower of cost (generally first-in, first-out) or
market.
Property and Equipment
Property and equipment is stated at the lower of depreciated cost or net
realizable value. Net realizable value for financial reporting purposes is
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable. Impairment is
recognized when estimated expected future cash flows (undiscounted and without
interest charges) are less than the carrying amount of the Hotel. The
estimation of expected future net cash flows is inherently uncertain and relies
to a considerable extent on assumptions regarding current and future economics
and market conditions and the availability of capital. If, in future periods,
there are changes in the estimates or assumptions incorporated into the
impairment review analysis, the changes could result in an adjustment to the
carrying amount of the Hotel's long-lived assets. To the
F-17
VAIL MARRIOTT MOUNTAIN RESORT
NOTES TO FINANCIAL STATEMENTS--(Continued)
extent that an impairment has occurred, the excess of the carrying amount of
the Hotel over its estimated fair value, less estimated selling costs, would be
charged to income. As of September 30, 2001 and December 31, 2000, management
of the Hotel believed there was no impairment of the carrying value of the
Hotel's long-lived assets.
Depreciation and amortization are calculated using the straight-line method
over the estimated useful lives of the assets. The estimated lives are as
follows:
Building and improvements Shorter of 39 years or
life of asset
Furniture, fixtures, and
equipment.............. 3-7 years
The cost of building and improvements includes the purchase price of the
Hotel, associated legal fees, and acquisition costs.
Expenditures for maintenance and repairs are charged to operations as
incurred. Significant renovations or betterments that extend the economic
useful life of assets are capitalized.
During November of 2000, the Hotel sustained damage from a fire. Property
and equipment with a net book value of approximately $7.5 million were written
off in connection with the fire. Total casualty proceeds received from the
insurance company amounted to approximately $24 million, of which approximately
$13 million was still due as of September 30, 2001 (unaudited). All remaining
casualty amounts due were collected in December of 2001 (unaudited). As
subsequent payment was assured, the Hotel recognized the net gain from the fire
during the year ended December 31, 2000. In connection with its business
interruption insurance coverage, the Hotel received an advance payment of
approximately $3 million from its insurance company in December of 2000. This
advance payment, less any amounts recognized as revenue from business
interruption proceeds, is reflected as deferred revenue in the accompanying
December 31, 2000 balance sheet. As of September 30, 2001 all business
interruption proceeds received had been recognized as revenues based on the
covered period. Revenue related to business interruption insurance is reflected
in Other Departments Revenue in the accompanying statements of operations.
Income Taxes
No provision for income taxes has been recorded in the financial statements
as the Hotel is a wholly-owned subsidiary of Host. Host was formed as a limited
partnership and therefore, partners are required to report their share of
Host's earnings in their respective income tax returns. Accordingly, no
provision for income taxes has been allocated to the Hotel.
Revenue Recognition
Revenue is recognized as earned. Ongoing credit evaluations are performed
and an allowance for doubtful accounts has been provided for the portion of
accounts receivable which is estimated to be uncollectible.
Advertising Costs
Advertising costs are expensed the first time the advertising takes place.
Earnings Per Share
The provisions of Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share", are not applicable to the Hotel. As such, the items
required for presentation under pursuant to SFAS No. 128 are not reflected in
the accompanying financial statements.
F-18
VAIL MARRIOTT MOUNTAIN RESORT
NOTES TO FINANCIAL STATEMENTS--(Continued)
Distributions of Cash Flow
The Hotel remits all available cash flow to Host on a periodic basis.
Recently Issued Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations". SFAS No. 141 addresses financial accounting
and reporting for business combinations and supersedes APB Opinion No. 16,
"Business Combinations". The major provisions of SFAS No. 141 include (a) the
elimination of the pooling-of-interests method of accounting for business
combinations, (b) additional criteria for the recognition of intangible assets
independent of goodwill, and (c) disclosure of the primary reasons for a
business combination and the allocation of the purchase price paid to the
assets acquired and liabilities assumed by major balance sheet caption. The
majority of the provisions of APB Opinion No. 16 are retained by SFAS No. 141.
The provisions of SFAS No. 141 apply to all business combinations initiated
after June 30, 2001.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 142 addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes APB Opinion No. 17,
"Intangible Assets". SFAS No. 142 addresses how intangible assets that are
acquired individually or with a group of other assets (but not those acquired
in business combinations) should be accounted for in financial statements upon
their acquisition, and also addresses how goodwill and other intangible assets
(including those acquired in business combinations) should be accounted for
after they have been initially recognized in the financial statements. The
major provisions of SFAS No. 142 and differences from APB Opinion No. 17
include (a) no amortization of goodwill and other certain intangible assets
with indefinite lives, (b) a more aggregate view of goodwill and accounting for
goodwill based on units of the combined entity, (c) a better defined "two-step"
approach for testing impairment of goodwill, (d) a better defined process for
testing other intangible assets for impairment, and (e) disclosure of
additional information related to goodwill and intangible assets. The
"two-step" impairment approach to testing goodwill is required to be performed
at least annually with the first step involving a screen for potential
impairment and the second step measuring the amount of impairment. The
provisions of SFAS No. 142 are required to be applied starting with fiscal
years after December 15, 2001. The Hotel does not anticipate the adoption of
SFAS No. 142 to have any impact on its financial position or results of
operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of", but retains the requirements of SFAS No.121 to (a)
recognize an impairment loss only if the carrying amount of a long-lived asset
is not recoverable from its undiscounted cash flows and (b) measure an
impairment loss as the difference between the carrying amount and fair value of
the asset. SFAS No. 144 removes goodwill from its scope as the impairment of
goodwill is addressed prospectively pursuant to SFAS No. 142. SFAS No. 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001, and interim periods within those years. The Hotel does not
expect the adoption of SFAS No. 144 to have a material impact on its financial
position or results of operations.
3. MANAGEMENT AGREEMENT:
On October 20, 1994, the Hotel entered into an operating agreement with
Marriott Hotel Services, Inc. (the "Manager") for the management and operations
of the Hotel. The operating agreement has a term of approximately fifteen
years, which was to expire in December of 2009. Under the operating agreement,
the Hotel is required to pay the Manager a base fee equal to 3% of Gross
Revenues, as defined. The Hotel incurred a base fee of $575,130, $436,742
(unaudited) and $483,168 (unaudited) during the year ended December 31, 2000
and the nine months ended September 30, 2001 and 2000, respectively. The Hotel
is also required to pay an incentive
F-19
VAIL MARRIOTT MOUNTAIN RESORT
NOTES TO FINANCIAL STATEMENTS--(Continued)
fee equal to 40% of the available net cash flow, as defined, provided that the
incentive fee does not exceed 20% of operating profit with respect to each
fiscal period. The Hotel incurred incentive fees of $407,455, $620,837
(unaudited) and $294,038 (unaudited) during the year ended December 31, 2000
and the nine months ended September 30, 2001 and 2000, respectively. During the
nine months ended September 31, 2001 (unaudited), the incentive fee was not
impacted by certain expenses incurred by the Hotel related to the fire.
4. FUTURE RENTAL RECEIPTS:
The Hotel entered into a lease agreement with a tenant to lease retail space
in the Hotel. The agreement has an initial term of three years expiring
September 30, 2002. Rental income is reflected in Other Departments Revenue in
the accompanying statements of operations. Future minimum base rentals, under
noncancelable leases, due to the Hotel as of December 31, 2000 are as follows:
2001............................................. $ 66,756
2002............................................. 50,067
--------
$116,823
========
5. RELATED PARTY TRANSACTIONS:
The Hotel has entered into management agreements with the third party owners
of the 28 condominium units contained within the Hotel. The Hotel is
responsible for the management and maintenance of these units, including the
collection of rental income from guests' stays. The Hotel then remits to each
unit owner a pre-defined percentage (between 50% and 70%) of the rental income
received from guests. The rental receipts received by the Hotel, net of the
amounts remitted to condominium unit owners, are reflected as Room Revenues in
the accompanying statements of operations. During the year ended December 31,
2000 and the nine months ended September 30, 2001 and 2000, the Hotel remitted
$498,835, $421,503 (unaudited) and $418,305 (unaudited), to the condominium
unit owners, respectively.
The Hotel leases various apartments from an apartment complex located in the
Vail Valley. The Hotel then subleases these apartments to employees to provide
affordable housing. The Hotel pays the apartment complex approximately $264,000
each year for the lease of the units and recoups approximately $150,000 from
its employees on an annual basis. The amounts paid to the apartment complex
owner are reflected net of the rental amounts received from employees in the
accompanying statements of operations.
The Hotel participates in the Marriott Rewards program through which guests
may redeem awards for free rooms and other amenities at the Hotel. The Hotel is
reimbursed by Host for a pre-determined amount for each room occupied under
this program. During the year ended December 31, 2000 and the nine months ended
September 30, 2001 and 2000, the Hotel recognized $362,946, $285,285
(unaudited) and $334,443 (unaudited) as room revenues under this program,
respectively. The revenue recognized is equal to the reimbursements received
from Host.
During June of 2001 (unaudited), Host, on behalf of the Hotel, entered into
a technical services agreement with Marriott International Design and
Construction Services, Inc. ("MIDCS"), a related party, to provide project
management and other technical services related to the re-construction of the
section of the Hotel damaged in the November 2000 fire. Under this agreement,
MIDCS provides to Host a periodic estimate of costs and expenses to be
incurred, with compensation then agreed to by both parties. The agreement runs
through the completion of the construction project.
F-20
VAIL MARRIOTT MOUNTAIN RESORT
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. COMMITMENTS AND CONTINGENCIES:
Operating Leases
The Hotel leases equipment and vehicles under operating leases with terms
ranging from one to five years. Future minimum lease payments under
noncancelable operating leases as of December 31, 2000 are as follows:
2001............................................. $ 565,120
2002............................................. 402,531
2003............................................. 46,644
2004............................................. 33,019
2005............................................. 2,400
----------
$1,049,714
==========
The Hotel may be subject to certain litigation and claims in the ordinary
course of business, which are generally covered by insurance policies. In
management's opinion, litigation and claims will not have a material adverse
effect upon the financial position or results of operations of the Hotel.
7. SUBSEQUENT EVENT:
In December of 2001, the Hotel's assets and liabilities were sold to a
wholly-owned subsidiary of Vail for a sales price of approximately $50 million
in cash. In connection with the sale of the Hotel, Vail entered into a
franchise agreement with Marriott International, Inc. for the continued use of
the Marriott brand name and participation in group advertising, promotional and
sales programs. Under this agreement, Vail is required to pay Marriott
International, Inc. a monthly franchise fee equal to 6% of gross room sales and
3% of gross food and beverage sales in addition to a chain-wide fee equal to 1%
of gross room sales at the Hotel. The original term of the franchise agreement
is 20 years.
F-21
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You must
not rely on unauthorized information. This prospectus is not an offer to sell
or buy any securities in any jurisdiction where it is unlawful. The information
in this prospectus is current as of February 22, 2002.
-----------------
TABLE OF CONTENTS
Page
----
Notice to United Kingdom Residents....... i
Where You Can Find More Information...... i
Forward-Looking Statements............... ii
Prospectus Summary....................... 1
Summary Consolidated Financial
and Operating Data..................... 13
Risk Factors............................. 16
Use of Proceeds.......................... 22
Capitalization........................... 23
The Exchange Offer....................... 24
Description of Notes..................... 33
Description of Certain Indebtedness...... 64
Plan of Distribution..................... 66
Certain Federal Income Tax Considerations 67
Legal Matters............................ 70
Independent Public Accountants........... 70
Index to Financial Statements............ F-1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$160,000,000
VAIL RESORTS, INC.
[LOGO] VAIL RESORTS TM
Exchange Offer for $160,000,000 Aggregate Principal Amount
of 8 3/4% Senior Subordinated
Notes due 2009
-----------------
PROSPECTUS
-----------------
February 22, 2002
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
