**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

 

**FORM 10-K**

 

| **ý** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|------------|-------------------------------------------------------------------------------------------|

 

**Forthe fiscal year ended July 28, 2002**

 

**or**

** **

| **o** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|-------|-----------------------------------------------------------------------------------------------|

 

**Forthe transition periodfrom                to                **

 

**CommissionFile Number 1-13507**

 

| **American Skiing Company**                                      |
|------------------------------------------------------------------|
| (Exact name of  registrant as specified in its charter)          |
|                                                             |
| **Delaware**                                                     |   | **04-3373730** |
| (State or other  jurisdiction of  incorporation or organization) |   | (I.R.S.  Employer Identification No.) |
|                                                             |   |   |
| **136 Heber Avenue, #303**                                       |
| **P.O. Box 4552**                                                |
| **Park City, Utah 84060**                                        |
| (Address of  principal executive office)                         |
| (Zip Code)                                                       |
|                                                             |   |   |
| **(435)  615-0340**                                              |
| (Registrant’s  telephone number, including area code)       |

 

Securities registeredpursuant to Section 12(b) of the Act:

 

**None.**

 

Securities registeredpursuant to Section 12(g) of the Act:

 

**Common Stock, $.01 par value**

(Title of Each Class)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities and Exchange Act of 1934 during thepreceding 12 months (or shorter period that the registrant was required to filesuch reports), and (2) has been subject to the filing requirements for at leastthe past 90 days.

Yes ýNo o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined by Rule 12b-2 of theExchange Act.

Yes oNo ý

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of the registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form10-K.  ý

 

The aggregate marketvalue of the registrant’s outstanding common stock held by non-affiliates ofthe registrant on January 26, 2003, determined using the per share closingprice thereof on the Over the Counter Bulletin Board, was approximately $2.6million.  As of January 26, 2003,31,724,141 shares of common stock were issued and outstanding, of which14,760,530 shares were Class A common stock.

 

 

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American SkiingCompany

 

Form 10-K AnnualReport, for the year ended July 28, 2002

 

American SkiingCompany and Subsidiaries

 

Table of Contents

 
|                                                                                              | **Page** |
|---------------------------------------------------------------------------------------------------|----------|
| Part I                                                                                            |     |
| Item 1 and Item  2 Business and Properties                                                        | 1        |
|                                                                                              |     |
| Item 3Legal Proceedings                                                                           | 18       |
|                                                                                              |     |
| Item  4Submission  of Matters to a Vote of Security Holders                                       | 19       |
|                                                                                              |     |
| Part II                                                                                           |     |
|                                                                                              |     |
| Item  5Market  for Registrant’s Common Equity and Related Shareholder Matters                | 19       |
|                                                                                              |     |
| Item  6Selected Financial Data                                                                    | 20       |
|                                                                                              |     |
| Item 7Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 22       |
|                                                                                              |     |
| Item 7AQuantitative  and Qualitative Disclosures about Market Risk                                | 44       |
|                                                                                              |     |
| Item 8Financial  Statements and Supplementary Data                                                | 45       |
|                                                                                              |     |
| Item 9Changes  in and Disagreements with Accountants on Accounting and Financial Disclosure       | 46       |
|                                                                                              |     |
| Part III                                                                                          |     |
|                                                                                              |     |
| Item 10Directors  and Executive Officers of the Registrant                                        | 47       |
|                                                                                              |     |
| Item 11Executive Compensation                                                                     | 50       |
|                                                                                              |     |
| Item 12Security  Ownership of Certain Beneficial Owners and Management                            | 57       |
|                                                                                              |     |
| Item 13Certain  Relationships and Related Transactions                                            | 61       |
|                                                                                              |     |
| Part IV                                                                                           |     |
|                                                                                              |     |
| Item 14Exhibits, Financial Statement Schedules and  Reports on Form 8-K                           | 64       |
|                                                                                              |     |
| Signatures                                                                                        | 72       |
|                                                                                              |     |
| Certifications of  Chief Executive Officer and Chief Financial Officer                            | 74       |

 

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**PARTI**

**Items 1 and 2 - Business andProperties**

**American Skiing Company**

 

**Business Description**

 

We are organized as aholding company and operate through various subsidiaries.  Refer to Note 2 - “Basis of Presentation” inthe consolidated financial statements included in this report for a discussionof the general development of our business, our subsidiaries andpredecessors.  We are one of the largestoperators of alpine ski and snowboard resorts in the United States.  We develop, own and operate a range ofhospitality-related businesses, including skier development programs, hotels,golf courses, restaurants and retail locations.  We also develop, market and operate ski-in/ski-out alpinevillages, townhouses, condominiums and quartershare ownership hotels.  We manage our operations in two businesssegments, ski resort operations and mountainside real estate development.  For information by reportable segment referto Note 16 - “Business Segment Information” in the consolidated financialstatements included in this report.

 

Our revenues (excludingdiscontinued operations) and net loss available to our common shareholders forthe year ended July 28, 2002 (Fiscal 2002) were $272.1 million and $206.7million, respectively.  Our earningsbefore interest expense, income taxes, depreciation and amortization, or EBITDA(excluding discontinued operations), excluding $111.6 million of merger,restructuring and asset impairment charges (as discussed in Note 13 - “Merger,Restructuring and Asset Impairment Charges” in the consolidated financialstatements) and $3.3 million of write-off of deferred financing costs, was$28.4 million for Fiscal 2002.  Resortrevenues and resort EBITDA (excluding discontinued operations) for Fiscal 2002,excluding $47.9 million of merger, restructuring and asset impairment chargesand $3.3 million of deferred financing costs were $243.8 million and $30.2million, respectively.  Real estaterevenues and real estate EBITDA for Fiscal 2002, excluding $63.7 million ofmerger, restructuring and asset impairment charges, were $28.3 million and($1.8) million, respectively.  TotalEBITDA (excluding discontinued operations), inclusive of all merger,restructuring and asset impairment charges and write-off of deferred financingcosts was ($86.6) million in Fiscal 2002. Our resort EBITDA (excluding discontinued operations) and real estateEBITDA, inclusive of all merger, restructuring and asset impairment charges andwrite-off of deferred financing costs, were ($21.1) million and ($65.5)million, respectively, in Fiscal 2002. For more information relating to our financial condition, see “CertainConsiderations – Our business is substantially leveraged and we face a numberof financial risks.”  For areconciliation of net loss to EBITDA, see Part II, Item 7 – “Management’sDiscussion and Analysis of Financial Condition and Results of Operations –Results of Operations”.  We believe thatEBITDA is an indicative measure of a resort company’s operating performance andis generally used by investors to evaluate companies in the resortindustry.  However, EBITDA as used inthis report may not be comparable to similarly titled measures reported byother companies.  Cash flows fromoperating activities, investing activities and financing activities for Fiscal2002 were approximately ($1.1) million, $94.7 million and ($98.3) million,respectively.  Resort cash flows fromoperating activities, investing activities and financing activities for Fiscal2002 were approximately $0, $81.0 million and ($82.6) million,respectively.  Real estate cash flowsfrom operating activities, investing activities and financing activities forFiscal 2002 were approximately ($1.1) million, $13.7 million and ($15.7)million, respectively.

 

**Resort Operations**

 

Our resort business isgenerated primarily from our ownership and operation of seven ski resorts,several of which are among the largest in the United States.  During the 2001-02 ski season, we ownedeight resorts which generated approximately 4.6 million skier visits,representing approximately 8.5% of total skier visits in the UnitedStates.  The following table summarizescertain key statistics of our resorts. The table includes statistics for the

 

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Heavenly resort, which wesold in May 2002.  See Note 20 –“Assets/Liabilities Held For Sale and Discontinued Operations” in theconsolidated financial statements.

 
| **Resort,  Location**                         |   | **Skiable  Terrain****(acres)** |   | **Vertical  Drop  (feet)** |   | **Trails** |   | **Total Lifts  (high-speed)** |   | **Snowmaking  Coverage** |   | **Ski  Lodges** |   | **2001-02  Skier Visits  (000s)** |   |
|-----------------------------------------------|--------|---------------------------------|--------|----------------------------|--------|------------|--------|-------------------------------|--------|--------------------------|--------|-----------------|--------|-----------------------------------|--------|
| **Killington/Pico,  VT**                      |   | 1,182                           |   | 3,050                      |   | 200        |   | 31 (8                         | )      | 70                       | %      | 8               |   | 953                               |   |
| **Sunday  River, ME**                         |   | 660                             |   | 2,340                      |   | 127        |   | 18 (4                         | )      | 92                       | %      | 4               |   | 521                               |   |
| **Mount  Snow/Haystack, VT**                  |   | 757                             |   | 1,700                      |   | 145        |   | 23 (3                         | )      | 75                       | %      | 6               |   | 472                               |   |
| **Sugarloaf/USA,  ME**                        |   | 1,410                           |   | 2,820                      |   | 129        |   | 15 (2                         | )      | 92                       | %      | 2               |   | 331                               |   |
| **Attitash  Bear Peak, NH**                   |   | 280                             |   | 1,750                      |   | 70         |   | 12 (2                         | )      | 97                       | %      | 2               |   | 190                               |   |
| **The  Canyons, UT**                          |   | 3,500                           |   | 3,190                      |   | 144        |   | 16 (7                         | )      | 6                        | %      | 3               |   | 288                               |   |
| **Steamboat,  CO**                            |   | 2,939                           |   | 3,668                      |   | 142        |   | 20 (5                         | )      | 15                       | %      | 4               |   | 1,001                             |   |
| **Total  of resorts we currently own**        |   | 10,728                          |   | 18,518                     |   | 957        |   | 135 (31                       | )      |                     |   | 29              |   | 3,756                             |   |
| **Heavenly,  CA/NV**                          |   | 4,800                           |   | 3,500                      |   | 84         |   | 29 (8                         | )      | 69                       | %      | 7               |   | 832                               |   |
| **Total  of resorts we owned in Fiscal 2002** |   | 15,528                          |   | 22,018                     |   | 1,041      |   | 164 (39                       | )      |                     |   | 36              |   | 4,588                             |   |

 

**Resort Properties**

 

Our resorts includeseveral of the top resorts in the United States based on skier visits.  This includes Killington, the sixth largestresort in the United States and the largest resort in the northeast with approximately953,000 skier visits in the 2001-02 ski season, Steamboat, the fifth largestski resort in the United States with over 1.0 million skier visits in the2001-02 ski season, and Sunday River and Mount Snow, which together withKillington comprised three of the four largest resorts in the Northeast duringthe 2001-02 ski season.

 

***The Canyons***.  When we acquired The Canyons, located in the Wasatch Range of theRocky Mountains adjacent to Park City, Utah, in July 1997, it was primarily anundeveloped ski resort with significant potential for future operational andreal estate development.  We believethat The Canyons is one of the most accessible destination resorts in theworld, with the Salt Lake International Airport only 32 miles away via directmajor state highway access.  We believethat The Canyons has significant growth potential due to its proximity to SaltLake City and Park City, its undeveloped ski terrain and its real estatedevelopment opportunities.  The UtahWinter Sports Park, which is located immediately adjacent to the resort, servedas the venue for the ski jumping, bobsled and luge events in the 2002 WinterOlympic Games.  The Canyons also hostedthe NBC Today show from its Grand Summit Hotel during the Olympics which weexpect to further increase the awareness and appeal of the resort.

 

Since acquiring TheCanyons, we have invested significant capital and incurred operating losses inorder to (1) create a substantial on-mountain skiing infrastructure capable ofsupporting substantial skier visit growth and (2) capture significant positiveawareness from the 2002 Winter Olympic Games. During the 1997-98 season, its first under our management, the resortgenerated approximately 167,000 skier visits. This number has increased to approximately 288,000 skier visits in2001-02. In November 1999, we obtained final approval of a master developmentplan for The Canyons which includes entitlements for approximately 5 millionsquare feet of development.  Our masterplan includes developments by us and by third parties.  Two such third party projects, a timesharehotel being developed by Westgate Resorts (the first phase of which opened inFebruary 2002) and a condominium hotel being developed immediately adjacent tothe resort, are currently under construction and are expected to further add tothe bed base surrounding the resort. The Canyons receives significant amounts of natural snow, averaging 314inches annually the past 6 seasons.  Weintend to gradually invest additional capital to improve and expand on-mountainfacilities and skiable terrain as skier visits grow.

 

***Steamboat***.  The Steamboat ski area is located in the Medicine Bow/RouttNational Forest, Routt County, Colorado on the westerly slopes of Mt. Werner,approximately 2.5 miles southeast of downtown Steamboat Springs, Colorado.  The area consists of 3,486 acres of landlicensed under a special use permit issued by the United States Forest Serviceand 245 acres of private land which we own located at the base of the skiarea.  Steamboat receives a significantamount of natural dry snow, averaging 330 inches annually the past 10 skiseasons.  During Fiscal 2001, wecompleted a 327-room Grand Summit Hotel at Steamboat (Steamboat Grand), whichhas brought both additional beds and enhanced amenities to the Steamboat basearea.

 

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***Killington. ***Killington,located in central Vermont, is the largest ski resort in the eastern UnitedStates and the fifth largest in the United States, generating approximately953,000 skier visits in 2001-02. Killington is a seven-mountain resort consisting of approximately 1,200acres of skiable terrain.  We believethe size and diversity of skiable terrain at Killington make it attractive toall levels of skiers and one of the most widely recognized of our resorts withregional, national and international clientele.

 

During Fiscal 2001, wecompleted construction of a $5 million snowmaking expansion project atKillington which provides the resort with substantially more water availabilityand up to 30% more snowmaking capacity during certain periods.  Since its completion, we believe that thisadditional capacity has lead and should continue to lead to higher early seasontrail counts and enhanced market confidence in the quality and reliability ofthe snow surface.

 

Killington is ayear-round resort offering complete golf amenities including an 18-holechampionship golf course, a golf school, a driving range, mountain biking,hiking, water slides and an alpine slide. The current master plan for the proposed Killington resort villagedevelopment includes over 4,400 units in over 5.3 million square feet of totalresidential and commercial development.

 

***Sunday River. ***SundayRiver, located in the western mountains of Maine and approximately a three-hourdrive from Boston, is the third largest ski resort in the northeast UnitedStates with approximately 521,000 skier visits during the 2001-02 season.  Extending across eight interconnectedmountains, its facilities consist of approximately 660 acres of skiable terrainand an additional 7,000 acres of undeveloped terrain.  Over the past 15 years, we have developed extensive real estateat Sunday River, including whole ownership condominiums and townhouses and twoquartershare hotels, both of which are sold out.  We have approved development plans for a resort village at theJordan Bowl Area (the most westerly peak), which eventually could include over1,350 units, a golf course and 1.1 million square feet of totaldevelopment.  We recently entered into anon-binding term sheet with an unrelated third party for the construction,development and operation of a golf course in the Jordan Bowl area.  We believe that, if completed, the golfcourse project will further enhance the value and attractiveness of the SundayRiver resort as well as real estate development opportunities controlled by us.

 

***Mount Snow***.  Mount Snow, located in West Dover, Vermont, is the fourth largestski resort in the northeast United States with approximately 472,000 skiervisits in 2001-02.  Mount Snow is thesouthernmost of our eastern resorts.  Alarge percentage of the skier base for Mount Snow originates fromMassachusetts, Connecticut and New York. Mount Snow hosted the Winter X Games in 2000 and 2001 as part of aneffort to strategically position the property in the fast growing snow boardingmarket segment. Mount Snow owns and operates an 18-hole championship golfcourse and is the headquarters of our “Original Golf School”, which consists ofthree golf schools located at various locations on the east coast of the UnitedStates.

 

***Sugarloaf/USA****. *Sugarloaf/USA is located in the Carrabassett Valley ofMaine.  Sugarloaf is a single mountainwith a 4,237-foot summit and a 2,820-foot vertical drop.  Sugarloaf offers one of the largestski-in/ski-out base villages in the eastern United States, containing numerousrestaurants, retail shops and lodging facilities, including a Grand SummitHotel.  Sugarloaf is widely recognizedfor its challenging terrain and snowfields which represent the onlylift-serviced above-tree line skiing in the Northeast.  As a destination resort, Sugarloaf has abroad market, including areas as distant as New York, New Jersey, Pennsylvania,Washington D.C. and Canada.  Sugarloafalso leases and operates an 18-hole championship golf course which is designedby Robert Trent Jones Jr. and is consistently rated as one of the top 100public golf courses in the United States.

 

***Attitash Bear Peak***.  Attitash Bear Peak is one of New Hampshire’spremier family vacation resorts.  Its 12lifts (including three quad chairs) constitute one of New Hampshire’s largestlift networks.  Attitash Bear Peak islocated in the heart of the Mount Washington Valley which boasts over 200factory outlet stores, hundreds of bars and restaurants and a large variety oflodging options, including a 143-room slopeside Grand Summit Hotel andConference Center.  Attitash is ayear-round resort offering mountain biking, a water park, alpine slide and variousother summer amenities and benefits from its close proximity to majormetropolitan populations.

 

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***Heavenly****. *Located on the south shore of Lake Tahoe with three base areacomplexes, one in South Lake Tahoe, California and two in Stateline, Nevada,Heavenly consists of two peaks with a maximum elevation of approximately 10,060feet. We sold Heavenly in May 2002 to Vail Resorts, Inc.

 

***Real Estate Properties***.  We retain ownership of the front desk,retail space, restaurants and conference facilities, or “commercial core”, ofhotels developed by our real estate subsidiaries.  We currently own and operate the commercial core of eight GrandSummit Hotels (two at Sunday River and one each at Killington, Attitash BearPeak, Mount Snow, Sugarloaf/USA, The Canyons and Steamboat) and onewhole-ownership condominium/hotel at The Canyons (the Sundial Lodge).  We also own smaller lodging properties,hotels and inns at various resorts.

 

Effective May 20, 2002,our real estate subsidiary, American Skiing Company Resort Properties Inc.(Resort Properties), was in default on its real estate credit facility (RealEstate Term Facility) due to its failure to make a mandatory principalpayment.  Resort Properties isnegotiating with its lenders to restructure this facility. Regardless of theoutcome of the restructuring, we may lose control of assets pledged ascollateral under the Real Estate Term Facility.  A substantial portion of our developable real estate, includingsubstantially all of the developable residential real estate at The Canyons andSteamboat along with certain core village real estate at Killington, and thestock of our real estate development subsidiaries (including Grand SummitResort Properties, Inc.) is pledged to Fleet National Bank (Fleet) and thelenders under the Real Estate Term Facility. The commercial core units at the Sundial Lodge at The Canyons and theMount Snow Grand Summit Hotel in Vermont are also pledged to Fleet and thelenders.  The Grand Summit unitinventory discussed above and the land at the Sunday River resort do not securethe Real Estate Term Facility, although the pledge of stock of Grand SummitResort Properties, Inc. to secure the Real Estate Term Facility means that wemay lose control of the Grand Summit unit inventory to the lenders under theReal Estate Term Facility.  See “CertainConsiderations – Our primary real estate development subsidiary is in paymentdefault under its senior secured credit agreement, and our ability to achieveany future earnings from the real estate development assets held in thatsubsidiary may be significantly compromised” and “Management’s Discussion andAnalysis of Financial Condition and Results of Operations – Liquidity andCapital Resources” for a further discussion of the status of our efforts torestructure this credit facility and the implications to us and to ResortProperties of the proposed restructuring.

 

Inaddition to the developable real estate discussed above, we also ownsubstantial undeveloped real estate at various resorts which is not pledged ascollateral to the Real Estate Term Facility.

 

**Leased or Otherwise Committed Properties**

 

Our operations are whollydependent upon our ownership or long-term control over the skiable terrainlocated within each resort.  Thefollowing summarizes certain non-owned real estate critical to ski operationsat each of our resorts.  We believe eachof the following leases, permits or agreements is in full force and effect andthat we are entitled to their benefit. See “Certain Considerations” for additional discussion of our leases andforest service permits.

 

Sunday River leasesapproximately 1,500 acres, constituting a substantial portion of its skiableterrain, under a 50-year lease terminating on October 14, 2030.  The lease renews automatically thereafter ona year-to-year basis unless terminated by either the lessor or lessee.  This lease was amended on January 23, 1998to allow Sunday River to purchase portions of the leased property for real estatedevelopment at a predetermined amount per acre.  In January 1998, we acquired an undivided one-half interest inthe fee title to the leased parcel.

 

Mount Snow leasesapproximately 1,315 acres, constituting a substantial portion of its skiableterrain.  Of this total, 893 acres areoccupied by Mount Snow pursuant to a special use permit granted by the UnitedStates Forest Service.  The permit has a40-year term expiring December 31, 2029 and is subject to renewal for anadditional 30-year term at the option of Mount Snow if various conditions aresatisfied.  Mount Snow also leases 252acres of skiable terrain from the Town of Wilmington, Vermont.  The lease expires November 15, 2030 andwhile there are no specific renewal provisions included in the lease, weanticipate that a renewal could be obtained. Mount Snow also has the option to purchase the Town of Wilmington leasedproperty and a right of first refusal in the event the lessor receives an offerfor the leased property.

 

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Attitash Bear Peak usesapproximately 280 acres of its skiable terrain pursuant to a special use permitissued by the United States Forest Service. The permit has a 40-year term expiring July 18, 2034 and is renewablesubject to given conditions.  Inaddition, Attitash Bear Peak leases a portion of its parking facilities under alease expiring December 31, 2003. Attitash Bear Peak has the option to purchase this leased property atany time during the lease term.

 

Killington leasesapproximately 1,100 acres from the State of Vermont.  A portion of that property constitutes a substantial amount ofKillington’s skiable terrain.  Theinitial lease was for a 10-year term which commenced in 1960 but contains nine10-year renewal options.  Killingtonexercised the renewal option in 1970, 1980, 1990 and 2000.  Assuming continued exercise of the renewaloptions, the lease will ultimately expire in the year 2060.  The lease is subject to a buy-out optionretained by the State of Vermont, as landlord. At the conclusion of each 10-year term, or extended term, the State hasthe option to buy out the lease for an amount equal to Killington’s adjustedcapital outlay plus 10% of the gross receipts from the operation for thepreceding three years.  Adjusted capitaloutlay means total capital expenditures extending back to the date of origin ofthe lease depreciated at 1% per annum, except that non-operable assetsdepreciate at 2% per annum.  Thisbuy-out option will next become exercisable in the year 2010.  Although we have not had confirmation fromVermont State officials, we have no reason to believe that the State intends toexercise the buy-out option at that time.

 

Sugarloaf/USA leases theSugarloaf Golf Course from the Town of Carrabassett Valley, Maine pursuant to alease dated November 16, 2000.  Thelease term expires November 2023. Sugarloaf has an option to renew the lease for an additional 5-yearterm.

 

The Canyons leasesapproximately 2,100 acres, including most of the base area and a substantialportion of its skiable terrain, under a lease from Wolf Mountain Resorts,LC.  The initial term of this lease is50 years expiring July 2047, with an option to extend for three additionalterms of 50 years each.  The leaseprovides an option to purchase those portions of the leased property that areintended for residential or commercial development, subject to certainreconveyance rights, at a cost of 5.5% of the full capitalized cost of thedevelopment in the case of property that we retain, or 11% of that cost in thecase of property intended for resale. The Canyons also leases approximately 807 acres, which constitutes thearea for a planned mid-mountain village and a substantial portion of itsskiable terrain, from the State of Utah School and Institutional Trust LandAdministration.  Our lease term ends in2078 and provides an option to purchase those portions of the mid-mountainvillage area that are intended for real estate development at a cost of 25% oftheir fair market value on an undeveloped basis.  Our lease with Wolf Mountain Resorts also includes a sublease ofcertain skiable terrain owned by the Osguthorpe family.  We have established certain additional skidevelopment rights under a direct agreement with the Osguthorpe family.  The ski development rights for approximately3,000 acres of skiable terrain that we have targeted for development arecontained in a development agreement with Iron Mountain Associates, LLC, whichagreement includes a lease of all skiable terrain for a term ending September13, 2094.  We have executed an amendmentto this lease which provides that these ski development rights will be acquiredin fee by The Canyons in March and April of 2003, at which time the underlyinglease will terminate but our use of the property will remain subject to a developmentagreement with the former landlord.

 

Steamboat usesapproximately 3,486 acres, a substantial portion of which is skiable terrain,pursuant to a special use permit issued by the United States Forest Servicewhich expires on August 31, 2029.  UnderSteamboat’s existing master plan, an additional 958 acres of contiguousNational Forest lands can be added to the permitted area.

 

The United States ForestService can terminate most of the foregoing special use permits if itdetermines that termination is required in the public interest.  However, to our knowledge, no recreationalspecial use permit or term special use permit for any major ski resort then inoperation has ever been terminated by the United States Forest Service over theopposition of the permit holder.

 

**Resort Revenues**

 

Our resort revenues aregenerated from a wide variety of sources and include lift ticket sales, foodand beverage sales, retail sales including ski rentals and repairs, skierdevelopment, lodging and property management, golf and other summer activitiesand miscellaneous other sources.  Liftticket sales represent the single largest source

 

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of resort revenues andproduced approximately 43% of total resort operations revenue for Fiscal2002.  See “Management’s Discussion andAnalysis of Results of Operations”, included in Item 7 of this report, for moreinformation about the sources of our resort revenues for the last three fiscalyears.

 

***Lift Ticket Sales****. *We manage the yield and features of our lift ticket programsand products in order to increase and maximize ticket revenues and operatingmargins.  Lift tickets are sold tocustomers in packages together with accommodations in order to maximize totalrevenue.  We offer a wide variety ofincentive-based lift ticket programs designed to maximize skier visits duringnon-peak periods, to attract specific market segments and to leverage thecompetitive advantage of our extensive resort network.

 

***Food and Beverage****. *We own and operate a substantial majority of the food andbeverage facilities at our resorts, with the exception of the Sugarloaf resort,which is under a long-term concession contract with an unrelated thirdparty.  Our food and beverage strategyinvolves providing a wide variety of restaurants, bars, cafes, cafeterias andother food and beverage outlets at our resorts.  We directly or indirectly control the substantial majority of ouron-mountain and base area food and beverage facilities, which we believe allowsus to capture a larger proportion of guest spending.  We currently own and operate over 40 different food and beverageoutlets.  We are considering a varietyof performance enhancement opportunities to our food and beverage operations,including but not limited to, additional out-sourcing of these operations.

 

***Retail Sales****. *We own approximately 70 retail and ski rental shops operatingin our resorts.  The large number ofretail locations that we operate allows us to improve margins through largequantity purchase agreements and sponsorship relationships.  On-mountain shops sell ski equipment andaccessories such as skis, snowboards, boots, goggles, sunglasses, hats, glovesand larger soft goods such as jackets and snowsuits.  In addition, all sales locations offer our own branded apparelwhich generally provides higher profit margins than other retail products.  In the non-winter seasons, the shops sellmountain bikes, in-line skates, tennis equipment and warm weather apparel.

 

***Lodging and Property Management****. *Our lodging and propertymanagement departments manage our properties as well as properties owned bythird parties.  During the 2001-02 skiseason, our lodging departments managed approximately 3,100 lodging units atour resorts.  The lodging departmentsperform a full complement of guest services, which include reservations,property management, housekeeping and brokerage operations.  Most of our resorts have a welcome center towhich newly arriving guests are directed. The center allocates accommodations and provides guests with informationon all of the resort’s activities and services.  Our property management operation seeks to maximize the synergiesthat exist between lodging and lift ticket promotions.  In an effort to further enhance our lodgingmanagement capabilities, we have retained Interstate Hotels and Resorts, Inc.to assist in the management of our lodging businesses.

 

***Skier Development****.*Our Guaranteed Learn toSki Program was one of the first skier development programs to guaranty that acustomer would learn to ski in one day. The success of this program led to the development of “Perfect Turn,”which we believe was the first combined skier development and marketing programin the ski industry.  Perfect Turn skiprofessionals receive specialized instruction in coaching, communication,skiing and are also trained to sell related products and cross-sell otherresort goods and services and real estate. We operate a hard goods marketing program at each of our resortsdesigned to allow customers to test skis and snowboards with ski professionals,purchase their equipment from those professionals and receive ongoing productand technological support through Perfect Turn.

 

**Resort Operating Strategy**

 

Our operating strategiesinclude:

 

***Capitalize on Recent Facilities Expansion and Upgrades. ***We have investedapproximately $168 million expanding and upgrading our on-mountain facilitiesover the past five fiscal years, excluding investments at Heavenly andSugarbush (which were sold in Fiscal 2002). We have substantially re-tooled the physical plant at all of ourresorts.  As a result of thisinvestment, we believe that we now offer some of the most modern on-mountainfacilities available in each of our markets.

 

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***Multi-Resort Network. ***Our network of resorts provides both geographicdiversity and significant operating benefits. We believe our geographic diversity: (1) reduces the risks associated with unfavorable weather conditions andinsulates us from economic slowdowns in any one particular region; (2)increases the accessibility and visibility of our network of resorts to theoverall North American skier population; and (3) allows us to offer a widerange of mountain vacation alternatives.

 

We believe that owningmultiple resorts also provides us with the opportunity to:

 

•      Create one of the largest cross-marketingprograms in the industry,

•      Achieve efficiencies and economies of scale whengoods and services are purchased,

•      Strengthen our distribution network of travelagents and tour operators by offering a range of mountain resort alternatives,consistent service quality, convenient travel booking and incentive packages,

•      Establish performance benchmarks for operationsacross all of our resorts,

•      Utilize specialized individuals and cross-resortteams at the corporate level as resources for our entire business, and

•      Develop and implement consumer information andtechnology systems for application across all of our resorts.

 

***Increase Revenues Per Skier. ***We intend to increase our revenues perskier by continuing to improve our product offerings, enhancing our marketingcapabilities, reducing our reliance on heavily discounted pricing and expandingour revenue sources at each resort.  Weintend to increase non-lift ticket revenue in our retail, food and beverage,equipment rental, skier development, and lodging and property managementoperations by expanding and enhancing our facilities and improving our productquality and mix.  In addition, webelieve that cross selling of products and programs, such as our frequent skierand multi-resort programs, to resort guests will increase our resort revenuesand profitability.  Our goal is toincrease ticket yields by enhancing the quality of our product offerings,managing ticket discounts, closely aligning ticket programs to specificcustomer market segments, offering multi-resort ticket products and introducinga variety of programs that offer packages of tickets with lodging and otherservices available at our resorts.

 

***Innovative Marketing Programs. ***Our marketing programs are designed to takeadvantage of and promote the strong brands and unique characteristics of eachof our resorts, optimize cross-selling opportunities, and enhance our customerloyalty.  We have established jointmarketing programs with major corporations such as Sprint, Nike, Mobil,Anheuser-Busch, American Express, Quaker Oats, Pepsi/Mountain Dew, Rossignol,Vermont Pure, Kodak, and Green Mountain Coffee Roasters.  We believe these joint marketing programsgive us a high-quality image and strong market presence as well as access tooperational and marketing resources on both a regional and national basis.

 

We have established anetwork of seven high-quality ski resorts, through which we offer ticketproducts to our customers that are valid at many, if not all of ourresorts.  Examples of these innovativeprograms are the Ski America Pass, which allows the purchaser to ski at any ofour seven ski resorts nation-wide; the All East Pass, which allows unlimitedskiing at any of our five eastern resorts; the *mEticket*, which is aflexible multi-day ticket good at all seven of our resorts, with a slidingprice schedule offering discounts based on the number of days purchased.  The *mEticket*program is a nation-wide programtargeted at retaining skiers who ski three to twelve days each season, whichour research indicates represents the majority of the ski population.  By giving guests an incentive to purchase theirskiing for the year early in the ski season with the special values offered bythe Ski America Pass, the All East Pass and the *mEticket*program*,*we believe that we can encourage guests to ski more often and do the majorityof their skiing at our resorts.

 

We utilize a variety ofmarketing media, including direct mail, radio, television and theInternet.  Television and radiomarketing efforts include both strategic and tactical messaging.  Strategic advertising promotes the sportsand resorts themselves, while tactical messaging provides current informationrelated to ski conditions as a means of promoting visits to our resorts.  In addition, each resort uses local cabletelevision networks to provide current information and cross-sell resortproducts and services.  Internetmarketing activities include individual resort websites which provide currentsnow conditions, special deals and online reservation booking, a real estatesales

 

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website promoting ourGrand Summit Hotels and Resort Villages, a dedicated site for *mEticket*,a site promoting summer vacation activities, on-line retail sales and a specialsite promoting learning to ski or snowboard. All sites are linked through our *www.peaks.com* site.  Guests are increasingly researching conditionsand purchasing tickets and related resort products online.  We also offer all of our single andmulti-resort season pass programs online at either our*www.peaks.com* site orthrough each of our individual resorts’ web sites.

 

***Expand Golf and Convention Business. ***Sugarloaf, Killingtonand Mount Snow all operate championship resort golf courses.  The Sugarloaf course, designed by RobertTrent Jones, Jr., has been rated as one of the top 100 public courses in thecountry according to a Golf Magazine survey. Our golf program and other recreational activities draw off-seasonvisitors to our resorts and support our growing off-season convention business,as well as our real estate development operations.  We also have opportunities to develop additional golf courses atThe Canyons, Sunday River and possibly Attitash.  We recently entered into a non-binding term sheet with anunrelated third party for the construction, development and operation of a golfcourse in the Jordan Bowl area at the Sunday River resort, the financing ofwhich will be provided by the unrelated third party.  Management believes that, if completed, the golf course projectwill further enhance the value and attractiveness of the Sunday River resort.  We are aggressively continuing to expand ourin-season and off-season convention business by improving the quality, size andcompensation systems of our sales and marketing staff as well as employing theconvention expertise of Interstate Hotels & Resorts, Inc. through ourmanagement consulting agreement with that company.

 

***Improve Hotel Occupancy and Operating Margins****. *We entered into a comprehensivemanagement consulting agreement beginning in Fiscal 2002 with Interstate Hotels& Resorts, Inc., under which Interstate is supporting the management andoperations of our lodging and property management division.  We believe that, with Interstate’sassistance, we can continue to achieve operating efficiencies and improvedmarketing strategies which will improve the occupancy levels and operating marginsof our lodging properties.

 

**Mountainside Real Estate Development**

 

In addition to operatingalpine resorts, we develop mountainside real estate which complements theexpansion of our on-mountain operations. Our real estate revenues are generated from the sale and leasing ofinterests in real estate development projects that we have constructed at ourresorts and the sale to third parties of developmental real estate at ourresorts.

 

Our real estatedevelopment strategy is centered on the creation of “resort villages” at threeof our largest resorts (The Canyons, Killington and Sunday River) and to alesser extent, at our other resorts. Development within these resort villages is focused on projects which webelieve will generate the highest returns. Each resort village is expected to consist of quartershare hotels, wholeand fractional ownership condominium hotels, townhouses and single familyhomes, and retail operations.  See“Certain Considerations” for additional discussion related to real estate development.

 

***Grand Summit Hotels. ***Our primary real estate development activities inrecent years have been the construction of Grand Summit Hotels at each of ourresorts.  The Grand Summit Hotel is aninterval ownership product which is a signature element of our resorts.  Each hotel is a condominium consisting offully furnished residential and commercial units with a spacious atrium lobby,one or more restaurants, retail space, a grand ballroom, conference space, ahealth club with an outdoor heated pool (except Sugarloaf) and otherrecreational amenities.  Residentialunits in the hotel are sold in quartershare interests, with each unitconsisting of four 13-week ownership interests spread evenly throughout the year.  The balance of the hotel, including restaurants,retail space and conference facilities, is typically retained by us and managedby the host resort.  The initial sale ofquartershare units generates revenue for the real estate segment, and ourresort segment generates a continuing revenue stream from operating the hotel’sretail, restaurant and conference facilities and from renting quartershareinterval interests when not in use by their owners.

 

We have also developed awhole ownership condominium hotel at The Canyons (the Sundial Lodge) andtownhouse projects at Sunday River.  Wecontinue to develop and market to third parties development sites for

 

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townhomes, single familyprojects and whole ownership condominium hotels, most recently at ourKillington, Steamboat, Mount Snow and Sugarloaf resorts.

 

Local approvalsfor our resort village plans are at various stages of completion.

 

•      *The Canyons: *Wesecured specially planned area approval from the appropriate authorities forour master plan at The Canyons on November 15, 1999.  Pursuant to this master plan approval, density for theresidential units and commercial development for our 15-year master plan at TheCanyons has been approved.  As we seekto develop specific projects within the master plan at The Canyons, we willneed local approval for specific site plans. See “Certain Considerations – Our business is subject to heavyenvironmental and land use regulation” for additional discussion regarding thestatus of our master plan permits at The Canyons.

 

•      *Killington: *The master plan for theKillington Resort Village was approved by local voters in the town ofKillington in November 1999 and local and state permits were issued in July2000.  Killington received partial andconceptual approval for the ten criteria which are part of the State of Vermontland use review and approval process. Final approval of each of the criteria will be rendered upon submittalof actual construction plans for specific projects.

 

•      *SundayRiver: *The resort villagemaster plan for Jordan Bowl is complete. Individual permits for projects will be required before beginningdevelopment.

 

Resort Propertiesis in default on its Real Estate Term Facility and is negotiating with itslenders to restructure this facility. See “Certain Considerations – Our primary real estate developmentsubsidiary is in payment default under its senior secured credit agreement, andour ability to achieve any future earnings from the real estate developmentassets held in that subsidiary may be significantly compromised” and“Management’s Discussion and Analysis of Financial Condition and Results ofOperations – Liquidity and Capital Resources” for a further discussion of thestatus of our efforts to restructure this credit facility and the implicationsto us and to Resort Properties of the proposed restructuring.

 

**Alpine Resort Industry**

 

The alpine resortindustry is characterized by significant barriers to entry because the numberof attractive sites is limited, the costs of resort development are high, andenvironmental regulations impose significant restrictions on newdevelopment.  In the United States,approximately 493 ski areas generated approximately 54.4 million skier visitsduring the 2001-02 ski season.  Since1985, the ski resort industry has undergone a period of consolidation andattrition, resulting in a significant decline in the total number of ski areasin North America.  The number of skiresorts in the United States has declined from approximately 735 in 1983 toapproximately 493 in 2002, although the number of skier visits has remainedrelatively flat.  Despite the recentconsolidation trend overall, ownership of the smaller regional ski resortsremains highly fragmented.  We believethat technological advances and rising infrastructure costs are the primaryreasons for the ski resort industry consolidation, and that furtherconsolidation is possible as smaller regional resorts are acquired by largerresort operators with more sophisticated management capabilities and increasedavailability of capital.

 

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The following chart showsa comparison of the industry-wide skier visits compared to our skier visits inthe U.S. regional ski markets during the 2001-02 ski season:

 
| **Geographic Region** |   | **2001-02  Total Skier  Visits* (in  millions)** |   | **Percentage  of Total  Skier Visits** |   | **Skier Visits  at Company  Resorts  (in millions)** |   | **Company  Regional  Market  Share** |   | **Company Resorts**                                                                    |   |
|-----------------------|--------|--------------------------------------------------|--------|----------------------------------------|--------|------------------------------------------------------|--------|--------------------------------------|--------|----------------------------------------------------------------------------------------|--------|
| **Northeast**         |   | 12.2                                             |   | 22.4                                   | %      | 2.5                                                  |   | 20.5                                 | %      | Killington/Pico, Mount Snow/Haystack, Sunday River, Sugarloaf/USA,  Attitash Bear Peak |   |
| **Southeast**         |   | 5.0                                              |   | 9.2                                    | %      | —                                               |   | —                               |   |                                                                                   |   |
| **Midwest**           |   | 7.0                                              |   | 12.9                                   | %      | —                                               |   | —                               |   |                                                                                   |   |
| **Rocky  Mountain**   |   | 18.1                                             |   | 33.3                                   | %      | 1.3                                                  |   | 7.2                                  | %      | Steamboat, The Canyons                                                                 |   |
| **Pacific  West**     |   | 12.1                                             |   | 22.2                                   | %      | 0.8                                                  |   | 6.6                                  | %      | Heavenly (sold in May 2002)                                                            |   |
| **U.S.  Overall**     |   | 54.4                                             |   | 100.0                                  | %      | 4.6                                                  |   | 8.5                                  | %      |                                                                                   |   |

 

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(*) Source:  Kottke National End of Season Survey 2001/02Final Report

 

United States ski resortsrange from small operations which cater primarily to day skiers from nearbypopulation centers to larger resorts which attract both day skiers anddestination resort guests.  We believethat day skiers focus primarily on the quality of the skiing and travel time,while destination travelers are attracted to the total ski and ridingexperience, including the non-skiing amenities and activities available at theresort, as well as the perceived overall quality of the vacationexperience.  Destination guests generatesignificantly higher resort operating revenue per skier day than day skiersbecause of their additional spending on lodging, food and beverages and otherretail items over a multiple-day period.

 

Since 1985, the totalnumber of skier visits in the United States has been relatively flat.  However, according to the National Ski AreaAssociation, the number of skier visits represented by snowboarders in theUnited States has increased from approximately 9.9 million in the 1996-97 skiseason to approximately 15.9 million in the 2001-02 ski season, a compoundedannual growth rate of approximately 10%. We believe that snowboarding will continue to be an important source oflift ticket, skier development, retail and rental revenue growth for us.

 

We believe that we arewell positioned to capitalize on certain favorable trends and developmentsaffecting the alpine resort industry in the United States.  These trends and developments include:

 

•                  The existence of approximately 66.7million members of the “baby boom” generation who are now approaching the 40 to59 year age group where discretionary income, personal wealth and pursuit ofleisure activities are maximized,

•                  The emergence of the “echo boom”generation (children of baby boomers) as a significant economic force which isjust beginning to enter the prime entry age for skiing, snowboarding and other“on-snow” sports,

•                  Advances in ski equipment technology,such as the development of parabolic skis which make skiing easier to learn andenjoy,

•                  The continued growth of snowboardingas a significant and enduring segment of the industry which in turn increasesyouth participation in alpine sports,

•                  A greater focus on leisure andfitness in general, and

•                  Expanding demand for second homevacation real estate.

 

There can be no assurance, however, that these trendsand developments will have a favorable impact on the ski industry.

 

**Competition**

 

The ski industry ishighly competitive.  We compete withmountain resort areas in the United States, Canada and Europe.  We also compete with other recreationresorts, including warm weather resorts, for vacationers.  In order to cover the high fixed costs ofour ski operations, we need to maintain each of our regional, national andinternational skier bases.  Our pricesare directly impacted by the number and variety of alternatives presented to

 

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skiers in thesemarkets.  Our most significantcompetitors are resorts that are well capitalized, well managed and havesignificant capital improvement and resort real estate development programs.

 

Our resorts also facestrong competition on a regional basis. With approximately 2.5 million skier visits generated by ournortheastern resorts, competition in that region is an importantconsideration.  Our northeastern marketsare located in the major population centers in the northeast, particularlyeastern Massachusetts, northern Connecticut, New York and northern NewJersey.  For example, skier origin datacollected at Sunday River indicates that approximately 43% of its weekendskiers reside in Massachusetts.  Similardata collected at Killington and Mount Snow indicate that approximately 23% and35%, respectively, of their weekend skiers reside in New York, with highconcentrations from Massachusetts, Connecticut, New Jersey and Vermont.  The Colorado and Utah ski markets are alsohighly competitive.

 

**Employees and Labor Relations**

 

We currently employapproximately 1,500 full-time, year-round employees supporting our resort andreal estate operations, including corporate personnel.  At peak season last year we employedapproximately 11,000 employees, which included approximately 1,500 employees atHeavenly.  Less than 1% of our employeesare unionized.  We believe that we enjoygood relations with our employees.

 

**Government Regulation**

 

Our resorts are subjectto a wide variety of federal, state, regional and local laws and regulationsrelating to land use, environmental/health and safety, water resources, air andwater emissions, sewage disposal, and the use, storage, discharge, emission anddisposal of hazardous materials and hazardous and nonhazardous wastes, andother environmental matters.  While webelieve that our resorts are currently in material compliance with all land useand environmental laws, any failure to comply with these laws could result incosts to satisfy environmental compliance, remediation requirements or theimposition of severe penalties or restrictions on operations by governmentagencies or courts that could adversely affect our operations.

 

We believe that wepossess all the permits, licenses and approvals from governmental authoritiesmaterial to our operations as they currently exist.  We have not received any notice of material non-compliance withpermits, licenses or approvals necessary for the operation of any of ourproperties, with the exception of our Development Agreement at The Canyons,where we have received a notice of non-compliance from the applicablegovernmental regulators and are working with them to resolve complianceissues.  See “Certain Considerations -Our business is subject to heavy environmental and land use regulation” foradditional discussion regarding the status of our master plan permits at TheCanyons.

 

Resort and real estatecapital programs require permits and approvals from certain federal, state,regional and local authorities.  Ouroperations are heavily dependent upon our continued ability, under applicablelaws, regulations, policies, permits, licenses or contractual arrangements, tohave access to adequate supplies of water with which to make snow and servicethe other needs of our facilities, and otherwise to conduct ouroperations.  There can be no assurancethat new applications of existing laws, regulations and policies, or changes inthese laws, regulations and policies will not occur in a manner that would havea material adverse effect on our business, or that important permits, licensesor agreements will not be canceled, not renewed, or renewed on less favorableterms.  Major expansions of any one ormore resorts could require the filing of an environmental impact statementunder environmental laws and applicable regulations if it is determined thatthe expansion has a significant impact upon the environment and could requirenumerous other federal, state and local approvals.  Although we have consistently been successful in implementing ourcapital expansion plans, no assurance can be given that necessary permits andapprovals will be obtained.

 

**Systems and Technology**

 

***Information Systems. ***Our information systems are designed to improvethe ski experience by developing more efficient guest service products andprograms.  We are pursuingimplementation of a comprehensive system and technology plan which includes anintegrated customer database, improvements to our ticketing system, a central

 

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reservations system foruse in the resort’s rental management business, enhancements to our financialreporting systems and a skier development reservation and instructor schedulingsystem that will simplify the booking process and allow for the best possibleuse of our instructors.

 

***Snowmaking Systems and Technology****. *We believe that we operate one ofthe largest consolidated snowmaking operations in the ski resort industry, withapproximately 4,200 acres of snowmaking coverage.  Our proprietary snowmaking software program allows us to producewhat we believe is some of the highest quality man-made snow in theindustry.  Substantially all of oursnowmaking systems are operated through computer-based control using industrialautomation software and a variety of state of the art hardware andinstrumentation.  We use efficientground based, tower based and fully automated snowgun nozzle technology andhave developed software for determining the optimal snowmaking nozzle settingat multiple locations on any particular mountain.  This system monitors the weather conditions and system capacitiesand determines the proper operating water pressure for each nozzle, reducingthe need for physical observations to make adjustments and ensuring that idealsnow quality is provided.  Substantiallyall of our snowmaking systems are networked to allow the viewing of informationfrom multiple locations within our resort network.  In addition, we are actively involved in testing and implementingnew technologies to further improve the quality and efficiency of oursnow-making operations.

 

**CERTAIN CONSIDERATIONS**

 

In addition to the other information contained in thisForm 10-K, you should carefully consider the following matters in evaluatingour business.  This Form 10-K containsforward-looking statements and our actual results could differ materially fromthose anticipated by any forward-looking statements as a result of numerousfactors, including those set forth in the following description of considerationsand elsewhere in this Form 10-K.  SeePart II, Item 7 – “Management’s Discussion and Analysis of Financial Conditionand Results of Operations – Forward-Looking Statements”.

 

**Our primary real estate development subsidiary is in paymentdefault under its senior secured credit agreement, and our ability to achieveany future earnings from the real estate development assets held in thatsubsidiary may be significantly compromised.**

 

On March 30, 2002, ourreal estate development subsidiary, Resort Properties, failed to make amandatory principal payment of $3.75 million under its Real Estate TermFacility.  Resort Properties obtained atemporary waiver of this default.  EffectiveMay 20, 2002, the temporary waiver was revoked and Resort Properties was indefault on the facility.  On May 31,2002, Resort Properties received written confirmation of the acceleration ofthe remaining principal and accrued interest balance.  As of July 28, 2002, principal, accrued interest, late chargesand unpaid agent fees outstanding under the facility totaled $64.7million.  We have been notified by thelenders under the facility that no additional borrowings will be permitted andthat Resort Properties will not be given access to restricted cash accountstotaling approximately $1.1 million to satisfy its obligations.  On November 22, 2002, Resort Propertiesentered into a forbearance agreement with the lenders whereby the lenders haveagreed to not pursue additional foreclosure remedies and to cease publicationof foreclosure notices for a 30-day period. Although this 30-day period has expired, management continuesdiscussions with Fleet and the other lenders regarding a restructuring of thisfacility, and Fleet and the other lenders have not exercised any furtherforeclosure remedies since the expiration of the forbearance agreement.  Management’s ongoing restructuring effortswith the lenders are aimed towards a restructuring of the facility which willestablish a new entity to hold Resort Properties’ real estate developmentassets.  The equity in the new entity isexpected to be held by a combination of the lenders under the facility andResort Properties.  The facility remainsin default pending completion of these negotiations.  There can be no assurance that negotiations will be successfullycompleted, or the terms under which the payment defaults pending under thefacility may be resolved, if at all. Furthermore, regardless of the outcome of this proposed restructuring,we may lose control of assets pledged as collateral under the facility andfuture access to value creation from these real estate assets.  A substantial portion of our developablereal estate, including substantially all of the developable residential realestate at The Canyons and Steamboat along with certain core village real estateat Killington, and the stock of our real estate development subsidiaries(including Grand Summit Resort Properties, Inc.) is pledged under the RealEstate Term Facility.  The commercialcore units at the Sundial Lodge at The Canyons and the Mount Snow Grand SummitHotel in Vermont are also pledged under this facility.  The Grand

 

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Summit unit inventorydoes not secure the Real Estate Term Facility, although the pledge of stock ofGrand Summit Resort Properties, Inc. to secure the Real Estate Term Facilitymeans that we may lose control of the Grand Summit unit inventory to thelenders under the Real Estate Term Facility. As of July 28, 2002, the carrying value of the total assets thatcollateralized the Real Estate Term Facility was approximately $124.7million.  This collateral includes $87.7million of Grand Summit assets pledged under our $42.0 million real estateconstruction loan facility.  See“Management’s Discussion and Analysis of Financial Condition and Results ofOperations - Liquidity and Capital Resources – Real Estate Liquidity”.

 

**Pursuantto its terms, our Series A Preferred Stock was redeemable on November 12, 2002to the extent that there were legally available funds to effect suchredemption.****We did not redeem the Series A Preferred Stock on suchdate, and we can give no assurance that the necessary liquidity will beavailable to effect such redemption on a timely basis.**

 

We have 36,626 shares of Series A Preferred Stock outstanding, with anaccreted value of approximately $60.0 million as of July 28, 2002.  The Series A Preferred Stock was redeemableon November 12, 2002 at an aggregate redemption price of approximately $62million, to the extent that we had funds legally available for suchredemption.  If the Series A PreferredStock is not permitted to be redeemed because there are not legally availablefunds, we must redeem that number of shares of Series A Preferred Stock whichwe can lawfully redeem, and from time to time thereafter, as soon as funds arelegally available, we must redeem shares of the Series A Preferred Stock untilwe have done so in full.  Prior to theNovember 12, 2002 redemption date, based upon all relevant factors, our Boardof Directors determined not to redeem any such shares of stock on suchredemption date. On January 27, 2003, the holders of the Series A PreferredStock demanded that we redeem all of the Series A Preferred Stockimmediately.  We are not permitted toredeem the Series A Preferred Stock under the terms of our new resort seniorsecured credit facility (the New Resort Credit Facility) and the indenturegoverning our 12% Senior Subordinated Notes. Also, we can give no assurance that the necessary liquidity will be availableto effect such redemption.  We willcontinue to assess our obligations with respect to the requirements of theredemption provisions of the Series A Preferred Stock.  Because the Series A Preferred Stock was notredeemed on November 12, 2002, the certificate of designation for the Series APreferred Stock provides that the holders are entitled to elect two additionalmembers of our board of directors.  Wehave not yet been advised by the holders of the Series A Preferred Stockwhether they intend to exercise their right to elect two directors at or priorto our next annual shareholders meeting or whether they intend to take anyother action, including legal action. If the holders of the Series A Preferred Stock were to commence anylitigation to compel us to redeem the Series A Preferred Stock, based uponpresent facts and circumstances, we would vigorously contest any suchlitigation.  If we are required toredeem all or any portion of the Series A Preferred Stock, it could have amaterial adverse effect on our business, results of operations and financialcondition.

 

**Our business is dependent upon the completion of ourpreviously announced strategic plan.**

 

OnMay 30, 2001, we announced a comprehensive strategic plan to improve ourcapital structure and enhance future operating performance.  We have completed several aspects ofthis plan (as modified) to date, including the restructuring of three of ourmajor credit agreements, an additional capital infusion by Oak Hill CapitalPartners, L.P. and certain related entities (collectively, Oak Hill), theimplementation of a staff reorganization plan to improve operationalefficiencies, and the sale of our Heavenly ski resort.  The ultimate success of this comprehensivestrategic plan is dependent on our successful execution of the remaining planelements.  The most significantremaining element of our plan is the restructuring of the Real Estate TermFacility of Resort Properties.  Ourfailure to complete the real estate restructuring transaction may adverselyaffect our ability to develop certain real estate at our resorts.  We may also lose control of ResortProperties’ real estate development assets, and the stock of our real estatedevelopment subsidiaries (including Grand Summit) which are pledged as collateralunder the Real Estate Term Facility.

 

 

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**Our business is substantially leveraged and we face a numberof financial risks.**

 

We are highly leveraged.  As of January 26, 2003, we had $311.3 million of totalindebtedness outstanding, including $105.6 million of secured indebtedness, aswell as $282.0 million in redeemable preferred stock (liquidation value).

 

Our high level of debt affects our future operationsin several important ways.  First ofall, we will have significant cash requirements to service our debt which willin turn reduce the funds available for our operations, capital expenditures andacquisitions.  A decrease in theavailability of funds will make us more vulnerable to adverse general economicand industry conditions.  Secondly, thefinancial covenants and other restrictions contained in our debt agreementsrequire us to meet certain financial tests and restrict our ability to raiseadditional capital, borrow additional funds, make capital expenditures or sellour assets.  Failure to manage cashresources or an extraordinary demand for cash outside of our normal course ofbusiness could leave us with no cash availability.

 

Our ability to makescheduled payments or refinance our debt and preferred stock obligations willdepend on our future financial and operating performance, which will beaffected by prevailing economic conditions, financial, business and otherfactors.  Some of these factors are beyondour control.  There can be no assurancethat our operating results, cash flows and capital resources will be sufficientto pay our indebtedness.  If ouroperating results, cash flows or capital resources prove inadequate we couldface substantial liquidity problems and might be required to dispose ofmaterial assets or operations to meet our debt and other obligations.  We also could be forced to reduce or delayplanned expansions and capital expenditures, sell assets, restructure orrefinance our debt or seek additional equity capital.  In addition, further efforts by management to refinance andrestructure our debt and redeemable preferred securities could be negativelyimpacted and result in less favorable terms. There can be no assurance that any of these actions could be effected onterms satisfactory to our business, if at all.

 

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Although we believe that capital expenditures abovemaintenance levels can be deferred to address cash flow or other constraints,these activities cannot be deferred for extended periods without adverselyaffecting our competitive position and financial performance.

 

Improvement in our financial performance depends, inpart, on our ability to maintain and improve the quality of our facilities,products and management resources and to engage in successful real estatedevelopment (either directly or through third parties).  To the extent that we are unable to do sowith cash generated from operations, or through borrowed funds or additionalequity investments, the growth and financial health of our business could beimpaired.

 

We also have significantfuture capital requirements with respect to the retirement of debt and othersecurities.  For example, the New ResortCredit Facility matures on April 15, 2006 for the revolving credit facility,the tranche A term loan and the supplemental term loan portions and June 15,2006 for the tranche B term loan portion. We must also retire or refinance our 12% senior subordinated notes (theSenior Subordinated Notes) in July 2006 and our 11.3025% convertiblesubordinated notes (the Junior Subordinated Notes) in August 2007.  Our preferred stock must be redeemed inaccordance with its terms.  This includesour Series A Preferred Stock, which we did not redeem on November 12, 2002.  We do not expect that the necessaryliquidity will be available from operations to effect such redemption in theforeseeable future.  This also includesour 12% Series C-1 convertible participating preferred stock (the Series C-1Preferred Stock) which is redeemable in July 2007, and our 15% Series C-2preferred stock (the Series C-2 Preferred Stock) which is redeemable in July2007. There can be no assurance that we will be able to retire, redeem, orrefinance our indebtedness and preferred stock in the foreseeable future.  Failure to do so could have a materialadverse effect on our business.  SeePart II, Item 7 – “Management’s Discussion and Analysis of Financial Conditionand Results of Operations – Liquidity and Capital Resources” for a descriptionof such payments.

 

**Our business is highly seasonal and unfavorable weatherconditions can adversely affect our business.**

 

Ski resort operations are highly seasonal.  Over the last five fiscal years, we haverealized an average of approximately 86% of resort revenues and over 100% ofresort EBITDA and net income during the period from November through April, anda significant portion of resort revenue and approximately 18% of annual skiervisits were generated during the Christmas and Presidents’ Day vacationweeks.  In addition, our resortstypically experience operating losses and negative cash flows for the periodfrom May through November.  During theseven-month period from May through November 2002, for example, we hadoperating losses from resort operations aggregating $53.2 million, excludingmerger, restructuring and asset impairment charges of $19.7 million andwrite-off of deferred financing costs of $3.3 million, and negative cash flowsfrom resort operations aggregating $42.2 million.  There can be no assurance that we will be able to finance ourcapital requirements from external sources during this period.

 

A high degree of seasonality in our revenues increasesthe impact of certain events on our operating results.  Adverse weather conditions, access routeclosures, equipment failures, and other developments of even moderate orlimited duration occurring during our peak business periods could reduce ourrevenues.  Adverse weather conditionscan also increase power and other operating costs associated with snowmaking orcould render snowmaking wholly or partially ineffective in maintaining qualityskiing conditions.  Furthermore,unfavorable weather conditions, regardless of actual skiing conditions, can resultin decreased skier visits.

 

**We operate in a highly competitive industry which makesmaintaining our customer base a difficult task.**

 

The skiing industry is highly competitive and capitalintensive.  Our competitors includemajor ski resorts throughout the United States, Canada and Europe as well asother worldwide recreation resorts, including warm weather resorts and variousalternative leisure activities.  Ourcompetitive position depends on a number of factors, such as our proximity topopulation centers, the availability and cost of transportation to and within aresort, natural snowfall, the quality and coverage of snowmaking operations,resort size, the attractiveness of terrain, lift ticket prices, prevailingweather conditions, the appeal of related services, the quality and the availabilityof lodging facilities, and resort reputation. In addition, some of our competitors have greater competitive positionand relative ability to withstand adverse developments.  There can be no assurance that ourcompetitors will not be successful in

 

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capturing a portion of our present or potential customer base.

 

**Our revenues from real estate development are vulnerable toparticular risks.**

 

Our ability to generaterevenues from real estate development activities could be adversely affected bya number of factors, such as our ability to successfully market our resorts,the loss of ownership or control of significant portions of our developmentalreal estate securing the Real Estate Term Facility, the national and regionaleconomic climate, local real estate conditions (such as an oversupply of spaceor a reduction in demand for real estate), costs to satisfy environmentalcompliance and remediation requirements associated with new development/renovationand ongoing operations, the attractiveness of the properties to prospectivepurchasers and tenants, competition from other available property or space, ourability to obtain all necessary zoning, land use, building, occupancy and otherrequired governmental permits and authorizations and changes in real estate,zoning, land use, environmental or tax laws. Many of these factors are beyond our control.  In addition, real estate development will depend on receivingadequate financing on suitable terms. There can be no assurance as to whether, when or on what terms suchfinancing may be obtained.  Our realestate subsidiaries do not have the financing available to complete all oftheir planned real estate development. In addition, these efforts entail risks associated with development andconstruction activities, including cost overruns, shortages of materials orskilled labor, labor disputes, unforeseen environmental or engineeringproblems, work stoppages, and natural disasters, any of which could delay constructionand result in a substantial increase in our costs. See Part II, Item 7 –“Management’s Discussion and Analysis of Financial Condition and Results ofOperations – Liquidity and Capital Resources”.

 

In addition, a material portion of our real estatedevelopment business is conducted within the interval ownership industry.  As a result, any changes which alreadyaffect the interval ownership industry, such as an oversupply of intervalownership units, a reduction in demand for interval ownership units, changes intravel and vacation patterns, changes in governmental regulations relating tothe interval ownership industry, increases in construction costs or taxes andtightening of financing availability, could have a material adverse effect onour real estate development business.

 

**Changes in regional and national economic conditions couldadversely affect our results of operations.**

 

The skiing and real estate development industries arecyclical in nature and are particularly vulnerable to shifts in regional andnational economic conditions.  Skiingand vacation unit ownership are discretionary recreational activities entailingrelatively high costs of participation, and any decline in the regional ornational economies where we operate could adversely impact our skier visits,real estate sales and revenues. Accordingly, our financial condition, particularly in light of ourhighly leveraged condition, could be adversely affected by any weakening in theregional or national economy.

 

**Our business is subject to heavy environmental and land useregulation.**

 

We are subject to a wide variety of federal, state andlocal laws and regulations relating to land use and development and toenvironmental compliance and permitting obligations, including those related tothe use, storage, discharge, emission and disposal of hazardous materials.  Any failure to comply with these laws couldresult in capital or operating expenditures or the imposition of severepenalties or restrictions on our operations that could adversely affect ourpresent and future resort operations and real estate development.  In addition, these laws and regulationscould change in a manner that materially and adversely affects our ability toconduct our business or to implement desired expansions and improvements to ourfacilities.

 

Our development activities at The Canyons in Utah aregoverned by permits issued pursuant to a Development Agreement with localauthorities.  The Development Agreementrequires us to achieve certain performance benchmarks in order to remain incompliance with the Development Agreement and obtain additional permits.  We have not achieved certain of theseperformance benchmarks within the time frames required under the Development Agreement,and the local authorities have advised us that these failures potentiallyconstitute defaults under the Development Agreement.  We are working with the local authorities to address thesefailures and reassess the appropriate timing for compliance with theseperformance benchmarks.  Our failure tosatisfy local regulatory

 

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authorities with respect to these matters may result in our inabilityto obtain additional permits under the Development Agreement and couldsignificantly adversely impact our ability to meet our business and revenueexpansion goals at The Canyons. Defaults under the Development Agreement could also subject us to riskof litigation with third parties whose development plans are adversely impactedby the delay or loss of permits under the Development Agreement by virtue ofour failure to meet performance benchmarks.

** **

**A disruption in our water supply would impact our snowmakingcapabilities and impact our operations.**

 

Our current operations and anticipated growth are heavilydependent upon our ability, under applicable federal, state and local laws,regulations, permits, and licenses or contractual arrangements, to have accessto adequate supplies of water with which to make snow and otherwise conduct ouroperations.  There can be no assurancethat applicable laws and regulations will not change in a manner that couldhave an adverse effect, or that important permits, licenses or agreements willbe renewed, not cancelled, or, if renewed, on less favorable terms.  Any failure to have access to adequate watersupplies to support our current operations and anticipated expansion would havea material adverse effect on our business and operating results.

 

**The loss of any of our executive officers or key personnelwould harm our business.**

 

Our success depends to a significant extent upon theperformance and continued service of various key management and operationalpersonnel.  The loss of the services ofthese key personnel could have a material adverse effect on our business andoperations.

 

**We are structured as a holding company and have no assetsother than the common stock of our subsidiaries.**

 

We are a holding company and our ability to payprincipal and interest on debt will be dependent upon the receipt of dividendsand other distributions, or the payment of principal and interest onintercompany borrowings, from our subsidiaries.  We do not have, and we do not expect in the future to have, anymaterial assets other than the common stock of our direct and indirectsubsidiaries.  The breach of any of theconditions or provisions under the documents governing the indebtedness ofsubsidiaries could result in a default which in turn could accelerate thematurity of a debt.  If the maturity ofdebt were accelerated, the indebtedness would be required to be paid in fullbefore the subsidiary would be permitted to distribute any assets to the parentcompany.  There can be no assurance thatour assets or those of our subsidiaries would be sufficient to repay all of ouroutstanding debt.  In addition, statelaw further restricts the payment of dividends or other distributions to us byour subsidiaries.

 

**Our business requires significant capital expenditures. Theseexpenditures do not, however, guarantee improved results.**

 

Historically, a key element of our strategy has beenattracting additional skiers through investment in on-mountain capitalimprovements.  These improvements arecapital intensive and a lack of available funds for capital expenditures couldhave a material adverse effect on our ability to implement our operatingstrategy.  We conduct, and intend tocontinue to conduct, real estate development and to finance such activitiesthrough non-recourse debt.  We intend tofinance resort capital improvements through internally generated funds andproceeds from the offering of debt and equity. There can be no assurance that sufficient funds will be available tofund these capital improvements or real estate development or that thesecapital improvements will attract additional skiers or generate additionalrevenues.

 

**Control of our company by principal shareholders.**

 

As a result of a shareholders’ agreement and the termsof the preferred stock held by Oak Hill, Leslie B.  Otten (Mr. Otten), the holder of all of the 14,760,530 shares ofClass A common stock, and Oak Hill control a majority of our board ofdirectors.  Mr. Otten and Oak Hill mayhave interests different from the interests of the holders of our common stock.

 

17

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**A significant portion of our ski resorts are operated underleases or forest service permits.**

 

We lease a significant portion of the land underlyingour ski resorts or use them pursuant to renewable permits or licenses.  If any of these arrangements were terminatedor not renewed on expiration, or renewed on terms materially less favorable tous, our ability to possess and use the land would be impaired.  A substantial portion of the skiable terrainat our Attitash Bear Peak, Mount Snow and Steamboat ski resorts is federal landthat is used under the terms of permits with the United States ForestService.  The permits give the UnitedStates Forest Service the right to review and comment on the location, designand construction of improvements in the permit area and on certain otheroperational matters.  The permits canalso be terminated or modified by the United States Forest Service to serve thepublic interest or in the event we fail to perform any of our obligations underthe permits.  A termination ormodification of any of our permits could have a material adverse affect on ourresults of operations.

 

**Item 3**

**Legal Proceedings**

 

The Killington resort has been identified by theU.S.  Environmental Protection Agency asa potentially responsible party at two sites pursuant to the ComprehensiveEnvironmental Response, Compensation and Liability Act.  Killington has entered into a settlementagreement with the Environmental Protection Agency at one of the sites, theSolvents Recovery Service of New England Superfund site in Southington,Connecticut.  Killington rejected anoffer to enter into a de minimis settlement with the Environmental ProtectionAgency for the other site, the PSC Resources Superfund site in Palmer,Massachusetts, because it disputes its designation as a potentially responsibleparty.  We believe that our liabilityfor this Superfund site will not have a material adverse effect on our businessor financial condition or results of operations or cash flows.

 

On January 24, 2002, we entered into an agreement withTriple Peaks, LLC for the sale of our Steamboat resort.  We later determined that the sale of ourHeavenly resort more closely achieved our restructuring objectives andconcluded that we would not proceed with the sale of our Steamboat resort.  On April 5, 2002, Triple Peaks, LLC filed alawsuit against American Skiing Company in federal district court in Denver,alleging breach of contract resulting from our refusal to close on the proposedsale of our Steamboat resort.  The suitseeks both monetary damages resulting from the breach and specific performanceof the contract.  On April 16, 2002,before we filed an answer to its complaint, Triple Peaks voluntarily dismissedits suit and re-filed a substantially identical complaint in Colorado state districtcourt in Steamboat, also naming Steamboat Ski & Resort Corporation,American Skiing Company Resort Properties and Walton Pond Apartments, Inc.  (each direct or indirect subsidiaries ofAmerican Skiing Company) as additional defendants.  On April 19, 2002, we filed a complaint seeking declaratoryjudgment against Triple Peaks in federal court in Denver seeking a declarationfrom that court that our damages under the contract for failure to close on theproposed sale are limited to $500,000. On December 31, 2002, the Colorado state district court issued summaryjudgment in our favor and against Triple Peaks, confirming that the damages weowe Triple Peaks under the contract are limited to $500,000.  This judgment was subject to a 45-day appealperiod.  On January 26, 2003, wereceived notice that Triple Peaks had appealed the decision of the Coloradostate district court.  Subsequent to theissuance of the summary judgment order by the Colorado state district court,the companion federal court action was dismissed with prejudice at our request.

 

On January 3, 2003, American Skiing Company receivedarbitration demands from two former executive employees, Hernan Martinez andPeter Tomai.  Messrs.  Martinez and Tomai each allege that theyresigned from their employment with us for “good reason” under the terms oftheir executive employment agreements with us, and that accordingly they areentitled to severance payments equal to one year’s salary ($300,000 and$225,000, respectively) and certain other severance benefits, including themaintenance of health insurance for six months following the termination oftheir employment.  We have contested theexistence of “good reason” for their termination of their employment anddisputed our liability for the severance payments and other benefits.

 

Each of our subsidiarieswhich operate resorts has claims pending and is regularly subject to personalinjury claims related principally to skiing activities at the resort.  Each of our operating companies maintainsliability insurance that we consider adequate in order to insure against claimsrelated to the usual and customary risks associated with the operation of a skiresort.  We operate a captive insurancecompany authorized under the laws of the State of Vermont, which, until earlyFiscal 1999, provided liability and workers’ compensation coverage for our

 

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Vermont resorts.  We do not currently use this insurancesubsidiary to provide liability and workers’ compensation insurance coverage,but it is still responsible for future claims arising from insurable eventswhich may have occurred while it provided this coverage.  Our insurance subsidiary maintains cashreserves in amounts recommended by an independent actuarial firm and which webelieve to be adequate to cover any such claims.

 

**Item 4**

**Submission of Matters to a Vote ofSecurity Holders**

 

Not applicable.

 

**PARTII**

 

**Item 5**

**Market for the Registrant’s CommonEquity and Related Security Holder Matters**.

 

Our common stock is currently traded on the PinkSheets under the symbol “AESK”.  Priorto March 7, 2002, our common stock was traded on the New York Stock Exchangeunder the symbol “SKI”.  Our Class Acommon stock is not listed on any exchange and is not publicly traded, but isconvertible into our common stock.  Asof January 26, 2003, 31,724,141 shares of our common stock were issued andoutstanding, of which 14,760,530 shares were Class A common stock held by oneholder and 16,963,611 shares of common stock held by approximately 9,000holders.

 

The following table lists, for the fiscal quartersindicated, the range of high and low closing prices of our common stock asreported on the Over the Counter Bulletin Board and the NYSE Composite Tape, asapplicable.

 

**American Skiing Company Common Stock(AESK/SKI)**

 

|         |   | **Fiscal  2002** |   | **Fiscal  2001** |   |
|--------------|--------|------------------|--------|------------------|--------|
|         |   | **High**         |   | **Low**          |   | **High** |   | **Low** |   |
| 1st  Quarter |   | $                | 1.05   |             | $      | 0.76 |   | $ | 2.44 |   | $ | 1.88 |   |
| 2nd  Quarter |   | $                | 1.01   |             | $      | 0.47 |   | $ | 2.81 |   | $ | 1.31 |   |
| 3rd  Quarter |   | $                | 0.49   |             | $      | 0.16 |   | $ | 1.71 |   | $ | 1.08 |   |
| 4th  Quarter |   | $                | 0.20   |             | $      | 0.12 |   | $ | 1.40 |   | $ | 0.72 |   |

 

**Market Information**

 

We have not declared orpaid any cash dividends on our capital stock. We intend to retain earnings, to the extent that there are any, toreduce our debt and to support our capital improvement and growthstrategies.  We do not anticipate payingcash dividends on our common stock in the foreseeable future.  The payment of future dividends, if any,will be at the discretion of our board of directors after they take intoaccount various factors, such as our financial condition, operating results,current and anticipated cash needs and plans for capital improvements andexpansion.  Each of the indenturegoverning our Senior Subordinated Notes, our New Resort Credit Facility and theterms of our Series A Preferred Stock, Series C-1 Preferred Stock and SeriesC-2 Preferred Stock contain certain restrictive covenants that, among otherthings, limit the payment of dividends or the making of distributions on ourequity interests.  See Part II, Item 7 -“Management’s Discussion and Analysis of Financial Condition and Results ofOperations – Liquidity and Capital Resources”.

 

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**Item 6**

**Selected Financial Data**

 

The following selected historical financial data hasbeen derived from our consolidated financial statements as audited by:  (1) KPMG LLP, as of July 29, 2001 and July28, 2002 and for the fiscal years ended July 30, 2000, July 29, 2001 and July28, 2002; (2) Arthur Andersen LLP, as of July 25, 1999 and July 30, 2000 andfor the fiscal year ended July 25, 1999; and PricewaterhouseCoopers LLP, as ofJuly 26, 1998 and for the fiscal year then ended.  This data, excluding consolidated statements of cash flows data,has been restated to reflect Heavenly as discontinued operations and alsoincludes certain reclassifications to be consistent with the current yearpresentation.

 
|                                                                                                                                  |   | **Historical Year Ended(1)**                                      |       |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|------------|
|                                                                                                                                  |   | **July 26, 1998**                                                 |       | **July 25, 1999** |   | **July 30, 2000** |   | **July 29, 2001** |   | **July 28, 2002** |   |
|                                                                                                                                  |   | **(in thousands, except per share and per skier visit  amounts)** |       |
| **Consolidated Statement of Operations Data:**                                                                                        |   |                                                              |       |   |   |   |   |   |   |   |   |
| Net revenues:                                                                                                                         |   |                                                              |       |   |   |   |   |   |   |   |   |
| Resort(2)                                                                                                                             |   | $                                                                 | 228,374    |   | $ | 239,954 |   | $ | 240,226 |   | $ | 275,686 |   | $ | 243,842 |   |
| Real estate                                                                                                                           |   | 60,992                                                            |       | 24,492 |   | 132,063 |   | 96,864 |   | 28,274 |   |
| Total net revenues                                                                                                                    |   | 289,366                                                           |       | 264,446 |   | 372,289 |   | 372,550 |   | 272,116 |   |
|                                                                                                                                  |   |                                                              |       |   |   |   |   |   |   |   |   |
| Operating expenses:                                                                                                                   |   |                                                              | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Resort                                                                                                                                |   | 138,975                                                           |       | 164,878 |   | 170,156 |   | 187,715 |   | 166,968 |   |
| Real estate                                                                                                                           |   | 43,554                                                            |       | 26,808 |   | 123,837 |   | 93,422 |   | 30,091 |   |
| Marketing, general and administrative                                                                                                 |   | 38,970                                                            |       | 47,936 |   | 46,903 |   | 49,011 |   | 46,699 |   |
| Merger, restructuring and asset  impairment charges(3)                                                                                |   | —                                                            |       | — |   | — |   | 76,015 |   | 111,608 |   |
| Stock compensation charge(4)                                                                                                          |   | 14,254                                                            |       | — |   | — |   | — |   | — |   |
| Depreciation and amortization                                                                                                         |   | 30,411                                                            |       | 35,918 |   | 38,533 |   | 38,041 |   | 30,846 |   |
| Write-off of deferred financing costs                                                                                                 |   | —                                                            |       | — |   | 1,017 |   | — |   | 3,338 |   |
| Total operating expenses                                                                                                              |   | 266,164                                                           |       | 275,540 |   | 380,446 |   | 444,204 |   | 389,550 |   |
|                                                                                                                                  |   |                                                              |       |   |   |   |   |   |   |   |   |
| Loss from continuing operations before preferred stock  dividends and cumulative effect of  changes in  accounting principles         |   | (4,396                                                            | )          | (31,869 | ) | (33,743 | ) | (125,026 | ) | (167,578 | ) |
| Accretion of discount and dividends on  mandatorily redeemable preferred stock                                                        |   | (5,346                                                            | )          | (4,372 | ) | (20,994 | ) | (23,357 | ) | (32,791 | ) |
| Net loss from continuing operations available to  common shareholders before cumulative  effect of  changes in accounting  principles |   | $                                                                 | (9,742     | ) | $ | (36,241 | ) | $ | (54,737 | ) | $ | (148,383 | ) | $ | (200,369 | ) |
| Net loss available to common shareholders                                                                                             |   | $                                                                 | (12,294    | ) | $ | (32,332 | ) | $ | (52,452 | ) | $ | (141,572 | ) | $ | (206,710 | ) |
| Basic and diluted net loss from continuing operations  per share available to common shareholders                                     |   | $                                                                 | (0.38      | ) | $ | (1.20 | ) | $ | (1.81 | ) | $ | (4.86 | ) | $ | (6.34 | ) |
| Basic and diluted net loss  available to common shareholders                                                                          |   | $                                                                 | (0.48      | ) | $ | (1.07 | ) | $ | (1.73 | ) | $ | (4.64 | ) | $ | (6.54 | ) |
|                                                                                                                                  |   |                                                              |       |   |   |   |   |   |   |   |   |
| **Balance Sheet Data:**                                                                                                               |   |                                                              |       |   |   |   |   |   |   |   |   |
| Total assets                                                                                                                          |   | $                                                                 | 780,899    |   | $ | 907,502 |   | $ | 926,778 |   | $ | 807,038 |   | $ | 521,993 |   |
| Long-term debt and redeemable preferred stock,  including current maturities                                                          |   | 422,285                                                           |       | 543,740 |   | 634,723 |   | 638,620 |   | 582,096 |   |
| Common shareholders’ equity (deficit)                                                                                            |   | 268,204                                                           |       | 236,655 |   | 185,497 |   | 44,826 |   | (155,305 | ) |
|                                                                                                                                  |   |                                                              |       |   |   |   |   |   |   |   |   |
| **Consolidated Statement of Cash Flows Data:**                                                                                        |   |                                                              |       |   |   |   |   |   |   |   |   |
| Cash flows provided by (used in) operating activities                                                                                 |   | $                                                                 | 8,708      |   | $ | (77,235 | ) | $ | (43,891 | ) | $ | 44,576 |   | $ | (1,092 | ) |
| Cash flows provided by (used in) investing activities                                                                                 |   | (384,303                                                          | )          | (37,486 | ) | (17,403 | ) | (23,390 | ) | 94,683 |   |
| Cash flows provided by (used in) financing activities                                                                                 |   | 375,407                                                           |       | 108,354 |   | 62,376 |   | (19,679 | ) | (98,259 | ) |
|                                                                                                                                  |   |                                                              |       |   |   |   |   |   |   |   |   |
| **Other Data:**                                                                                                                       |   |                                                              |       |   |   |   |   |   |   |   |   |
| Skier visits (000’s)(5)                                                                                                          |   | 4,430                                                             |       | 4,157 |   | 4,109 |   | 4,430 |   | 3,756 |   |
| Season pass holders (000’s)                                                                                                      |   | 41.0                                                              |       | 40.2 |   | 43.2 |   | 46.1 |   | 39.4 |   |
| Resort revenues per skier visit                                                                                                       |   | $                                                                 | 51.55      |   | $ | 57.72 |   | $ | 58.46 |   | $ | 62.23 |   | $ | 64.92 |   |
| Resort EBITDA(6)(8)                                                                                                                   |   | $                                                                 | 50,429     |   | $ | 27,140 |   | $ | 23,167 |   | $ | 38,959 |   | $ | 30,175 |   |
| Real estate EBITDA(7)(8)                                                                                                              |   | $                                                                 | 17,438     |   | $ | (2,316 | ) | $ | 8,226 |   | $ | 3,443 |   | $ | (1,817 | ) |

 

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(1)          Thehistorical data above does not reflect the financial position or results ofoperations for Heavenly.  The financialdata for Heavenly is reflected as discontinued operations because Heavenly wassold during Fiscal 2002.

 

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(2)          Resortrevenues represent all revenues, excluding revenues generated by the sale ofreal estate interests.

 

(3)          DuringFiscal 2001, we recognized the following merger, restructuring and assetimpairment charges:  a $52.0 millionasset impairment charge related to the assets at our Steamboat resort that werepreviously classified as assets held for sale as of July 29, 2001; a $15.1million asset impairment charge related to the assets at our Sugarbush resortthat are classified as assets held for sale as of July 29, 2001; a $3.6 millioncharge related to our terminated merger with Meristar Hotels and Resorts, Inc;$4.0 million in employee separation, legal and financial consulting chargesrelated to our strategic restructuring plan; and a $1.3 million impairmentcharge to net realizable value in the fourth quarter of Fiscal 2001 on theremaining units at the Attitash Grand Summit Hotel.  During Fiscal 2002, we recognized the following merger,restructuring and asset impairment charges: a $25.4 million asset impairment charge related to the assets at ourSteamboat resort that were previously classified as held for sale as of July29, 2001; a $38.7 million charge related to the remaining quartershare units atthe Steamboat Grand Hotel and The Canyons Grand Summit Hotel; a $18.9 millioncharge related to land and land options at The Canyons; a $24.8 million chargerelated to master planning and real estate costs at The Canyons, Killington,Mount Snow, Sugarloaf, Sunday River and Steamboat; a $1.4 million chargerelated to a land option at Sunday River and certain resort fixed assets; $2.7million in legal and financial consulting charges related to our strategicrestructuring plan; offset by a $0.3 million gain to finalize the sale ofSugarbush.

 

(4)          Inthe first quarter of Fiscal 1998, we granted to certain executive officers andother employees fully vested options to purchase 511,530 shares of common stockat an exercise price of $2.00 per share. We also agreed to pay certain tax liabilities which the recipients ofthe options expect to incur upon exercise of the options.  Because the $2.00 per share exercise pricewas below the fair market value of a share of common stock on the date ofgrant, we recognized a compensation charge of $14.3 million in Fiscal 1998.

 

(5)          Forpurposes of estimating skier visits, we assume that a season pass holder visitsour resorts a number of times that approximates the average cost of a seasonpass divided by the average daily lift ticket price.

 

(6)          ResortEBITDA represents resort revenues less cost of resort operations and marketing,general and administrative expense.

 

(7)          RealEstate EBITDA represents revenues from real estate sales less cost of realestate sold, including selling costs, holding costs, the allocated capitalizedcost of land, construction costs and other costs relating to property sold.

 

(8)          Resortand Real Estate EBITDA are not measurements calculated in accordance with GAAPand should not be considered as alternatives to operating or net income as anindicator of operating performance, cash flows as a measure of liquidity or anyother GAAP determined measurement. Certain items excluded from Resort and/or Real Estate EBITDA, such aswrite-off of deferred financing costs, non-cash charges for stock compensationawards, and merger, restructuring and asset impairment charges are significantcomponents in understanding and assessing our financial performance.  Other companies may define Resort and RealEstate EBITDA differently, and as a result, such measures may not be comparableto our Resort and Real Estate EBITDA. We have included information concerning Resort and Real Estate EBITDAbecause we believe that EBITDA is an indicative measure of our operatingperformance and is generally used by investors to evaluate companies in theresort industry.

 

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**Item7**

**Management’s Discussion and Analysisof FinancialCondition and Results of Operations**

 

**Forward-Looking Statements**

 

Certain statements underthe heading Part I, Item 1 and Item 2 – “Business and Properties”, this headingPart II, Item 7 – “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” and elsewhere in this Annual Report on Form 10-Kconstitute forward-looking statements within the meaning of Section 27A of theSecurities Act of 1933, as amended (the Securities Act), and Section 21E of theSecurities Exchange Act of 1934, as amended (the Exchange Act).  These forward-looking statements are notbased on historical facts, but rather reflect our current expectations concerningfuture results and events.  Similarly,statements that describe our objectives, plans or goals are or may beforward-looking statements.  We havetried, wherever possible, to identify such statements by using words such as“anticipate”, “assume”, “believe”, “expect”, “intend”, “plan”, and words andterms of similar substance in connection with any discussion of operating orfinancial performance.  Suchforward-looking statements involve a number of risks and uncertainties.  In addition to factors discussed above,other factors that could cause actual results, performances or achievements todiffer materially from those projected include, but are not limited to, thefollowing:  changes in regional andnational business and economic conditions affecting both our resort operatingand real estate segments; competition and pricing pressures; negative impact ondemand for our products resulting from terrorism and availability of air travel(including the effect of airline bankruptcies); inability to complete ourrestructuring plan; the payment default under our Real Estate Term Facility andits effect on the results and operations of our real estate segment, failure toeffectively manage our growth, business and financial condition; thepossibility of war and its effect on the ski, golf, resort, leisure and travelindustries; failure of on-mountain improvements and other capital expendituresto generate incremental revenue; adverse weather conditions regionally andnationally; seasonal business activity; changes to federal, state and localregulations affecting both our resort operating and real estate segments;failure to renew land leases and forest service permits; disruptions in watersupply that would impact snowmaking operations; the loss of any of our executiveofficers or key operating personnel; and other factors listed from time to timein our documents we have filed with the SEC. We caution the reader that this list is not exhaustive.  We operate in a changing businessenvironment and new risks arise from time to time.  The forward-looking statements included in this document are madeonly as of the date of this document and under Section 27A of the SecuritiesAct and Section 21E of the Exchange Act, we do not have or undertake anyobligation to publicly update any forward-looking statements to reflectsubsequent events or circumstances*.*

 

## **General**

The following is ourdiscussion and analysis of financial condition and results of operations forthe fiscal year ended July 28, 2002. Please read this information in connection with our consolidatedfinancial statements and related notes contained elsewhere in this report.

 

***Real Estate Credit Agreement Defaults.***On March 30, 2002, our real estate development subsidiary, Resort Properties,failed to make a mandatory principal payment of $3.75 million under its RealEstate Term Facility with Fleet National Bank and certain other lenders.  See “– Liquidity and Capital Resources –Real Estate Liquidity – Real Estate Term Facility” below for a discussion ofthe status of our efforts to restructure the Real Estate Term Facility.

 

As of July 28,2002, our hotel development subsidiary was also in default under itsconstruction loan facility with Textron Financial Corporation (Textron) andcertain other lenders, resulting from a cross-default on the Real Estate TermFacility and from the non-payment of the $3.8 million note to the generalcontractor at Steamboat. Effective August 29, 2002, our hotel developmentsubsidiary and Textron amended the senior construction loan and thesubordinated construction loan (collectively, Construction Loan Facility).  See “– Liquidity and Capital Resources –Real Estate Liquidity – Construction Credit Facility” below for a discussion ofthe terms of the amendment to the Textron facility.

 

***Restructuring Plan. ***On May 30, 2001, we announced a comprehensivestrategic plan to improve our capital structure and enhance future operatingperformance.  The plan included thefollowing key components:

 

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•                  A comprehensive financial restructuring package,including amendments to our senior credit facilities and new capital infusionto enhance financial flexibility.

•                  Intent to sell Steamboat to reduce our debt.

•                  Operational cost savings and improved financialperformance through reorganization and staff reduction and performanceenhancement programs.

•                  Strategic redeployment of management and capitalresources to emphasize the integration and growth of resort village developmentand operations.

 

We have completed severalaspects of this plan to date, including the restructuring of three of our majorcredit agreements, an additional capital infusion by Oak Hill, and theimplementation of a staff reorganization plan to improve operational efficiencies.  On May 9, 2002, we completed the sale ofHeavenly to Vail Resorts, Inc. (Vail).  We determined that thesale of Heavenly more closely achieved our restructuring objectives andresulted in a significantly higher asset valuation than the previously announcedSteamboat sale transaction.  As aresult, we concluded that we would not proceed with the sale of our Steamboatresort.  Total consideration for thesale of Heavenly was $104.9 million, which was comprised of a $102.0 millionsales price, less $2.4 million in purchase price adjustments, plus $5.3 millionof current liabilities assumed by Vail. Vail also assumed $2.8 million in capital lease obligations leaving$96.8 million in net proceeds after assumption of the capital leaseobligations.  At closing, we paid $1.8million in costs related to the sale with net proceeds after transaction costsof $95.0 million.

 

We paid fees and accruedinterest totaling $2.8 million related to the Resort Senior Credit Facilitywith Fleet and other lenders out of the sales proceeds and an early prepaymentpenalty associated with the retirement of a term loan, including accruedinterest.  After these payments, we madereductions to our outstanding debt of the following amounts:

 

| Real  Estate Term Facility                       |   | $     | 2.0      |    | Million |   |
|--------------------------------------------------|--------|-------|----------|---------|---------|--------|
| Resort  Senior Credit Facility, term portion     |   | 28.6  |     | Million |    |
| Resort  Senior Credit Facility, revolver portion |   | 44.1  |     | Million |    |
| Heavenly  capital lease                          |   | 12.8  |     | Million |    |
| **Total**                                        |   | **$** | **87.5** |    | Million |   |

 

In connection with thecompletion of the sale of Heavenly, the availability under the revolvingportion of our Resort Senior Credit Facility was reduced from $94.6 million to$52.1 million. After prepayment penalties of $0.7 million and the total debtreduction of $87.5 million, the remaining proceeds from the sale of  $4.0 million were deposited into a temporarycash account.  In conjunction with therepayment of the Heavenly capital lease, the guaranty provided by Oak Hill CapitalPartners to secure that loan was released.

 

On April 19, 2002, wecompleted an amendment to the indenture governing our Senior SubordinatedNotes.  Pursuant to that amendment, theindenture and Senior Subordinated Notes are no longer subject to across-default resulting from a default by our real estate subsidiaries undercertain debt which is non-recourse to the remainder of the Company, includingthe Real Estate Term Facility and the Construction Loan Facility.  The amendment also provides that neither abankruptcy nor a judgment against any of our real estate development subsidiarieswill constitute a default under the indenture.

 

On February 14, 2003, weentered into an agreement with GE Capital and CapitalSource whereby they haveprovided a new $91.5 million senior secured loan facility (the New ResortCredit Facility).  The New Resort CreditFacility replaces our existing Resort Senior Credit Facility and is secured bysubstantially all of our assets and the assets of our resort operatingsubsidiaries (excluding assets of Resort Properties and its subsidiaries).

 

The most significantremaining element of our restructuring plan is the restructuring of the creditfacilities of our real estate development subsidiaries.

 

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For a more detaileddiscussion, see “Real Estate Liquidity” below.

 

**Liquidity and Capital Resources**

 

**Short-Term**.  Our primary short-term liquidity needs involve funding seasonalworking capital requirements, marketing and selling real estate developmentprojects, funding our Fiscal 2003 capital improvement program and servicing ourdebt.  Our cash requirements forski-related and real estate development/sales activities are provided fromseparate sources.

 

As described below, weentered into the New Resort Credit Facility on February 14, 2003 and used ourinitial borrowings to refinance the Resort Senior Credit Facility.

 

Our primary source ofliquidity for ski-related working capital and ski-related capital improvementsare cash flows from operations of our non-real estate subsidiaries andborrowings under our New Resort Credit Facility.  The total debt outstanding on our Resort Senior Credit Facilityas of July 28, 2002 was approximately $58.7 million.

 

Real estate developmentand real estate working capital is funded primarily through the ConstructionLoan Facility established for major real estate development projects and netproceeds from the sale of real estate developed for sale after requiredconstruction loan repayments.  TheConstruction Loan Facility is without recourse to us and our resort operatingsubsidiaries and are collateralized by significant real estate assets of ResortProperties and its subsidiaries, including the assets and stock of Grand SummitResort Properties, Inc., or Grand Summit, our primary hotel developmentsubsidiary.  As of July 28, 2002, thecarrying value of the total assets that collateralized the Construction LoanFacility and which are included in the accompanying consolidated balance sheetwas approximately $87.7 million.  Thetotal debt outstanding on the Construction Loan Facility as of July 28, 2002was approximately $42.0 million.  See“Real Estate Liquidity – Real Estate Credit Facility” below.

 

**Resort Liquidity**.  As part of our comprehensive strategic planto restructure our debt, we entered into an agreement dated February 14, 2003with General Electric Capital Corporation (GE Capital) and CapitalSourceFinance LLC (CapitalSource) whereby GE Capital and CapitalSource have provideda new $91.5 million senior secured loan facility (the New Resort CreditFacility).  The New Resort CreditFacility replaces our existing Resort Senior Credit Facility and is secured bysubstantially all our assets and the assets of our resort operatingsubsidiaries.  Resort Properties and itssubsidiaries are not guarantors of the New Resort Credit Facility nor are theirassets pledged as collateral under the New Resort Credit Facility.  The New Resort Credit Facility consists ofthe following:

 

•                  Revolving Credit Facility - $40.0million, including letter of credit (L/C) availability of up to $5.0 million ofwhich approximately $4.1 million of L/C’s was outstanding on the funding dateof February 18, 2003.  The amount ofavailability under the Revolving Credit Facility will be correspondinglyreduced by the amount of each L/C issued. Immediately after funding, we had availability under the RevolvingCredit Facility of $34.3 million.

 

•                  Tranche A Term Loan -  $25.0 million borrowed on the funding dateof February 18, 2003.

 

•                  Supplemental Term Loan - $6.5 millionborrowed on the funding date of February 18, 2003.

 

•                  Tranche B Term Loan -  $20.0 million borrowed on the funding dateof February 18, 2003.

 

The Revolving, Tranche ATerm Loan and Supplemental Term Loan portions of the New Resort Credit Facilitymature on April 15, 2006 and bear interest at JPMorgan Chase Bank’s prime rateplus 3.25% (payable monthly).  TheSupplemental Term Loan also requires a principal payment of approximately$342,000 on July 15, 2003, payments of approximately $1.0 million on January 15and July 15 of each year, and a final payment of approximately $1.0 million onApril 15, 2006.  The Tranche B Term Loanmatures on June 15, 2006 and bears interest at JPMorgan Chase Bank’s prime rateplus 5.0% (payable monthly) with an interest rate floor of 12.25%.

 

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The New Resort CreditFacility contains affirmative, negative and financial covenants customary forthis type of credit facility, which includes maintaining a minimum level ofEBITDA, as defined, places a limit on our capital expenditures and contains anasset monetization covenant which requires us to refinance the facility or sellassets sufficient to retire the facility on or prior to December 31, 2005. Thefinancial covenants of the New Resort Credit Facility are less restrictive thanthose of the Resort Senior Credit Facility. The New Resort Credit Facility alsorestricts our ability to pay cash dividends on or redeem our common andpreferred stock.

 

Our significant debtlevels affect our liquidity.  As aresult of our highly leveraged position, we have significant cash requirementsto service interest and principal payments on our debt.  Consequently, cash availability for workingcapital needs, capital expenditures and acquisitions is significantly limited,outside of any availability under the New Resort Credit Facility.  Furthermore, our New Resort Credit Facilityand the indenture governing our Senior Subordinated Notes each containsignificant restrictions on our ability to obtain additional sources of capitaland may affect our liquidity.  Theserestrictions include restrictions on the sale of assets, restrictions on theincurrence of additional indebtedness and restrictions on the issuance ofpreferred stock.

 

**Real Estate Liquidity. **To fund working capitaland fund its Fiscal 2002 real estate development plan, Resort Properties reliedon the net proceeds from the sale of real estate developed for sale afterrequired construction loan repayments, a $73 million Real Estate Term Facilityand construction loans. A substantial portion of our developable real estateand the commercial core units at the Sundial Lodge at The Canyons and the MountSnow Grand Summit Hotel in Vermont are pledged to the lenders under the RealEstate Term Facility.

 

*Real Estate Term Facility: *Effective May 20, 2002, Resort Properties was indefault on its Real Estate Term Facility due to its failure to make a mandatoryprincipal payment of $3.75 million and the indebtedness was accelerated on May31, 2002.  As a result, all indebtednessunder the facility is currently due and payable.

 

The Real Estate TermFacility is comprised of three tranches, each with separate interest rates andmaturity dates as follows:

 

•                  Tranche A is a revolving facilitywhich bears interest at a variable rate equal to the Fleet National Bank BaseRate plus 2.0% (payable monthly in arrears). As a result of the default, the default interest rate on Tranche A isthe Fleet National Bank Base Rate plus 6.0% (6.75% as of July 28, 2002).  Prior to the default, mandatory principal reductionswere required in certain prescribed percentages ranging from 50% to 75% of netproceeds from any future sales of undeveloped parcels.  Prior to the default, the remainingprincipal amount outstanding under Tranche A was scheduled to be paid in fullon June 30, 2003.

 

•                  Tranche B is a term loan facilitythat has a maximum principal amount of $25 million, bears interest at a fixedrate of 18% per annum (10% per annum is payable monthly in arrears and theremaining 8% per annum accrues, is added to the principal balance of Tranche Band bears interest at 18% per annum, compounded annually).  As a result of the default, the defaultinterest rate on Tranche B is 29% per annum. Mandatory principal payments on Tranche B of $10 million were due oneach of December 31, 2003 and June 30, 2004. Prior to the default, the remaining $5 million of principal and allaccrued and unpaid interest on Tranche B was scheduled to be paid in full onDecember 31, 2004.

 

•                  Tranche C is a term loan facilitythat has a maximum principal amount of $12 million, bears interest at aneffective rate of 25% per annum and, prior to the default, was scheduled tomature on December 31, 2005.  As aresult of the default, the default interest rate on Tranche C is 29% perannum.  Interest accrues, is added tothe principal balance of Tranche C and is compounded semi-annually.

 

As of July 28, 2002, theprincipal balances outstanding, including accrued and unpaid interest, underTranches A, B and C of the Real Estate Term Facility were $17.7 million, $30.8million, and $16.3 million, respectively.

 

On March 30, 2002, ourreal estate development subsidiary, Resort Properties, failed to make amandatory principal payment of $3.75 million under its Real Estate TermFacility.  Resort Properties obtained atemporary waiver of this default on April 2, 2002. Effective May 20, 2002, thetemporary waiver was revoked and Resort Properties was in default on thefacility.  On May 31, 2002, the lendersaccelerated the due date of the entire remaining principal and accrued interestunder the facility.  On November 22,2002, Resort Properties entered into a

 

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forbearance agreementwith the lenders whereby the lenders have agreed to not pursue additional foreclosureremedies and to cease publication of foreclosure notices for a 30-day period.Although this 30-day period has expired, management continues discussions withFleet and the other lenders regarding a restructuring of this facility, andFleet and the other lenders have not exercised any further foreclosure remediessince the expiration of the forbearance agreement.  Management’s ongoing restructuring efforts with the lenders areaimed towards a restructuring of the facility which will establish a new entityto hold Resort Properties’ real estate development assets.  The equity in the new entity is expected tobe held by a combination of the lenders under the facility and ResortProperties.  The facility remains indefault pending completion of these negotiations.

 

There is no assurancethat negotiations will be successfully completed, or the terms under which thepayment defaults pending under the Real Estate Term Facility may be resolved,if at all.  Furthermore, regardless ofthe outcome of this proposed restructuring, we may lose control of assetspledged as collateral under the facility and future access to value creationfrom these real estate assets. A substantial portion of our developable realestate, including substantially all of the developable residential real estateat The Canyons and Steamboat along with certain core village real estate atKillington, and the stock of our real estate development subsidiaries(including Grand Summit) is pledged to Fleet and the lenders under thefacility.  The commercial core units atthe Sundial Lodge at The Canyons and the Mount Snow Grand Summit Hotel inVermont are also pledged to Fleet and the lenders.  The Grand Summit unit inventory and the land at the Sunday Riverresort do not secure the Real Estate Term Facility, although the pledge of thestock of Grand Summit to secure the Real Estate Term Facility means that we maylose control of the Grand Summit unit inventory to the lenders under the RealEstate Term Facility.  Other remediesavailable to the lenders include, but are not limited to, setoff of cashcollateral amounts in Resort Properties’ name held at Fleet in the amount ofapproximately $1.1 million, foreclosure of real and personal property owned byResort Properties and pledged to the lenders (including all of the capitalstock of our hotel development subsidiary, Grand Summit), and other customarysecured creditor remedies.  As of July28, 2002, the carrying value of the total assets that collateralized the RealEstate Term Facility was approximately $124.7 million.  This collateral includes $87.7 million ofGrand Summit assets pledged under our Construction Loan Facility.  See “Certain Considerations – Our primary realestate development subsidiary is in payment default under its senior secured creditagreement, and our ability to achieve any future earnings from the real estatedevelopment assets held in that subsidiary may be significantly compromised.”

 

As of January 26, 2003,the principal balances outstanding, including accrued and unpaid interest,under Tranches A, B and C of the Real Estate Term Facility were $18.6 million,$34.5 million, and $18.6 million, respectively.

 

*Construction Loan Facility: *We conduct substantially all of our real estatedevelopment through subsidiaries, each of which is a wholly owned subsidiary ofResort Properties.  Grand Summit ownsour existing Grand Summit Hotel projects at Steamboat, The Canyons and AttitashBear Peak, which are primarily financed through a $110 million constructionloan facility (Senior Construction Loan) among Grand Summit and variouslenders, including Textron, the syndication and administrative agent.  Due to construction delays and costincreases at the Steamboat Grand Hotel project, Grand Summit entered into a $10million subordinated loan tranche with Textron (Subordinated Construction Loan)on July 25, 2000.  We used this facilitysolely for the purpose of funding the completion of the Steamboat Grand Hotel.

 

As of July 28, 2002, ourhotel development subsidiary was also in default under its Senior ConstructionLoan and Subordinated Construction Loan under the Construction Loan Facility,resulting from a cross-default on the Real Estate Term Facility and from thenon-payment of the $3.8 million note to the general contractor at Steamboat.  Effective August 29, 2002, the hoteldevelopment subsidiary and Textron entered into amendments to the SeniorConstruction Loan and the Subordinated Construction Loan.  The terms of the revised agreements waivethe above referenced defaults, relax mandatory principal amortizationrequirements and provide additional liquidity to support ongoing sales andmarketing activities of the remaining quartershare units at The Canyons GrandSummit and Steamboat Grand hotels. Upon the repayment of all indebtedness underthe Senior Construction Loan, the Subordinated Construction Loan and all otherfees, Textron will receive a fee equal to 25% of all gross proceeds of sales ofquartershare units and commercial units occurring subsequent to repayment.

 

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As of July 28, 2002, theamount outstanding under the Senior Construction Loan was $36.5****millionand there were no borrowings available under this facility.  The principal is payable incrementally asquartershare sales are closed based on a predetermined per unit amount, whichapproximates between 65% and 80% of the net proceeds of each closing.  Mortgages against the project sites(including the completed Grand Summit Hotels at Attitash Bear Peak, TheCanyons, and Steamboat) collateralize the Senior Construction Loan, which issubject to covenants, representations and warranties customary for this type ofconstruction facility.  The SeniorConstruction Loan is non-recourse to us and our resort operating subsidiaries(although it is collateralized by substantial assets of Grand Summit, having atotal book value of $87.7 million as of July 28, 2002, which in turn comprisesubstantial assets of our business). The maturity date for funds advanced under the Steamboat portion of theSenior Construction Loan, is May 31, 2004 and the maturity date for fundsadvanced under The Canyons portion of the Senior Construction Loan is March 31,2003.  The principal balance outstandingunder the Steamboat portion of the Senior Construction Loan was approximately$32.9 million as of July 28, 2002 and had an interest rate on funds advanced ofprime plus 3.5%, with a floor of 9.0% (9.0% as of July 28, 2002).  The principal balance outstanding under TheCanyons portion of the Senior Construction Loan was approximately $3.6 millionand had an interest rate on funds advanced of prime plus 2.5%, with a floor of9.5% (9.5% as of July 28, 2002).

 

The SubordinatedConstruction Loan bears interest at a fixed rate of 20% per annum, payablemonthly in arrears, provided that only 50% of the amount of this interest shallbe due and payable in cash and the other 50% of such interest shall, if noevents of default exist under the Subordinated Construction Loan or the SeniorConstruction Loan, automatically be deferred until the final payment date.  The maturity date for funds advanced underthe Subordinated Construction Loan is September 30, 2004.  The principal balance outstanding under theSubordinated Construction Loan was approximately $5.5 million as of July 28,2002.

 

As of January 26, 2003,the amount outstanding under the Senior Construction Loan was $33.5****millionand there were no borrowings available under this facility.  The principal balance outstanding under theSteamboat portion and The Canyons portion of the Senior Construction Loan wasapproximately $32.9 million and $0.6 million, respectively, as of January 26,2003.  As of January 26, 2003, theamount outstanding under the Subordinated Construction Loan was $8.8****millionand there were $1.2 million of borrowings available under this facility.

 

**Series A Preferred StockRedemption. **We have36,626 shares of Series A Preferred Stock outstanding, with an accreted valueof approximately $60.0 million as of July 28, 2002.  The Series A Preferred Stock was redeemable on November 12, 2002at an aggregate redemption price of approximately $62 million, to the extentthat we had funds legally available for such redemption.  If the Series A Preferred Stock is not permittedto be redeemed because there are not legally available funds, we must redeemthat number of shares of Series A Preferred Stock which we can lawfully redeem,and from time to time thereafter, as soon as funds are legally available, wemust redeem shares of the Series A Preferred Stock until we have done so infull.  Prior to the November 12, 2002redemption date, based upon all relevant factors, our Board of Directorsdetermined not to redeem any such shares of stock on such redemption date. OnJanuary 27, 2003, the holders of the Series A Preferred Stock demanded that weredeem all of the Series A Preferred Stock immediately.  We are not permitted to redeem the Series APreferred Stock under the terms of our New Resort Credit Facility and theindenture governing our Senior Subordinated Notes.  Also, we can give no assurance that the necessary liquidity willbe available to effect such redemption. We will continue to assess our obligations with respect to the requirementsof the redemption provisions of the Series A Preferred Stock.  Because the Series A Preferred Stock was notredeemed on November 12, 2002, the certificate of designation for the Series APreferred Stock provides that the holders are entitled to elect two additionalmembers of our board of directors.  Wehave not yet been advised by the holders of the Series A Preferred Stockwhether they intend to exercise their right to elect two directors at or priorto our next annual shareholders meeting or whether they intend to take anyother action, including legal action. If the holders of the Series A Preferred Stock were to commence anylitigation to compel us to redeem the Series A Preferred Stock, based uponpresent facts and circumstances, we would vigorously contest any suchlitigation.  If we are required toredeem all or any portion of the Series A Preferred Stock, it could have amaterial adverse effect on our business, results of operations and financialcondition.

 

**Long-Term**.  Our primary long-term liquidity needs are tofund skiing-related capital improvements at certain of our resorts.  With respect to capital needs, we haveinvested over $168 million in skiing-related facilities since the beginning ofFiscal 1998, excluding investments made at Heavenly and Sugarbush (which weresold in Fiscal 2002).  As a result, andin keeping with restrictions imposed under the New Resort Credit Facility, weexpect our resort capital programs for the next several fiscal years will bemore limited in size.

 

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For Fiscal 2003and 2004, we anticipate our annual maintenance capital needs to beapproximately $8.5 million.  There is aconsiderable degree of flexibility in the timing and, to a lesser degree, scopeof our capital improvement program. Although we can defer specific capital expenditures for extendedperiods, continued growth of skier visits, revenues and profitability willrequire continued capital investment in on-mountain improvements.

 

We financeon-mountain capital improvements through resort cash flows, capital leases andour New Resort Credit Facility.  Thesize and scope of the capital improvement program will generally be determinedannually depending upon the strategic importance and expected financial returnof certain projects, future availability of cash flows from each season’sresort operations and future borrowing availability and covenant restrictionsunder the New Resort Credit Facility. The New Resort Credit Facility places a maximum level of non-real estatecapital expenditures for Fiscal 2003 at $8.5 million, with the ability toincrease this amount in the future if certain conditions are met.  We believe that these capital expenditureamounts will be sufficient to meet our non-real estate capital improvementneeds for Fiscal 2003.

 

**Contractual Obligations**

 

Our noncancelable,minimum contractual obligations as of July 28, 2002 were as follows (inthousands):

 

|                                                       |   |      |    | **Payments due by period** |   |
|------------------------------------------------------------|--------|-----------|---------|----------------------------|--------|
| **Obligation**                                             |   | **Total** |    | **Less than 1 Year**       |   | **1 to 3 Years** |   | **After 3 years** |   |
|                                                       |   |      |    |                       |   |   |   |   |   |
| Resort long-term debt and  capital lease obligations       |   | $         | 79,991  |                       | $      | 32,766 |   | $ | 41,693 |   | $ | 5,532 |   |
| Real estate long-term debt                                 |   | 102,341   |    | 71,867                     |   | 30,474 |   | — |   |
| Subordinated notes and debentures                          |   | 142,531   |    | 1,074                      |   | 1,466 |   | 139,991 |   |
| Mandatorily Redeemable 10 1⁄2% Series A Preferred Stock |   | 60,032    |    | 60,032                     |   | — |   | — |   |
| Mandatorily Redeemable 12% Series C-1 Preferred Stock      |   | 44,532    |    | —                     |   | — |   | 44,532 |   |
| Mandatorily Redeemable 15% Series C-2 Preferred Stock      |   | 159,404   |    | —                     |   | — |   | 159,404 |   |
| Operating leases                                           |   | 38,643    |    | 5,783                      |   | 9,995 |   | 22,865 |   |
| The Canyons land options obligation                        |   | 4,300     |    | 4,300                      |   | — |   | — |   |
| Obligation to build ski lifts at The Canyons               |   | 3,000     |    | —                     |   | 3,000 |   | — |   |
| Total                                                      |   | $         | 634,774 |                       | $      | 175,822 |   | $ | 86,628 |   | $ | 372,324 |   |

 

The operation of asubstantial portion of our resort activities are dependent upon leased realestate.  Aggregate lease commitmentsunder noncancelable operating leases are included in the table above.  As of July 28, 2002, approximately $100.2million of the real estate long-term debt, which does not include accrued andunpaid interest, was in default.  Ofthis amount, the defaults for approximately $42.0 million, which does notinclude accrued and unpaid interest, were subsequently waived by the lenders.

 

**Critical Accounting Policies**

 

Our discussion andanalysis of our financial condition and results of operations are based uponour consolidated financial statements, which have been prepared in accordancewith accounting principles generally accepted in the United States ofAmerica.  The preparation of thesefinancial statements requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of sales and expenses during the reporting periods.  Areas where significant judgments are madeinclude, but are not limited to: allowances for doubtful accounts, long-lived asset valuations and usefullives, inventory valuation reserves, and deferred income tax asset valuationallowances.  Actual results could differmaterially from these estimates.  Thefollowing are our critical accounting policies:

 

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*   Property and Equipment*

Property and equipmentare carried at cost, net of accumulated depreciation and impairment charges.Depreciation is calculated using the straight-line method over the assets’estimated useful lives which range from 9 to 40 years for buildings, 3 to 12years for machinery and equipment, 10 to 50 years for leasehold improvementsand 5 to 30 years for lifts, lift lines and trails. Assets held under capitallease obligations are amortized over the shorter of their useful lives or theirrespective lease lives. Due to the seasonality of our business, we record afull year of depreciation relating to our operating assets during the secondand third quarters of our fiscal year.

 

*    Goodwill andOther Intangible Assets*

During Fiscal 2002, weadopted Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwilland Other Intangible Assets” and were required to evaluate our existingintangible assets and goodwill in a transitional impairment analysis.  As a result of the transitional impairmentanalysis, we recorded an impairment loss of $18.7 million representing 100% ofour goodwill.  This loss was recorded asa cumulative effect of a change in accounting principle in the accompanyingconsolidated statement of operations for Fiscal 2002.  Furthermore, as prescribed in SFAS No. 142, certain indefinite-livedintangible assets, including trademarks, are no longer amortized but aresubject to annual impairment assessments. An impairment loss is recognized to the extent that the carrying amountexceeds the asset’s fair value. Definite-lived intangible assets continue to be amortized on a straight-linebasis over their estimated useful lives of 16 to 20 years, and assessed forimpairment utilizing guidance provided by SFAS No. 144.

 

Prior to the adoption ofSFAS No. 142, goodwill, which represents the excess of the purchase price overthe fair value of the net assets (including tax attributes and minorityinterest) acquired in purchase transactions, and other indefinite-livedintangibles were amortized on a straight-line basis over the expected periodsto be benefited, up to 40 years. Goodwill and other indefinite-livedintangibles were assessed for recoverability by determining whether theamortization of the carrying amounts over their remaining useful lives could berecovered through undiscounted future cash flows of the acquired operation orassets.

 

*    Long-Lived Assets*

On July 30, 2001, weadopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-LivedAssets to Be Disposed Of”.  Long-livedassets, such as property, plant and equipment, and definite-lived intangiblesare reviewed for impairment whenever events or changes in circumstancesindicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and usedis measured by a comparison of the carrying amount of an asset to the estimatedundiscounted future cash flows expected to be generated by the asset.  If the carrying amount of an asset exceedsits estimated future cash flows, an impairment charge is recognized in theamount by which the carrying amount of the asset exceeds the fair value of theasset.  Assets to be disposed of arereported at the lower of the carrying amount or fair value less costs to sell,and depreciation ceases.  Prior to theadoption of SFAS No. 144, we accounted for impairment of long-lived assets andlong-lived assets to be disposed of in accordance with SFAS No. 121,“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assetsto Be Disposed Of”.  During Fiscal 2002,we completed the sale of its Sugarbush resort and accounted for this sale underSFAS No. 121 and Accounting Principles Board Opinion No. 30 because thedisposal activities relating to the sale of Sugarbush were initiated prior toour adoption of SFAS No. 144.

 

*    RevenueRecognition*

Resort revenues includesales of lift tickets, tuition from ski schools, golf course and otherrecreational activities fees, sales from restaurants, bars and retail shops,and real estate rentals. Daily lift ticket revenue is recognized on the day ofpurchase. Lift ticket season pass revenue is recognized on a straight-linebasis over the ski season, which is the second and third quarters of our fiscalyear.  Our remaining resort revenues aregenerally recognized as the services are performed.  Real estate revenues are recognized under the full accrual methodwhen title has been transferred, adequate initial and continuing investment hasbeen received and no continuing involvement exits. Amounts received frompre-sales of real estate are recorded as restricted cash and deposits anddeferred revenue in the accompanying consolidated balance sheets until theearnings process is complete.

 

*    Seasonality*

Our revenues are highlyseasonal in nature.  Over the last fivefiscal years, we have realized an average of approximately 86% of resortrevenues and over 100% of resort EBITDA and net income during the period from

 

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November through April,and a significant portion of resort revenue and approximately 18% of annualskier visits were generated during the Christmas and Presidents’ Day vacationweeks.  In addition, our resortstypically experience operating losses and negative cash flows for the periodfrom May through November.

 

A high degree ofseasonality in our revenues increases the impact of certain events on ouroperating results.  Adverse weatherconditions, access route closures, equipment failures, and other developmentsof even moderate or limited duration occurring during peak business periodscould reduce revenues.  Adverse weatherconditions can also increase power and other operating costs associated withsnowmaking or could render snowmaking wholly or partially ineffective inmaintaining quality skiing conditions. Furthermore, unfavorable weather conditions, regardless of actual skiingconditions, can result in decreased skier visits.

 

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**Results of Operations**

 

**Fiscal Year Ended July 28, 2002(Fiscal 2002)**

**Versus Fiscal Year Ended July 29,2001 (Fiscal 2001)**

 

During May 2001, weinitiated a significant restructuring plan. As part of that plan, we entered into amendments to our key creditfacilities which permitted us to pursue a comprehensive strategic plan for bothour resort and real estate businesses. Based on the terms of the restructuring plan and the amended creditfacilities, we determined at the end of Fiscal 2001 that no impairment hadoccurred to any of our major assets.

 

Although many elements ofthe restructuring plan and the comprehensive strategic plan have beensuccessfully executed, key subsequent events have caused management tore-assess the realizability of certain of our assets.  Those key events are as follows:

 

•                  In the second quarter of Fiscal 2002,we entered into a purchase and sale agreement for the sale of our Steamboatresort.  The sale of the Steamboat skiresort was a key element underlying the May 2001 restructuring plan and theamendments to both the resort and real estate senior credit facilities.  As a result of the lower than expectedpotential sales price for the Steamboat resort, which was a result of decliningeconomic conditions in the leisure and resort sector, we determined that awrite-down of approximately $52.0 million was required on the Steamboat assetsand recorded that impairment charge in the fourth quarter of Fiscal 2001.

 

•                  The events of the September 11thterrorist attacks negatively impacted the resort sector economic strength andwere especially damaging to valuations of destination resorts such asSteamboat.  As a result, the potentialbuyer of Steamboat experienced difficulty in completing its financing packageand re-opened negotiations with us on the terms of its original offer.  Based on these renegotiations and a revisedpurchase and sale agreement, we recorded an additional $25.4 million impairmentcharge during the second quarter of Fiscal 2002.

 

•                  On May 9, 2002, we completed the saleof Heavenly to Vail Resorts, Inc. (Vail).  We determined that thesale of Heavenly more closely achieved our restructuring objectives andresulted in a significantly higher asset valuation than the previouslyannounced Steamboat sale transaction. As a result, we concluded that we would not proceed with the sale of ourSteamboat resort.

 

•                  The Steamboat transaction was toprovide approximately $7.5 million to Resort Properties because the transactionincluded the sale of certain large real estate parcels. The assumption thatthese parcels would be sold in conjunction with the sale of Steamboat was keyto our earlier impairment analysis performed in the second quarter of Fiscal2002.

 

•                  Coupled with this was the dramaticdownturn in the resort sector economic strength that followed the events ofSeptember 11th and a rapidly declining stock market.  These developments severely affected realestate sales of quartershare inventory in Utah and Colorado which furtherweakened Resort Properties’ financial health. In March 2002, Resort Properties defaulted on the Real Estate TermFacility and opened re-negotiations with both the Construction Loan Facilitylender, Textron Financial Corporation (Textron), and the Real Estate TermFacility lender, Fleet National Bank (Fleet).

 

•                  As of May 20, 2002, Resort Propertieswas in default under the Real Estate Term Facility with Fleet National Bank andcertain other lenders due to its failure to make a mandatory payment ofprincipal.  On May 31, 2002, the lendersaccelerated the due date of the entire remaining principal and accrued interestunder the facility. We have successfully completed negotiations with Textron torestructure the Construction Loan Facility and have eliminated the defaults inthat facility.  However, whilenegotiations continue with Fleet and the other lenders on a restructuring plan,those negotiations are not yet complete and may result in

 

31

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a significant change inownership, control and future access to value creation from the assets held byResort Properties.

 

Until May 20, 2002,Resort Properties had been able to obtain waivers or amendments to the Real EstateTerm Facility whenever there were defaults. However, given the combination of (1) extreme slow down in the resortsector economy and especially the slowdown in the real estate market, (2) theconservative lending environment, and (3) the negative terms of the Textronrestructuring and the possible negative terms of the Fleet restructuring,management determined that a significant adverse change in the economicenvironment and in our business plans occurred in the fourth quarter of Fiscal2002.  This adverse change affected therealizability of our long-lived assets and we recorded appropriate impairmentsas discussed in Note 13 to the consolidated financial statements.

 

**Resort Operations:**

The components of resortoperations for the fiscal years ended July 28, 2002 and July 29, 2001 are asfollows.  Both years reflect theoperations of Heavenly as discontinued operations due to its sale in May 2002.

** **

|                                                                                                                                             |   | **Year Ended  July 29, 2001**                                      |       | **Year Ended  July 28, 2002** |   | **Increase/(Decrease)** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------|------------|-------------------------------|--------|-------------------------|--------|
|                                                                                                                                             |   |                                                               |       | **Dollar**                    |   | **Percent**             |   |
|                                                                                                                                             |   | **(in  millions, except skier visit and per skier visit amounts)** | ** ** |
| **Revenue category:**                                                                                                                            |   |                                                               |       |                          |   |                    |   |   |   |
| **Lift tickets**                                                                                                                                 |   | $                                                                  | 119.3      |                          | $      | 104.4                   |   | $ | (14.9 | ) | -12.5 | % |
| **Food and beverage**                                                                                                                            |   | 39.7                                                               |       | 35.6                          |   | (4.1                    | )      | -10.3 | % |
| **Retail sales**                                                                                                                                 |   | 29.8                                                               |       | 25.1                          |   | (4.7                    | )      | -15.8 | % |
| **Lodging and property**                                                                                                                         |   | 40.8                                                               |       | 37.6                          |   | (3.2                    | )      | -7.8 | % |
| **Skier development**                                                                                                                            |   | 22.4                                                               |       | 20.1                          |   | (2.3                    | )      | -10.3 | % |
| **Golf, summer activities and other**                                                                                                            |   | 23.7                                                               |       | 21.0                          |   | (2.7                    | )      | -11.4 | % |
| **Total resort revenues**                                                                                                                        |   | $                                                                  | 275.7      |                          | $      | 243.8                   |   | $ | (31.9 | ) | -11.6 | % |
|                                                                                                                                             |   |                                                               |       |                          |   |                    |   |   |   |
| **Cost of resort operations**                                                                                                                    |   | $                                                                  | 187.7      |                          | $      | 167.0                   |   | $ | (20.7 | ) | -11.0 | % |
| **Marketing, general and administrative**                                                                                                        |   | 49.0                                                               |       | 46.6                          |   | (2.4                    | )      | -4.9 | % |
| **Merger, restructuring****and asset impairment charges**                                                                                        |   | 71.3                                                               |       | 47.9                          |   | (23.4                   | )      | -32.8 | % |
| **Depreciation and amortization**                                                                                                                |   | 35.2                                                               |       | 28.9                          |   | (6.3                    | )      | -17.9 | % |
| **Write-off of deferred financing costs**                                                                                                        |   | —                                                             |       | 3.3                           |   | 3.3                     |   | N/A |   |
| **Interest expense**                                                                                                                             |   | 26.4                                                               |       | 32.5                          |   | 6.1                     |   | 23.1 | % |
| **Total resort expenses**                                                                                                                        |   | $                                                                  | 369.6      |                          | $      | 326.2                   |   | $ | (43.4 | ) | -11.7 | % |
|                                                                                                                                             |   |                                                               |       |                          |   |                    |   |   |   |
| **Loss from continuing resort operations**                                                                                                       |   | $                                                                  | (93.9      | )                             | $      | (82.4                   | )      | $ | 11.5 |   | -12.2 | % |
| **Loss from resort operations, excluding****merger, restructuring and asset****impairment charges and write-off****of deferred financing costs** |   | $                                                                  | (22.6      | )                             | $      | (31.2                   | )      | $ | (8.6 | ) | 38.1 | % |
|                                                                                                                                             |   |                                                               |       |                          |   |                    |   |   |   |
| **Total Skier Visits (000’s)**                                                                                                              |   | 4,430                                                              |       | 3,756                         |   | (674                    | )      | -15.2 | % |
| **Total resort revenue per skier visit**                                                                                                         |   | $                                                                  | 62.2       |                          | $      | 64.9                    |   | $ | 2.7 |   | 4.3 | % |
|                                                                                                                                             |   |                                                               |       |                          |   |                    |   |   |   |
| **Reconciliation to EBITDA:**                                                                                                                    |   |                                                               |       |                          |   |                    |   |   |   |
| **Loss from continuing resort operations**                                                                                                       |   | $                                                                  | (93.9      | )                             | $      | (82.4                   | )      | $ | 11.5 |   | -12.2 | % |
| **Merger, restructuring and asset****impairment charges**                                                                                        |   | 71.3                                                               |       | 47.9                          |   | (23.4                   | )      | -32.8 | % |
| **Depreciation and amortization**                                                                                                                |   | 35.2                                                               |       | 28.9                          |   | (6.3                    | )      | -17.9 | % |
| **Write-off of deferred financing costs**                                                                                                        |   | —                                                             |       | 3.3                           |   | 3.3                     |   | N/A |   |
| **Interest expense**                                                                                                                             |   | 26.4                                                               |       | 32.5                          |   | 6.1                     |   | 23.1 | % |
| **Resort EBITDA**                                                                                                                                |   | $                                                                  | 39.0       |                          | $      | 30.2                    |   | $ | (8.8 | ) | -22.6 | % |

 

During the 2001-02 skiseason, our eastern resorts experienced reduced snowfall and mild temperatureswhen compared to the prior season.  Inaddition, the events of September 11th and the continued softeningof the resort sector economy further contributed to reduced skier visits fromthe previous year.  Skier visits for oureastern resorts in the 2001-02 ski season decreased 10.8% from approximately2.8 million to 2.5 million.  Theweakening resort sector economy, travel concerns following the events ofSeptember 11th, low early season snow fall and the temporarynegative impact from the 2002 Winter Olympic Games at The Canyons negativelyimpacted demand at our western resorts, which are more heavily reliant ondestination visits.  These negativefactors were partially offset

 

32

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by continued growth ofskier visits at The Canyons in the non-Olympic periods with overall westernskier visits being down approximately 1.3% from the prior year.  Over our entire resort network, total skiervisits were down 7.7% from the 2000-01 ski season, excluding the skier visitsfrom Heavenly and Sugarbush.

 

Revenues for Fiscal 2002were $243.8 million as compared to $275.7 million for Fiscal 2001, a decreaseof $31.9 million, or 11.6%.  Sugarbushwas sold on September 28, 2001 and its results of operations are included inour statements of operations through that date.  Excluding results from Sugarbush, revenues for Fiscal 2002 were$243.1 million as compared to $258.6 million in Fiscal 2001, a decrease of$15.5 million, or 6.0%.  ExcludingSugarbush, revenues from all of our ski-related lines of business were downbetween 5.1% and 10.4% over the prior year, with the exception of lodgingrevenues which were down 2.6%.  Thesedecreases resulted from a 7.7% decrease in skier visits offset by a 1.9%increase in revenue per skier visit. Lodging revenues did not decrease as significantly as we have continuedto strengthen our non-ski season conference business and because of the furthermaturing of the Steamboat Grand and the two hotels at The Canyons.

 

Excluding merger,restructuring and asset impairment charges of $47.9 million and write-off ofdeferred financing costs of $3.3 million, our resort segment produced a $31.2million operating loss in Fiscal 2002, compared to a $22.6 million operatingloss in Fiscal 2001.  This $8.6 millionincrease in the operating loss resulted primarily from $2.6 million decrease inEBITDA from Sugarbush which was sold prior to the beginning of the ski seasonand a $6.3 million decrease in resort EBITDA as a result of reduced skier visitvolumes.  This $6.3 million decrease inresort EBITDA from continuing operations results from the net effect of:

 

(i)                        $15.5million decrease in resort revenues,

(ii)                     $8.9million decrease in resort operating expenses, and

(iii)                  $0.3 million decrease in marketing,general and administrative expenses.

 

We believe that EBITDA isan important measure of our operating performance and is generally used byinvestors to evaluate companies in the resort industry.

 

We incurred merger,restructuring and asset impairment charges for Fiscal 2002 and Fiscal 2001related to our resort operations.  The$47.9 million of merger, restructuring and asset impairment charges for Fiscal2002 includes:

 

(i)                                     $25.4million impairment charge to record the estimated fair value of net assets heldfor sale at Steamboat, recorded in the second quarter of Fiscal 2002;

(ii)                                  $18.9million impairment charge on land and the land options at The Canyons;

(iii)                               $1.4 million impairmentcharge on certain corporate and Sunday River fixed assets and an option topurchase undeveloped land at Sunday River;

(iv)                              $2.5million of legal, consulting and financing costs incurred in connection withcapital and debt restructuring; and

(v)                                 $(0.3)million of gain to finalize the sale of the Sugarbush resort.

 

The $71.3 million ofmerger, restructuring and asset impairment charges for Fiscal 2001 related toour resort operations includes:

 

(i)                                     $50.0million impairment charge to record the estimated fair value of net assets heldfor sale at Steamboat, recorded in the fourth quarter of Fiscal 2001;

(ii)                                  $14.0million impairment of assets held for sale at Sugarbush resulting from theagreement to sell Sugarbush to Summit Ventures, Inc.;

(iii)                               $3.6 million of expensesincurred in connection with the terminated merger with Meristar Hotels andResorts; and

(iv)                              $3.7million in employee severance and restructuring charges.

 

33

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                *Recent Trends:*Although our operating results from July 29, 2002 through January 26, 2003 werestronger than the comparable period of the prior year, we have experiencedsignificant softening in skier visits, call volume and reservation activity inrecent weeks which may be attributable to extreme cold weekend and holidaytemperatures in the East, the soft economy, as well as concerns about thepotential for war in the Middle East and terrorist activity in the UnitedStates. This recent trend has partially offset improvements in operatingresults through January 26, 2003. Furthermore, consumers continue to book theirreservations more closely to the actual date of travel, making it difficult forus to forecast future performance.

 

**Real Estate Operations:**

The components of realestate operations are as follows:

 
|                                                      |   | **Year Ended  July 29, 2001** |       | **Year Ended  July 28, 2002** |   | **Increase/ (Decrease)** |   |
|-----------------------------------------------------------|--------|-------------------------------|------------|-------------------------------|--------|--------------------------|--------|
|                                                      |   |                          |       | **Dollar**                    |   | **Percent**              |   |
|                                                      |   | **(in  millions)**            | ** ** |
|                                                      |   |                          |       |
| **Total real estate revenues**                            |   | $                             | 96.9       |                          | $      | 28.3                     |   | $ | (68.6 | ) | -70.8 | % |
|                                                      |   |                          |       |                          |   |                     |   |   |   |
| **Cost of real estate operations**                        |   | 93.5                          |       | 30.1                          |   | (63.4                    | )      | -67.8 | % |
| **Merger, restructuring and asset****impairment charges** |   | 4.7                           |       | 63.7                          |   | 59.0                     |   | 1,255.3 | % |
| **Depreciation and amortization**                         |   | 2.8                           |       | 1.9                           |   | (0.9                     | )      | -32.1 | % |
| **Interest expense**                                      |   | 27.0                          |       | 17.7                          |   | (9.3                     | )      | -34.4 | % |
| **Total real estate expenses**                            |   | 128.0                         |       | 113.4                         |   | (14.6                    | )      | -11.4 | % |
| **Loss from real estate operations**                      |   | $                             | (31.1      | )                             | $      | (85.1                    | )      | $ | (54.0 | ) | 173.6 | % |
|                                                      |   |                          |       |                          |   |                     |   |   |   |
| **Reconciliation to EBITDA:**                             |   |                          |       |                          |   |                     |   |   |   |
| **Loss from real estate operations**                      |   | $                             | (31.1      | )                             | $      | (85.1                    | )      | $ | (54.0 | ) | 173.6 | % |
| **Merger, restructuring and asset****impairment charges** |   | 4.7                           |       | 63.7                          |   | 59.0                     |   | 1,255.3 | % |
| **Depreciation and amortization**                         |   | 2.8                           |       | 1.9                           |   | (0.9                     | )      | -32.1 | % |
| **Interest expense**                                      |   | 27.0                          |       | 17.7                          |   | (9.3                     | )      | -34.4 | % |
| **Real estate EBITDA**                                    |   | $                             | 3.4        |                          | $      | (1.8                     | )      | $ | (5.2 | ) | -152.9 | % |

 

Real estate revenuesdecreased by $68.6 million in Fiscal 2002, compared to Fiscal 2001, from $96.9million to $28.3 million.  Real estaterevenues by project (in millions) are as follows:

 
|                      |   | **Year ended  July 29, 2001** |     | **Year ended  July 28, 2002** |   | **Increase/  (Decrease)** |       |
|---------------------------|--------|-------------------------------|----------|-------------------------------|--------|---------------------------|------------|
| Steamboat  Grand          |   | $                             | 37.5     |                          | $      | 7.1                       |       | $ | (30.4 | ) |
| The  Canyons Grand Summit |   | 21.7                          |     | 8.5                           |   | (13.2                     | )          |
| Sundial  Lodge            |   | 1.7                           |     | —                        |   | (1.7                      | )          |
| Eastern  properties       |   | 12.5                          |     | 7.9                           |   | (4.6                      | )          |
| Land  sales               |   | 22.2                          |     | 3.8                           |   | (18.4                     | )          |
| Other  revenues           |   | 1.3                           |     | 1.0                           |   | (0.3                      | )          |
| **Total**                 |   | **$**                         | **96.9** | ** **                    | **$**  | **28.3**                  | ** ** | **$** | **(68.6** | **)** |

 

*Steamboat Grand*:  During Fiscal 2001, we began closing on thesale of quartershare units in the new Steamboat Grand, adjacent to Steamboat inColorado.  We realized $37.5 million inrevenues from closings of units for Fiscal 2001, much of which was the resultof pre-sale activities during the construction and development period.  During the fourth quarter of Fiscal 2001,disputes with the general contractor resulted in mechanics liens being placedon the Steamboat Grand, which caused a temporary halt in unit closingsbeginning in early May 2001.  We wereable to negotiate a settlement with the general contractor that becameeffective in Fiscal 2002.  During Fiscal

34

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2002, we resumed sellingthe quartershare units and realized $7.1 million in revenues from closings ofunits.  As of the end of Fiscal 2002,the Steamboat Grand was approximately 50% sold.

 

*The Canyons: *Both the Sundial Lodge andthe Grand Summit Hotel at The Canyons in Park City, Utah were completed duringFiscal 2000.  During Fiscal 2001 and2002, we realized $21.7 million and $8.5 million, respectively, in ongoingsales of quartershare units at The Canyons Grand Summit Hotel, and $1.7 millionand none, respectively, from remaining units at the Sundial Lodge.  These decreases relate to the resort sectoreconomic downturn during Fiscal 2002, the events of September 11thand the stage of completion of these facilities.  As of the end of Fiscal 2002, the Sundial Lodge was 100% sold andthe Grand Summit Hotel at The Canyons was approximately 74% sold.

 

*Eastern Properties: *Revenues from sales at oureastern properties in Fiscal 2002 were down $4.6 million from Fiscal 2001 asour projects at Killington and Sunday River were nearly completely sold as ofthe end of Fiscal 2001.  As of July 28,2002, only one non-standard unit was remaining at the Jordan Grand, with thatunit being sold in September 2002.  TheMount Snow, Attitash Bear Peak and Killington Grand Summit Hotels were alsocompletely sold as of July 28, 2002 with $7.9 million in revenue being realizedfrom Eastern unit sales in Fiscal 2002.

 

*Land Sales:*DuringFiscal 2002, land sales decreased by $18.4 million due to the depressed marketfor development land.  During Fiscal2002, land sales were limited to the sale of the Heavenly base parcel inconjunction with the sale of the resort for $2.4 million, land at the Sugarloafresort for $1.0 million and various smaller sales.

 

During Fiscal 2001, werealized revenue from the sale of three separate development parcels, asfollows:

 

(i)                                 InAugust 2000, we sold our option rights to certain real estate in the South LakeTahoe Redevelopment District to Marriott Ownership Resorts, Inc. for $8.5million;

(ii)                              InMay 2001 we sold our 85% ownership interest in Heavenly Resort Properties, LLC,the entity that controls the development rights for the Heavenly Grand Summitquartershare hotel adjacent to our Heavenly resort in South Lake Tahoe, CA, toMarriott Vacation Club International for $11.2 million (excluding futureparticipation revenues we anticipate receiving in Fiscal 2003).  Marriott has commenced construction on thishotel and expects it to open during the 2002-03 ski season; and

(iii)                           In July 2001, we sold adevelopment parcel at Central Park Plaza in the vicinity of our Steamboat skiresort for $2.5 million.

 

Our real estate segmentgenerated a loss before income taxes of $85.1 million in Fiscal 2002, comparedto a loss before income taxes of $31.1 million in Fiscal 2001.  This $54.0 million increase in loss beforeincome taxes results from the net effect of the following:

 

(i)                                 $5.2million decrease in real estate EBITDA,

(ii)                              $59.0million increase in restructuring and asset impairment charges

(iii)                           $9.3 million decrease inreal estate interest expense, and

(iv)                          $0.9million decrease in real estate depreciation.

 

We incurred restructuringand asset impairment charges for Fiscal 2002 and Fiscal 2001 related to ourreal estate segment.  The $63.7 millionof restructuring and asset impairment charges during Fiscal 2002 related to ourreal estate segment is comprised of:

 

(i)                                 $38.7million impairment charge to record the estimated fair value of the remainingquartershare inventory at Steamboat and The Canyons;

(ii)                              $24.8million impairment charges on master planning and real estate costs at TheCanyons, Killington, Mount Snow, Sugarloaf, Sunday River and Steamboat;

(iii)                           $0.2 million of legal,consulting and financing restructuring costs.

 

35

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The $4.7 million ofrestructuring and asset impairment charges during Fiscal 2001 related to ourreal estate segment is comprised of:

 

(i)                                 $2.0million of asset impairment charges related to undeveloped land at Steamboat ;

(ii)                              $1.3million impairment charge related to the remaining units at the Attitash GrandSummit Hotel project;

(iii)                           $1.1 million write-off ofremaining capitalized costs in connection with development of a Grand SummitHotel at Sugarbush as a result of the sale of that resort; and

(iv)                          $0.3million in restructuring charges.

 

Real estate EBITDA,exclusive of restructuring and impairment charges, for Fiscal 2002 and Fiscal2001 (in millions) is detailed below. We believe that EBITDA is an important measure of our operatingperformance and is generally used by investors to evaluate companies in theresort industry.

 
| **Project**                           |   | **Year ended  July 29, 2001** |    | **Year ended  July 28, 2002** |   | **Increase/  (Decrease)** |   |
|---------------------------------------|--------|-------------------------------|---------|-------------------------------|--------|---------------------------|--------|
| **The Canyons Grand Summit**          |   | $                             | 3.7     |                          | $      | 0.7                       |   | $ | (3.0 | ) |
| **Sundial Lodge**                     |   | 0.2                           |    | —                        |   | (0.2                      | )      |
| **Steamboat Grand**                   |   | (0.9                          | )       | —                        |   | 0.9                       |   |
| **Eastern properties**                |   | 0.6                           |    | (0.5                          | )      | (1.1                      | )      |
| **Land sales**                        |   | 5.5                           |    | 1.2                           |   | (4.3                      | )      |
| **General, administration and other** |   | (5.7                          | )       | (3.2                          | )      | 2.5                       |   |
| **Total**                             |   | **$**                         | **3.4** | ** **                    | **$**  | **(1.8**                  | **)**  | **$** | **(5.2** | **)** |

 

*Steamboat Grand: *Disruptions related to thepotential sale of the Steamboat resort, the resort sector economic downturnduring Fiscal 2002, and concerns over our financial health contributed to thenegative EBITDA generated by this project.

 

*The Canyons Grand Summit Hotel: *The $3.0 million reduction in EBITDA from quartershareclosings at The Canyons Grand Summit Hotel in Fiscal 2002 is mainly due to the$13.2 million reduction in sales revenues compared to Fiscal 2001 as a resultof the resort sector economic downturn during Fiscal 2002, a change in visitordemographics during the 2002 Winter Olympic Games, and concerns over ourfinancial health.  Our EBITDA margin onsales decreased in Fiscal 2002 to 7.8%, from 17% in Fiscal 2001, mainly due toan decrease in sales.

 

*Eastern Properties: *The $1.1 million decreasein EBITDA at our eastern properties was consistent with management’sexpectations and was mainly due to the decrease in sales revenue in Fiscal2002, as both the Jordan Grand Summit Hotel and Killington Grand Summit Hotelprojects have essentially reached total sell-out as of the end of Fiscal2001.  The Mount Snow Grand Summit Hotelhad limited remaining inventory as of the end of Fiscal 2001 and we sold theremaining Attitash Bear Peak Grand Summit Hotel inventory at heavily discountedprices in order to accelerate the sell-out of that project as planned.

 

*Land Sales*: Theland sales that occurred during Fiscal 2002 were the sale of the Heavenly baseparcel in conjunction with the sale of the resort for $2.4 million, the sale ofland at the Sugarloaf resort for $1.0 million, and various smaller sales.  In Fiscal 2001, we recognized a $7.3 milliongain from the August 2000 sale of certain real estate in the South Lake TahoeRedevelopment District to Marriott Ownership Resorts.  This gain was partially offset by EBITDA losses of $1.0 millionfrom the sale of the Heavenly Grand Summit Hotel site and $0.8 million from thesale of a development parcel at Steamboat. The $0.9 million loss from the Heavenly Grand Summit Hotel site does nottake into account approximately $4.8 million in participation revenues that wemay receive in Fiscal 2003 when Marriott Ownership Resorts begins sellingcompleted units.

 

The $9.3 million decreasein real estate interest expense was primarily due to a reduction in the amountof debt outstanding during Fiscal 2002 when compared to Fiscal 2001.  Also, during Fiscal 2001, we capitalized$2.1 million of interest costs related to the final stages of construction atthe Steamboat Grand compared to capitalizing $0 in Fiscal 2002.

 

36

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*Recent Trends: *Over the past severalmonths, we have seen a reduction in sales volume and sales leads at our GrandSummit properties at Steamboat and The Canyons.  These reduced sales volumes are below management’s anticipatedlevels for this period.  We believe thatthis is primarily the result of continuing disruptions related to our realestate restructuring efforts, which have impacted real estate sales interest atboth resorts, as well as weakening economic conditions and difficulty ofpotential buyers obtaining end-loan financing for fractional real estatepurchases.  We remain cautiouslyoptimistic about our ability to sell an increased number of units at Steamboatand The Canyons this ski season as we have completed the Textron restructuringand are progressing on a potential restructuring of the Real Estate TermFacility.  We are monitoring developingeconomic conditions and implementing new and re-energized sales and marketingprograms to take advantage of strong early season reservations at these tworesorts.

 

**Benefit from income taxes. **The benefit from incometaxes****was$0 in Fiscal 2001 and Fiscal 2002.  Webelieve it is more likely than not that we will not realize income tax benefitsfrom operating losses in the foreseeable future.

 

**Cumulative effect of a change inaccounting principle. **DuringFiscal 2002, we adopted SFAS No. 142, *Goodwill and Other Intangible Assets*.  SFAS No. 142 applies to goodwill andintangible assts acquired after June 30, 2001, as well as goodwill andintangible assets previously acquired. As a result of the adoption of SFAS No. 142, we recorded an impairmentcharge of $18.7 million, which has been recorded as a cumulative effect of achange in accounting principle in the accompanying Fiscal 2002 consolidatedstatement of operations.

 

**Accretion of discount and dividendsaccrued on mandatorily redeemable preferred stock. **The dividends on mandatorily redeemablepreferred stock increased $9.4 million, from $23.4 million for Fiscal 2001 to$32.8 million for Fiscal 2002.  Thisincrease is primarily attributable to the recapitalization that occurred duringAugust 2001.  The compounding effect ofaccruing dividends on the value of the preferred shares contributed to theincrease.  On August 31, 2001, the SeriesB Preferred Stock was stripped of all of its rights and preferences with theexception of the right to elect up to six directors in exchange for, amongother things, two new series of Preferred Stock:  (i) $40 million face value of Series C-1 Preferred Stock,accruing dividends at the rate of 12% per annum; and (ii) $139.5 million facevalue of Series C-2 Preferred Stock accruing dividends at the rate of 15% perannum.

 

37

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**FiscalYear Ended July 29, 2001 (Fiscal 2001)**

**Versus Fiscal Year Ended July 30,2000 (Fiscal 2000)**

 

**Resort Operations:**

The components of resortoperations for the fiscal years ended July 29, 2001 and July 30, 2000 are asfollows.  Both years reflect theoperations of Heavenly as discontinued due to its sale in May 2002.

** **
|                                                                                                                                             |   | **Year Ended  July 30, 2000**                                      |       | **Year Ended  July 29, 2001** |   | **Increase/ (Decrease)** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------|------------|-------------------------------|--------|--------------------------|--------|
|                                                                                                                                             |   |                                                               |       | **Dollar**                    |   | **Percent**              |   |
|                                                                                                                                             |   | **(in  millions, except skier visit and per skier visit amounts)** | ** ** |
| **Revenue category:**                                                                                                                            |   |                                                               |       |                          |   |                     |   |   |   |
| **Lift Tickets**                                                                                                                                 |   | $                                                                  | 105.1      |                          | $      | 119.3                    |   | $ | 14.2 |   | 13.5 | % |
| **Food and beverage**                                                                                                                            |   | 34.6                                                               |       | 39.7                          |   | 5.1                      |   | 14.7 | % |
| **Retail sales**                                                                                                                                 |   | 26.0                                                               |       | 29.8                          |   | 3.8                      |   | 14.6 | % |
| **Lodging and property**                                                                                                                         |   | 31.9                                                               |       | 40.8                          |   | 8.9                      |   | 27.9 | % |
| **Skier development**                                                                                                                            |   | 19.7                                                               |       | 22.4                          |   | 2.7                      |   | 13.7 | % |
| **Golf, summer activities and other**                                                                                                            |   | 22.9                                                               |       | 23.7                          |   | 0.8                      |   | 3.5 | % |
| **Total resort revenues**                                                                                                                        |   | 240.2                                                              |       | 275.7                         |   | 35.5                     |   | 14.8 | % |
|                                                                                                                                             |   |                                                               |       |                          |   |                     |   |   |   |
| **Cost of resort operations**                                                                                                                    |   | $                                                                  | 170.1      |                          | $      | 187.7                    |   | $ | 17.6 |   | 10.3 | % |
| **Marketing, general and administrative**                                                                                                        |   | 46.9                                                               |       | 49.0                          |   | 2.1                      |   | 4.5 | % |
| **Merger, restructuring and asset****impairment charges**                                                                                        |   | —                                                             |       | 71.3                          |   | 71.3                     |   | N/A |   |
| **Depreciation and amortization**                                                                                                                |   | 37.3                                                               |       | 35.2                          |   | (2.1                     | )      | -5.6 | % |
| **Write-off of deferred financing costs**                                                                                                        |   | 1.0                                                                |       | —                        |   | (1.0                     | )      | N/A |   |
| **Interest expense**                                                                                                                             |   | 24.3                                                               |       | 26.4                          |   | 2.1                      |   | 8.6 | % |
| **Total resort expenses**                                                                                                                        |   | 279.6                                                              |       | 369.6                         |   | 90.0                     |   | 32.2 | % |
|                                                                                                                                             |   |                                                               |       |                          |   |                     |   |   |   |
| **Loss from continuing resort operations**                                                                                                       |   | $                                                                  | (39.4      | )                             | $      | (93.9                    | )      | $ | (54.5 | ) | 138.3 | % |
| **Loss from resort operations, excluding****merger, restructuring and asset****impairment charges and write-off****of deferred financing costs** |   | $                                                                  | (38.4      | )                             | $      | (22.6                    | )      | $ | 15.8 |   | -41.1 | % |
|                                                                                                                                             |   |                                                               |       |                          |   |                     |   |   |   |
| **Total Skier Visits (000’s)**                                                                                                              |   | 4,109                                                              |       | 4,430                         |   | 321                      |   | 7.8 | % |
| **Total resort revenue per skier visit**                                                                                                         |   | $                                                                  | 58.5       |                          | $      | 62.2                     |   | $ | 3.7 |   | 6.3 | % |
|                                                                                                                                             |   |                                                               |       |                          |   |                     |   |   |   |
| **Reconciliation to EBITDA:**                                                                                                                    |   |                                                               |       |                          |   |                     |   |   |   |
| **Loss from continuing resort operations**                                                                                                       |   | $                                                                  | (39.4      | )                             | $      | (93.9                    | )      | $ | (54.5 | ) | 138.3 | % |
| **Merger, restructuring and asset****impairment charges**                                                                                        |   | —                                                             |       | 71.3                          |   | 71.3                     |   | N/A |   |
| **Depreciation and amortization**                                                                                                                |   | 37.3                                                               |       | 35.2                          |   | (2.1                     | )      | -5.6 | % |
| **Write-off of deferred financing costs**                                                                                                        |   | 1.0                                                                |       | —                        |   | (1.0                     | )      | N/A |   |
| **Interest expense**                                                                                                                             |   | 24.3                                                               |       | 26.4                          |   | 2.1                      |   | 8.6 | % |
| **Resort EBITDA**                                                                                                                                |   | $                                                                  | 23.2       |                          | $      | 39.0                     |   | $ | 15.8 |   | 68.1 | % |

 

The 2000-2001 ski seasonsaw a return to more normal levels of snowfall in the eastern United States,compared to the well below normal amounts in the prior two seasons.  However, natural snowfall totals in the westthis season were below normal levels. As a result of the good ski conditions, natural snow in key marketareas, and generally good weather, and not withstanding a softening economy,our eastern resorts performed substantially better than last year as skiervisits increased 10% over the 1999-2000 season.  The weakening economy and its direct effect on destinationvacations seriously impacted demand at our western resorts, which are moreheavily reliant on destination visits. The lack of natural snowfall in the west this season also had a negativeimpact on our western resorts.  Thecontinued expansion of The Canyons in Park City, Utah helped to negate some ofthe negative trends in the west, as total skier visits were down only 1% at ourwestern resorts despite the softening economy and the lack of snowfall.  Over our entire resort network, total skiervisits were up 7.8% over the 1999-2000 ski season.

 

Revenues from all of ourski-related lines of business were up between 13.5% and 14.7% over the prioryear, with the exception of lodging revenues which were up 27.9%.  These increases resulted from thecombination of a 7.8% increase in skier visits and also a 6.5% increase in revenueper skier visit, which means that not only did we attract more people to ourresorts this year, but these visitors also spent more money while they werethere.  The 

 

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large increase in lodgingservices revenues was mainly generated from the new Steamboat Grand, whichopened in Fiscal 2001, and a full season of operation of the two hotels at TheCanyons, which opened in the middle of the prior fiscal year.  Together, these hotels generated a combined$6.7 million increase in lodging revenues over the prior year.  Profitability at the new Steamboat Grand washampered, however, by its late opening and normal pre-opening expenses.

 

Excluding merger,restructuring and asset impairment charges of $71.3 million in Fiscal 2001, ourresort segment produced a $22.6 million operating loss in Fiscal 2001, comparedto a $38.4 million operating loss in Fiscal 2000 which excludes write-off ofdeferred financing costs of $1.0 million. This $15.8 million decrease in the operating loss resulted primarily froma $15.8 million increase in resort EBITDA, exclusive of the merger,restructuring and asset impairment charges. This increase in resort EBITDA resulted from the net effect of:

 

(i)                        $35.5million increase in resort revenues,

(ii)                     $17.6million increase in resort operating expenses, and

(iii)                  $2.1 million increase in marketing,general and administrative expenses.

 

This $15.8 millionincrease in resort EBITDA in Fiscal 2001 is a function of both the increasedrevenues from skier visits described above and a higher EBITDA margin on thoserevenues (14.1% in Fiscal 2001 vs.  9.7%in Fiscal 2000).  We believe that EBITDAis an important measure of our operating performance and is generally used byinvestors to evaluate companies in the resort industry.

 

The $71.3 million ofmerger, restructuring and asset impairment charges in Fiscal 2001 related toour resort operations includes:

 

(i)                                     $50.0million impairment charge to record the estimated fair value of net assets heldfor sale at Steamboat;

(ii)                                  $14.0million impairment charge related to assets at Sugarbush resulting from theagreement to sell Sugarbush to Summit Ventures, Inc.;

(iii)                               $3.6 million of expensesincurred in connection with the terminated merger with Meristar Hotels andResorts; and

(iv)                              $3.7million in employee severance and restructuring charges.

 

**Real Estate Operations:**

The components of realestate operations are as follows:

 
|                                                      |   | **Year Ended  July 30, 2000** |       | **Year Ended  July 29, 2001** |   | **Increase/ (Decrease)** |   |
|-----------------------------------------------------------|--------|-------------------------------|------------|-------------------------------|--------|--------------------------|--------|
|                                                      |   |                          |       | **Dollar**                    |   | **Percent**              |   |
|                                                      |   | **(in  millions)**            | ** ** |
|                                                      |   |                          |       |
| **Total real estate revenues**                            |   | $                             | 132.1      |                          | $      | 96.9                     |   | $ | (35.2 | ) | -26.6 | % |
|                                                      |   |                          |       |                          |   |                     |   |   |   |
| **Cost of real estate operations**                        |   | $                             | 123.9      |                          | $      | 93.5                     |   | $ | (30.4 | ) | -24.5 | % |
| **Merger, restructuring and asset****impairment charges** |   | —                        |       | 4.7                           |   | 4.7                      |   | N/A |   |
| **Depreciation and amortization**                         |   | 1.2                           |       | 2.8                           |   | 1.6                      |   | 133.3 | % |
| **Interest expense**                                      |   | 11.5                          |       | 27.0                          |   | 15.5                     |   | 134.8 | % |
| **Total real estate expenses**                            |   | 136.6                         |       | 128.0                         |   | (8.6                     | )      | -6.3 | % |
| **Loss from real estate operations**                      |   | $                             | (4.5       | )                             | $      | (31.1                    | )      | $ | (26.6 | ) | 591.1 | % |
|                                                      |   |                          |       |                          |   |                     |   |   |   |
| **Reconciliation to EBITDA:**                             |   |                          |       |                          |   |                     |   |   |   |
| **Loss from real estate operations**                      |   | $                             | (4.5       | )                             | $      | (31.1                    | )      | $ | (26.6 | ) | 591.1 | % |
| **Merger, restructuring and asset****impairment charges** |   | —                        |       | 4.7                           |   | 4.7                      |   | N/A |   |
| **Depreciation and amortization**                         |   | 1.2                           |       | 2.8                           |   | 1.6                      |   | 133.3 | % |
| **Interest expense**                                      |   | 11.5                          |       | 27.0                          |   | 15.5                     |   | 134.8 | % |
| **Real estate EBITDA**                                    |   | $                             | 8.2        |                          | $      | 3.4                      |   | $ | (4.8 | ) | -58.5 | % |

 

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Real estate revenuesdecreased by $35.2 million in Fiscal 2001, compared to Fiscal 2000, from $132.1million to $96.9 million.  Real estate revenuesby project (in millions) are as follows:

 
|                      |   | **Year ended  July 30, 2000** |      | **Year ended  July 29, 2001** |   | **Increase/  (Decrease)** |       |
|---------------------------|--------|-------------------------------|-----------|-------------------------------|--------|---------------------------|------------|
| Steamboat  Grand          |   | $                             | —    |                          | $      | 37.5                      |       | $ | 37.5 |   |
| The  Canyons Grand Summit |   | 59.4                          |      | 21.7                          |   | (37.7                     | )          |
| Sundial  Lodge            |   | 41.0                          |      | 1.7                           |   | (39.3                     | )          |
| Eastern  properties       |   | 20.9                          |      | 12.5                          |   | (8.4                      | )          |
| Land  sales               |   | 9.3                           |      | 22.2                          |   | 12.9                      |       |
| Other  revenues           |   | 1.5                           |      | 1.3                           |   | (0.2                      | )          |
| **Total**                 |   | **$**                         | **132.1** | ** **                    | **$**  | **96.9**                  | ** ** | **$** | **(35.2** | **)** |

 

*Steamboat Grand*:  During Fiscal 2001, we began closing on thesale of quartershare units in the new Steamboat Grand, adjacent to Steamboat inColorado.  We realized $37.5 million inrevenues from closings of units for the year, much of which was generated inpre-sale contracts during the construction and development period.  During the fourth quarter of Fiscal 2001,disputes with the general contractor resulted in mechanics liens being placedon the Steamboat Grand, which caused a temporary halt in unit closingsbeginning in early May 2001.  Wenegotiated a settlement with the general contractor that became effectiveduring Fiscal 2002.  This settlementallowed us to complete construction on the remaining units of the hotel,including several luxury penthouse units. The settlement also led to the removal of all mechanics liens againstthe project.

 

*The Canyons:  *Both the Sundial Lodge andthe Grand Summit Hotel at The Canyons in Park City, Utah were completed duringFiscal 2000.  We realized a combined$100.4 million in revenues from unit closings at these two projects that year,which was mainly due to the high level of pre-sales each projectexperienced.  During Fiscal 2001, werealized $21.7 million in ongoing sales of quartershare units at The CanyonsGrand Summit Hotel, and $1.7 million from remaining units at the SundialLodge.  As of the end of Fiscal 2001,the Sundial Lodge was 99% sold and the Grand Summit Hotel at The Canyons was70% sold.

 

*Eastern Properties: *Revenues from sales at oureastern properties in Fiscal 2001 were down $8.4 million from Fiscal 2000 asour Grand Summit projects at Killington and Sunday River approachedsell-out.  Both the Jordan Grand andKillington projects were virtually sold-out, with only a minor amount ofnon-standard units remaining.  The MountSnow Grand Summit project continued to sell as we realized $6.1 million in revenuefrom unit sales in Fiscal 2001.  As ofJuly 29, 2001, 90% of the units at the Mount Snow Grand Summit have beensold.  The Grand Summit at Attitash BearPeak has realized slower absorption in the market and 40% of the units remainedunsold as of the end of Fiscal 2001.  Inaddition to revenues from Grand Summit Hotel quartershare sales, we recognized$2.5 million of revenue in Fiscal 2001 from closings of the fully sold LockeMountain Townhouse project at Sunday River.

 

*Land Sales: *During Fiscal 2001, werealized revenue from the sale of three separate development parcels, asfollows:

 

(i)                                 InAugust 2000, we sold our option rights to certain real estate in the South LakeTahoe Redevelopment District to Marriott Ownership Resorts, Inc. for $8.5million;

(ii)                              InMay 2001, we sold our 85% ownership interest in Heavenly Resort Properties,LLC, the entity that controls the development rights for the Heavenly GrandSummit quartershare hotel adjacent to the Heavenly resort in South Lake Tahoe,CA, to Marriott Vacation Club International for $11.2 million (excluding futureparticipation revenues); and

(iii)                           In July 2001, we sold adevelopment parcel at Central Park Plaza in the vicinity of our Steamboatresort for $2.5 million.

 

Our real estate segmentgenerated a loss before income taxes of $31.1 million in Fiscal 2001, comparedto a loss before income taxes of $4.5 million in Fiscal 2000.  This $26.6 million increase in the lossbefore income taxes primarily results from the net effect of the following:

 

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(i)                                 $4.8million decrease in real estate EBITDA,

(ii)                              $4.7million increase in restructuring and asset impairment charges,

(iii)                           $15.5 million increase inreal estate interest expense, and

(iv)                          $1.6million increase in real estate depreciation.

 

Real estate EBITDA,exclusive of restructuring and impairment charges, for Fiscal 2001 and Fiscal2000 (in millions) is detailed below. We believe that EBITDA is an important measure of our operatingperformance and is generally used by investors to evaluate companies in theresort industry:

 
| **Project**                           |   | **Year ended  July 30, 2000** |    | **Year ended  July 29, 2001** |   | **Increase/  (Decrease)** |       |
|---------------------------------------|--------|-------------------------------|---------|-------------------------------|--------|---------------------------|------------|
| **The Canyons Grand Summit**          |   | $                             | 12.7    |                          | $      | 3.7                       |       | $ | (9.0 | ) |
| **Sundial Lodge**                     |   | (0.8                          | )       | 0.2                           |   | 1.0                       |       |
| **Steamboat Grand**                   |   | —                        |    | (0.9                          | )      | (0.9                      | )          |
| **Eastern properties**                |   | 3.3                           |    | 0.6                           |   | (2.7                      | )          |
| **Land sales**                        |   | (0.6                          | )       | 5.5                           |   | 6.1                       |       |
| **General, administrative and other** |   | (6.4                          | )       | (5.7                          | )      | 0.7                       |       |
| **Total**                             |   | **$**                         | **8.2** | ** **                    | **$**  | **3.4**                   | ** ** | **$** | **(4.8** | **)** |

 

*Steamboat Grand: *Construction cost overrunsand the temporary halt in closings during the summer months both contributed tothe negative EBITDA generated by this project in Fiscal 2001.

 

*The Canyons Grand Summit: *The $9.0 million reductionin EBITDA from quartershare closings at The Canyons Grand Summit is mainly dueto the $37.7 million reduction in sales revenues compared to Fiscal 2000 whenthe hotel opened and we closed on a substantial amount of pre-soldcontracts.  Our EBITDA margin on salesdecreased slightly in Fiscal 2001 to 17%, from 21% in Fiscal 2000, mainly dueto an increase in sales and marketing costs related to this project in Fiscal2001.

 

*Eastern Properties: *The $2.7 million decreasein EBITDA at our eastern properties was mainly due to the decrease in salesrevenue in Fiscal 2001, as both the Jordan Grand and Killington projects haveessentially reached total sell-out.

 

*Land Sales*:  In Fiscal 2001, we recognized a $7.3 milliongain from the August 2000 sale of certain real estate in the South Lake TahoeRedevelopment District to Marriott Ownership Resorts.  This gain was partially offset by EBITDA losses of $0.9 millionfrom the sale of the Heavenly Grand Summit Hotel site and $0.8 million from thesale of a development parcel at Steamboat. The $0.9 million loss from the Heavenly Grand Summit Hotel site does nottake into account approximately $4.8 million in participation revenues that wemay receive in Fiscal 2003 when Marriott Ownership Resorts begins sellingcompleted units.

 

In Fiscal 2001, weincurred $4.7 million of restructuring and asset impairment charges related toour real estate segment, which are comprised of:

 

(i)                                 $2.0million of asset impairment charges related to undeveloped land at Steamboat ;

(ii)                              $1.3million of impairment charges on the remaining units at the Attitash GrandSummit Hotel project;

(iii)                           $1.1 million write-off ofcapitalized costs in connection with development of a Grand Summit Hotel atSugarbush as a result of the sale of that resort; and

(iv)                          $0.3million in restructuring charges.

 

The $15.5 millionincrease in real estate interest expense was primarily due to a $13.2 millionreduction in the amount of interest capitalized to construction projects inFiscal 2001.  During Fiscal 2000, wecapitalized $15.3 million of interest costs as we were still completingconstruction on our two hotels at The Canyons and one at 

 

41

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Steamboat.  In Fiscal 2001, we only capitalized $2.1million of interest costs related to the final stages of construction on theSteamboat Grand.

 

**Benefit from income taxes. **The benefit from incometaxes****decreasedfrom $10.2 million in Fiscal 2000 to $0 in Fiscal 2001.  We believe it is more likely than not thatwe will not realize income tax benefits from net operating losses in theforeseeable future.

 

**Cumulative effect of a change inaccounting principle. **Thecumulative effect of a change in accounting principle of $2.5 million (net of$1.5 million tax provision) in Fiscal 2001 resulted from recording the fairvalue of non-hedging derivatives in the accompanying balance sheet inconnection with our initial adoption of SFAS No. 133 Accounting for DerivativeInstruments and Hedging Activities, SFAS No. 137 Accounting for DerivativeInstruments and Hedging Activities – Deferral of the Effective Date of FASBStatement No. 133 – an Amendment of FASB Statement No. 133 and SFAS No. 138Accounting for Certain Derivative Instruments and Certain Hedging Activities –an Amendment of FASB Statement No. 133 (collectively, SFAS No. 133 as amended).

 

The cumulative effect ofa change in accounting principle of $0.7 million (net of $0.4 million taxbenefit) in Fiscal 2000 resulted from the write-off of certain capitalizedstart-up costs relating to our hotel and retail operations and the opening ofThe Canyons resort in Fiscal 1998.  Theaccounting change was due to our adoption of AICPA Statement of Position 98-5,“Reporting on the Costs of Start-up Activities”.  SOP 98-5 requires the expensing of all start-up costs asincurred, rather than capitalizing and subsequently amortizing such costs.  Initial adoption of this SOP was reported asa cumulative effective of a change in accounting principle.  Current start-up costs are being expensed asincurred and are reflected in their appropriate expense classifications.

 

**Accretion of discount and dividendsaccrued on mandatorily redeemable preferred stock. **These amounts increased $2.4 million, from$21.0 million for Fiscal 2000 to $23.4 million for Fiscal 2001.  This increase is primarily attributable tothe compounding effect of accruing dividends on 150,000 shares of the Series BPreferred Stock issued to Oak Hill in the first quarter of Fiscal 2000.  On August 31, 2001, the Series B PreferredStock was stripped of all of its rights and preferences with the exception ofthe right to elect up to six directors in exchange for, among other things, twonew series of Preferred Stock:  (i) $40million face value of Series C-1 Preferred Stock, accruing dividends at therate of 12% per annum; and (ii) $139.5 million face value of Series C-2Preferred Stock accruing dividends at the rate of 15% per annum.

 

# **RecentlyIssued Accounting Standards**

 

In July 2001, the FASBissued SFAS No. 143, “Accounting for Asset Retirement Obligations”.  This statement addresses financialaccounting and reporting for obligations associated with the retirement oftangible long-lived assets and the associated asset retirement costs.  SFAS No. 143 is effective for financialstatements issued for fiscal years beginning after June 15, 2002.  We adopted SFAS No. 143 in the first quarterof Fiscal 2003.  The adoption of thispronouncement did not have a material impact on our results of operations orfinancial position.

 

In August 2001, the FASBissued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-LivedAssets”. This statement supercedes FASB Statement No. 121, “Accounting for theImpairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,”and the accounting and reporting provisions of APB Opinion No. 30, “Reportingthe Results of Operations – Reporting the Effects of Disposal of a Segment of aBusiness, and Extraordinary, Unusual and Infrequently Occurring Events andTransactions”. This statement requires that one accounting model be used forlong-lived assets to be disposed of by sale, whether previously held and usedor newly acquired, and it broadens the presentation of discontinued operationsto include more disposal transactions. The provisions of this statement are effective for fiscal yearsbeginning after December 15, 2001, and interim periods within those fiscalyears, with early adoption permitted. We adopted SFAS No. 144 effective July 30, 2001 (Fiscal 2002).

 

In April 2002, the FASBissued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64,Amendment of FASB Statement No. 13, and Technical Corrections.  This statement, among other things, rescindsSFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt” and SFASNo. 64, “Extinguishments of Debt Made to Satisfy Sinking-fund Requirements”which required that gains and losses from extinguishments of debt 

 

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that were included in thedetermination of net income be aggregated and, if material, classified as anextraordinary item.  Under SFAS No. 145,such items would be classified as an extraordinary item only if they meet thecriteria in APB Opinion No. 30.  Theprovisions of SFAS No. 145 related to the rescission of SFAS No. 4 areeffective for financial statements issued for fiscal years beginning after May15, 2002, but may be early adopted as of the beginning of the fiscal year.  We adopted SFAS No. 145 effective July 30,2001 (Fiscal 2002).  The adoption ofthis pronouncement resulted in the classification of $1.0 million and $3.3million in losses related to the extinguishment of debt in write-down ofdeferred financing costs during Fiscal 2000 and Fiscal 2002, respectively.

 

In June 2002, the FASBissued SFAS No. 146, “Accounting for Costs Associated with Exit or DisposalActivities”.  This statement addressesthe accounting and reporting for costs associated with exit or disposalactivities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,“Liability Recognition for Certain Employee Termination Benefits and OtherCosts to Exit an Activity (including Certain Costs Incurred in aRestructuring”. SFAS No. 146 is effective for exit or disposal activitiesinitiated after December 31, 2002.  Theadoption of SFAS No. 146 is not expected to have a material effect on ourresults of operations or financial position.

 

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**Item7A**

**Quantitative and QualitativeDisclosures about Market Risk**

 

Our financial instrumentsdo not subject us to material market risk exposures, except for risks relatedto interest rate fluctuations.  As ofJuly 28, 2002, we had $112.0 million in floating interest rate long-term debtoutstanding, including current portion. As of July 28, 2002, we did not have any interest rate swap agreementsin place which swapped variable interest rate borrowings to fixed interest rateborrowings.  All of our floatinginterest rate debt was indexed to our various lenders’ prime lending rate as ofJuly 28, 2002.

 

The following sensitivityanalysis presents the proforma impact on Fiscal 2002 annual interest expenseresulting from a hypothetical 100 basis point increase in the U.S.  Prime lending rate on each of our floatinginterest rate debt instruments (in thousands).

 
| **Variable  Rate Debt (principal only)** |   | **Balance  Outstanding  as of  July 28, 2002** |    | **Average  Balance  Outstanding  in FY 2002** |   | **Hypothetical  Change in  Rate Index** |   | **Effect on  Interest  Expense** |   |
|------------------------------------------|--------|------------------------------------------------|---------|-----------------------------------------------|--------|-----------------------------------------|--------|----------------------------------|--------|
|                                     |   |                                           |    |                                          |   |                                    |   |                             |   |
| **Resort Senior Credit Facility**        |   | $                                              | 58,657  |                                          | $      | 107,803                                 |   | 1.0                              | %      | $ | 1,078 |   |
| **Real Estate Term Facility, Tranche A** |   | 16,800                                         |    | 20,080                                        |   | 1.0                                     | %      | 201                              |   |
| **Resort Properties Textron facility**   |   | 36,555                                         |    | 43,893                                        |   | 1.0                                     | %      | 439                              |   |
| **Total variable rate debt**             |   | $                                              | 112,012 |                                          | $      | 171,776                                 |   | 1.0                              | %      | $ | 1,718 |   |

 

We believe that thehypothetical effects of a 100-basis point increase in the floating interestrates associated with our debt instruments would not be significant to ourresults of operations and cash flows.

 

We also entered into aseries of non-cancelable interest rate swap agreements in connection with our12% Senior Subordinated Notes, which were intended to defer a portion of thecash interest payments on the Senior Subordinated Notes into later years.  The following table illustrates the keyfactors of each of these agreements:

 
|            |   | **February 9, 1998 - July 15, 2001** |        | **July 16, 2001 - July 15, 2006** |          |
|-----------------|--------|--------------------------------------|-------------|-----------------------------------|---------------|
|            |   | **Notional  Amount**                 |        | **Company  Pays**                 |          | **Company  Receives** |   | **Notional  Amount** |   | **Company  Pays** |   | **Company  Receives** |   |
|            |   |                                 |        |                              |          |   |   |   |   |   |   |   |   |
| **Agreement 1** |   | $                                    | 120,000,000 |                              | 9.01%         |   | 6-month LIBOR |   | $ | 127,500,000 |   | 9.01% |   | 6-month LIBOR |   |
|            |   |                                 |        |                              |          |   |   |   |   |   |   |   |   |
| **Agreement 2** |   | $                                    | 120,000,000 |                              | 6-month LIBOR |   | 12.00% |   | $ | 127,500,000 |   | 6-month LIBOR |   | 7.40% |   |

 

As a result of enteringinto this interest rate swap arrangement, we had fixed the cash-pay rate on theSenior Subordinated Notes until their maturity in July 2006.  From the period February 9, 1998 through July15, 2001, this swap arrangement resulted in a net cash receipt to us of $1.8million per settlement, corresponding with our interest payments on the SeniorSubordinated Notes each January 15th and July 15th.  Beginning with the January 15, 2002 payment date,we were in a net payment position under this swap arrangement of $1.0 millionper settlement, due on January 15th and July 15th of eachyear through the maturity of the Senior Subordinated Notes in July 2006.  These agreements were non-hedging swaps whichare carried at their fair market value, with fluctuations recorded throughinterest expense, in accordance with SFAS No. 133.  We do not enter into derivative transactions for speculative ortrading purposes.  See Note 2 – “Summaryof Significant Accounting Policies” in the consolidated financialstatements.  In connection with therefinancing of our Resort Senior Credit Facility on February 18, 2003, weterminated these interest rate swap agreements with no significant gain or lossbeing incurred.

 

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**Item8**

**Financial Statements andSupplementary Data**

 

**Selected Quarterly Operating Results**

 

The following tablepresents certain unaudited quarterly financial information for the eightquarters ended July 28, 2002.  In theopinion of our management, this information has been prepared on the same basisas the annual consolidated financial statements (See Item 14 – Exhibits,Financial Statement Schedules and Reports on Form 8-K) appearing elsewhere inthis Form 10-K and includes all adjustments (consisting only of normalrecurring adjustments) necessary to present fairly the financial results setforth herein.  Results of operations forany quarters are not necessarily indicative of results that may be achieved forany future period.  This information hasbeen restated for the reclassification of Heavenly to discontinuedoperations.  Also provided is areconciliation to previously reported amounts for the first, second and fourthquarters.  Third quarter information hasbeen previously restated in our quarterly filings (amounts in thousands, exceptper share amounts):

 
|                                                                                                             |   | **First****Quarter** |    | **Second****Quarter** |   | **Third****Quarter** |   | **Fourth****Quarter** |    |
|------------------------------------------------------------------------------------------------------------------|--------|----------------------|---------|-----------------------|--------|----------------------|--------|-----------------------|---------|
|                                                                                                             |   |                 |    |                  |   |                 |   |                  |    |
| **Year ended July 28, 2002:**                                                                                    |   |                 |    |                  |   |                 |   |                  |    |
| **Net revenues as previously reported**                                                                          |   | $                    | 23,108  |                  | $      | 121,154              |   | $                     | 131,641 |   | $ | 20,296 |   |
| **Reclassification for discontinued operations**                                                                 |   | (2,995               | )       | (21,088               | )      | —               |   | —                |    |
| **Net revenues**                                                                                                 |   | $                    | 20,113  |                  | $      | 100,066              |   | $                     | 131,641 |   | $ | 20,296 |   |
|                                                                                                             |   |                 |    |                  |   |                 |   |                  |    |
| **Income (loss) from operations as previously reported**                                                         |   | $                    | (25,447 | )                     | $      | (21,982              | )      | $                     | 35,733  |   | $ | (105,550 | ) |
| **Reclassification for discontinued operations**                                                                 |   | 2,680                |    | (2,868                | )      | —               |   | —                |    |
| **Income (loss) from operations**                                                                                |   | $                    | (22,767 | )                     | $      | (24,850              | )      | $                     | 35,733  |   | $ | (105,550 | ) |
|                                                                                                             |   |                 |    |                  |   |                 |   |                  |    |
| **Income (loss) before cumulative effect of change in****accounting principle as previously reported**           |   | $                    | (39,205 | )                     | $      | (35,380              | )      | $                     | 34,572  |   | $ | (115,108 | ) |
| **Amortization of Heavenly gondola guaranty**                                                                    |   | —               |    | (53                   | )      | (87                  | )      | —                |    |
| **Income (loss) before cumulative effect of change in****accounting principle**                                  |   | $                    | (39,205 | )                     | $      | (35,433              | )      | $                     | 34,485  |   | $ | (115,108 | ) |
|                                                                                                             |   |                 |    |                  |   |                 |   |                  |    |
| **Income (loss) from discontinued operations as****previously reported**                                         |   | $                    | —  |                  | $      | —               |   | $                     | 9,940   |   | $ | 2,668 |   |
| **Reclassification for discontinued operations**                                                                 |   | (2,727               | )       | 2,523                 |   | —               |   | —                |    |
| **Amortization of Heavenly gondola guaranty**                                                                    |   | —               |    | —                |   | (87                  | )      | —                |    |
| **Income (loss) before cumulative effect of change in****accounting principle**                                  |   | $                    | (2,727  | )                     | $      | 2,523                |   | $                     | 9,853   |   | $ | 2,668 |   |
|                                                                                                             |   |                 |    |                  |   |                 |   |                  |    |
| **Net income (loss) available to common shareholders****as previously reported**                                 |   | $                    | (65,451 | )                     | $      | (43,499              | )      | $                     | 26,414  |   | $ | (123,642 | ) |
| **Amortization of Heavenly gondola guaranty**                                                                    |   | —               |    | (53                   | )      | (87                  | )      | —                |    |
| **Accretion on preferred stock**                                                                                 |   | (98                  | )       | (147                  | )      | (147                 | )      | —                |    |
| **Net income (loss) available to common shareholders**                                                           |   | $                    | (65,549 | )                     | $      | (43,699              | )      | $                     | 26,180  |   | $ | (123,642 | ) |
|                                                                                                             |   |                 |    |                  |   |                 |   |                  |    |
| **Basic income (loss) per share:**                                                                               |   |                 |    |                  |   |                 |   |                  |    |
| **Net income (loss) available to common shareholders**                                                           |   | $                    | (2.09   | )                     | $      | (1.38                | )      | $                     | 0.82    |   | $ | (3.90 | ) |
| **Income (loss) available to common shareholders before  cumulative effect of changes in accounting principles** |   | $                    | (1.49   | )                     | $      | (1.38                | )      | $                     | 0.82    |   | $ | (3.90 | ) |
| **Weighted average common shares outstanding**                                                                   |   | 31,344               |    | 31,718                |   | 31,718               |   | 31,719                |    |
|                                                                                                             |   |                 |    |                  |   |                 |   |                  |    |
| **Diluted income (loss) per share:**                                                                             |   |                 |    |                  |   |                 |   |                  |    |
| **Net income (loss) available to common shareholders**                                                           |   | $                    | (2.09   | )                     | $      | (1.38                | )      | $                     | 0.39    |   | $ | (3.90 | ) |
| **Income (loss) available to common shareholders before  cumulative effect of changes in accounting principles** |   | $                    | (1.49   | )                     | $      | (1.38                | )      | $                     | 0.39    |   | $ | (3.90 | ) |
| **Weighted average common shares outstanding**                                                                   |   | 31,344               |    | 31,718                |   | 65,347               |   | 31,719                |    |

 

45

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|                                                                                                             |   | **First****Quarter** |    | **Second****Quarter** |   | **Third****Quarter** |   | **Fourth****Quarter** |    |
|------------------------------------------------------------------------------------------------------------------|--------|----------------------|---------|-----------------------|--------|----------------------|--------|-----------------------|---------|
|                                                                                                             |   |                 |    |                  |   |                 |   |                  |    |
| **Year ended July 29, 2001:**                                                                                    |   |                 |    |                  |   |                 |   |                  |    |
| **Net revenues as previously reported**                                                                          |   | $                    | 48,128  |                  | $      | 156,264              |   | $                     | 179,574 |   | $ | 41,603 |   |
| **Reclassification for discontinued operations**                                                                 |   | (2,385               | )       | (20,401               | )      | (27,674              | )      | (2,559                | )       |
| **Net revenues**                                                                                                 |   | $                    | 45,743  |                  | $      | 135,863              |   | $                     | 151,900 |   | $ | 39,044 |   |
|                                                                                                             |   |                 |    |                  |   |                 |   |                  |    |
| **Income (loss) from operations as previously reported**                                                         |   | $                    | (20,238 | )                     | $      | 7,935                |   | $                     | 39,529  |   | $ | (95,135 | ) |
| **Reclassification for discontinued operations**                                                                 |   | 2,734                |    | (726                  | )      | (8,462               | )      | 2,709                 |    |
| **Income (loss) from operations**                                                                                |   | $                    | (17,504 | )                     | $      | 7,209                |   | $                     | 31,067  |   | $ | (92,426 | ) |
|                                                                                                             |   |                 |    |                  |   |                 |   |                  |    |
| **Income (loss) before cumulative effect of change in****accounting principle**                                  |   | $                    | (20,999 | )                     | $      | (4,600               | )      | $                     | 13,025  |   | $ | (108,150 | ) |
| **Income (loss) from discontinued operations**                                                                   |   | (2,013               | )       | 454                   |   | 8,593                |   | (2,732                | )       |
| **Net income (loss) available to common shareholders**                                                           |   | (24,176              | )       | (10,405               | )      | 7,236                |   | (114,227              | )       |
|                                                                                                             |   |                 |    |                  |   |                 |   |                  |    |
| **Basic income (loss) per share:**                                                                               |   |                 |    |                  |   |                 |   |                  |    |
| **Net income (loss) available to common shareholders**                                                           |   | $                    | (0.79   | )                     | $      | (0.34                | )      | $                     | 0.24    |   | $ | (3.73 | ) |
| **Income (loss) available to common shareholders before  cumulative effect of changes in accounting principles** |   | $                    | (0.87   | )                     | $      | (0.34                | )      | $                     | 0.24    |   | $ | (3.73 | ) |
| **Weighted average common shares outstanding**                                                                   |   | 30,469               |    | 30,470                |   | 30,509               |   | 30,653                |    |
|                                                                                                             |   |                 |    |                  |   |                 |   |                  |    |
| **Diluted income (loss) per share:**                                                                             |   |                 |    |                  |   |                 |   |                  |    |
| **Net income (loss) available to common shareholders**                                                           |   | $                    | (0.79   | )                     | $      | (0.34                | )      | $                     | 0.24    |   | $ | (3.73 | ) |
| **Income (loss) available to common shareholders before  cumulative effect of changes in accounting principles** |   | $                    | (0.87   | )                     | $      | (0.34                | )      | $                     | 0.24    |   | $ | (3.73 | ) |
| **Weighted average common shares outstanding**                                                                   |   | 30,469               |    | 30,470                |   | 30,509               |   | 30,653                |    |

 

During the fourthquarter of Fiscal 2002, we made certain adjustments to our accountingassociated with the recapitalization as discussed in Note 12 to theconsolidated financial statements. Accordingly, we have adjusted certain previously reported amounts for thefirst, second, and third quarters of Fiscal 2002.

 

**Item 9**

**Changesin and Disagreements on Accounting and Financial Disclosure**

 

On July 2, 2002, wedismissed our independent auditor, Arthur Andersen LLP (“Arthur Andersen”), andappointed KPMG LLP as our new independent auditor, effective immediately.  These actions were approved by our Board ofDirectors upon the recommendation of our Audit Committee.

 

During the two mostrecent fiscal years ended July 30, 2000 and July 29, 2001, and the subsequentinterim period through the date of Arthur Andersen’s dismissal, there was nodisagreement between us and Arthur Andersen on any matter of accountingprinciples or practices, financial statement disclosure, or auditing scope orprocedure, which disagreement, if not resolved to Arthur Andersen’s satisfaction,would have caused Arthur Andersen to make reference to the subject matter ofsuch disagreement in its reports, and there occurred no reportable event asdefined in Item 304(a)(1)(v) of Regulation S-K.

 

The audit reports ofArthur Andersen on our consolidated financial statements for the fiscal yearsended July 30, 2000 and July 29, 2001 did not contain an adverse opinion ordisclaimer of opinion, nor were they qualified or modified as to uncertainty,audit scope or accounting principles.

 

We provided ArthurAndersen with a copy of the foregoing statements in conjunction with our reporton Form 8-K for the report date of July 2, 2002.  A copy of Arthur Andersen’s letter, indicating its concurrencewith the disclosures in this, the first, the second and the third paragraphs ofthis Item, is attached as Exhibit 16.1 to the Form 8-K for the report date ofJuly 2, 2002.

 

46

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During the two mostrecent fiscal years ended July 30, 2000 and July 29, 2001, and the subsequentinterim period through the date of KPMG LLP’s appointment as our independentauditor, we did not consult with KPMG LLP regarding any of the matters orevents set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.

 

**PARTIII**

 

**Item 10**

**Directorsand Executive Officers of the Registrant**

 

The following isbiographical information for the members of our Board of Directors as ofJanuary 26, 2003.  A chairperson of ourBoard of Directors has not been designated.

 

*Bradford E. Bernstein*.Director. 35.  Mr. Bernstein has been adirector since his election on August 5, 1999. From 1999 to present, Mr. Bernstein has been a Partner at Oak Hill Capital Management, Inc., themanager of Oak Hill Capital Partners, L.P.. From 1992 to 1999, Mr. Bernstein served as a Managing Director at OakHill Partners, Inc.  He has served orcurrently serves on the board of directors of several private companies.

 

*Robert J. Branson. *Director. 54.  Mr. Branson has been a director since hiselection on December 12, 2000.  Mr.Branson is affiliated with RMB Realty, Inc., an entity related to Oak HillCapital Management, Inc., in which capacity he has served since 1989.  Mr. Branson is a member of the board ofdirectors of Travel Centers of America and several private companies.

 

*J. Taylor Crandall*.  Director. 48.  Mr. Crandall has been adirector since his election on August 5, 1999. Mr. Crandall has served as Vice President and Chief Financial Officer ofKeystone, Inc., the principal investment vehicle of Robert M.  Bass of Fort Worth, Texas since October1996, and as Chief Operating Officer since August 1998.  He has also served as President, Directorand sole stockholder of Acadia MGP, Inc. (managing general partner of Acadia Investment Partners, L.P., the solegeneral partner of Acadia Partners, L.P. (an investment partnership)) since 1992.  Mr. Crandall also serves as a director of U.S.  Oncology, Broadwing, Inc., Sunterra,Inc.  and Washington Mutual Inc.  He also serves on the Board of Advisors ofOak Hill Capital Partners and Oak Hill Strategic Partners, L.P., both of whichhe helped found; on the Investment Committees of Insurance Partners, L.P.  and Brazos Fund, L.P., and on the AdvisoryCommittees of Boston Ventures Limited Partnership V and B-K Capital Partners,L.P.

 

*Gordon M. Gillies. *Director.  58. Mr. Gillies has been a director since his election on February 9,1998.  From 1991 to present, Mr. Gillieshas served as a member of the faculty of Hebron Academy, a private boarding-daysecondary school in Maine.  Prior to1991, Mr. Gillies was a practicing attorney in the State of Maine.

 

*Steven B. Gruber. *Director.  45. Mr. Gruber has been a director since his election on August 5,1999.  From February 1999 to present,Mr. Gruber has been a Managing Partner of Oak Hill Capital Management, Inc.,the manager of Oak Hill Capital Partners, L.P. From March 1992 to present he has been a Managing Director of Oak HillPartners, Inc.  From February 1994 topresent, Mr. Gruber has also been an officer of Insurance Partners Advisors,L.P., an investment advisor to Insurance Partners, L.P.  From October 1992 to present, he has been aVice President of Keystone, Inc.  Mr.Gruber is also a director of several private companies related to Keystone,Inc., and Oak Hill Partners, Inc.

 

*David B. Hawkes. *Director.  58. Mr. Hawkes has been a director since his election on December 8,1998.  He is owner and consultant withTriplehawk, Inc., a management consulting firm based in Falmouth, Maine.  Before founding Triplehawk in 2001, Mr. Hawkeswas co-owner and consultant with Cloudhawk Management Consultants, L.L.C., amanagement consulting firm based in Portland, Maine, from 1993 to 2001.  Before founding Cloudhawk in 1993, Mr.Hawkes served as a partner with KPMG Peat Marwick from 1974 to 1993, part ofthat time in charge of the firm’s Portland, Maine tax practice.  Mr. Hawkes also serves as a member of theboard of directors of several private companies.

 

47

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*Alexandra C. Hess.*Director. 33. Ms. Hess has been a director since her election to the Board on December12, 2000.  From July 1999 to thepresent, Ms. Hess has been employed by Oak Hill Capital Management, Inc., mostrecently as a vice president.  FromSeptember 1996 through June 1999, Ms. Hess was employed in the New York officeof Mitchell Madison Group, a strategic consulting firm.

 

*William S. Janes. *Director.  49. Mr. Janes has been a director since his election on August 5, 1999.  Mr. Janes is the President of RMB Realty,Inc., and oversees the real estate investments of Keystone, Inc., and certainentities related to Keystone, a position which he has held since 1992.  Mr. Janes has served or currently serves onnumerous boards, including MeriStar Hospitality Corporation, Paragon Group,Inc.  (now publicly traded as CamdenProperty Trust), Brazos Asset Management, Inc., and Carr Real Estate Services,Inc.  He also serves on the InvestmentCommittee of Brazos Fund, L.P.

 

*Leslie B. Otten. *Director.  53. Mr. Otten has been a director since its inception in July 1997.  Since April 2002, Mr. Otten has served asVice-Chairman and Partner in the Boston Red Sox, a major league baseballfranchise.  Mr. Otten is also thePresident of Sakata Sports and of LBO Enterprises, positions he has held sinceApril 2001.  From 1980 to April 2001,Mr. Otten served as Chairman, President and Chief Executive Officer of ourcompany (or its predecessors).  In 1970,Mr. Otten joined Sherburne Corporation, then the parent company of SundayRiver, Killington and Mount Snow.  Mr.Otten became Assistant to the General Manager of Sunday River in 1972 andbecame its General Manager in 1974.  In1980, Mr. Otten purchased Sherburne’s 90% interest in Sunday River and acquiredthe remaining 10% interest from the minority shareholders in 1989.

 

*Paul Wachter. *Director.  46. Mr. Wachter has been a director since his election on December 16,1999.  From 1997 to present, Mr. Wachterhas served as the founder and Chief Executive Officer of Main Street Advisors,a Santa Monica, California based financial advisory firm.  From 1993 to 1997, Mr. Wachter was aManaging Director and Head of Schroder & Co.  Incorporated’s Lodging and Gaming Group, its Sports and LeisureGroup, and Schroder’s West Coast investment banking effort.  From 1987 to 1993, Mr. Wachter worked atKidder Peabody where he founded and was responsible for Kidder’s Hotel, Resortsand Leisure Group, and managed Kidder Peabody’s Los Angeles investment bankinggroup.  He began his career as aninvestment banker at Bear, Stearns & Co., Inc., covering the entertainmentindustry.  From 1982 to 1985, Mr.Wachter worked at Paul, Weiss, Rifkind, Wharton and Garrison as a tax attorney.

 

 EXECUTIVE OFFICERS

 

The following table setsforth our executive officers as of the date hereof:

 
| **Name/Age**                     |   | **Position**                                          |
|----------------------------------|--------|-------------------------------------------------------|
|                             |   |                                                  |
| William J.  Fair, 40        |   | Chief Executive  Officer, President                   |
|                             |   |                                                  |
| James P. Lacey, 43               |   | Senior Vice President,  Marketing and Sales           |
|                             |   |                                                  |
| Mark J. Miller, 45               |   | Senior Vice President  and Chief Financial Officer    |
|                             |   |                                                  |
| Foster A.  Stewart, Jr., 35 |   | Senior Vice President,  General Counsel and Secretary |
|                             |   |                                                  |
| Helen E. Wallace, 48             |   | Senior Vice President                                 |

 

*William J.  Fair, President and Chief Executive Officer.*  Mr. Fair joined us in May 2000 as ChiefOperating Officer and President – Resort Operations.  In April 2001, Mr. Fair was promoted to the position of Presidentand Chief Executive Officer.  Prior tojoining us, Mr. Fair was employed as president of Universal Studios’ PortAventura theme park in Tarragona, Spain from 1998 to April 2000.  Mr. Fair served as senior vice president forbusiness operations at Universal Creative, a division of Universal Studios,Inc.  from 1997 to 1998.  Between 1992 and 1997, Mr. Fair was employedby Walt Disney Co.  in multiplecapacities including director of finance and business planning for DisneyDevelopment Company.

 

48

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*James P. Lacey, Senior VicePresident, Marketing and Sales. *Mr.Lacey joined us in August 2002 as Senior Vice President, Marketing andSales.  Prior to joining us, Mr. Laceyserved from July 1999 to December 2001 as Executive Vice President of Sales& Marketing with Weider Nutrition International, a world-class lifestylemarketing organization, where he was responsible for strategic planning,advertising and consumer and trade promotions. From January 1998 to June 1999, Mr. Lacey served as Chief OperatingOfficer at Everlast Nutritional Products, a startup entity**that was a pioneer indeveloping and marketing products in the Energy Bar and Sports Drinkcategories.  From November 1996 toDecember 1997, Mr. Lacey served as Vice President of Sales for PowerBar, Inc.,a subsidiary of Nestle Foods Corporation. Prior to joining PowerBar, Mr. Lacey held various executive positions atOral-B Laboratories, a division of The Gillette Company, starting as WesternRegional Sales Manager, becoming Manager of Business Planning and ultimately aProduct Manager.  Prior to joiningOral-B Laboratories, Mr. Lacey held various senior management positions atNestle Foods Corporation and SmithKline Beecham.

 

*Mark J. Miller, Senior VicePresident, Chief Financial Officer. *Mr.Miller joined us in December 1998 as Senior Vice President, Chief FinancialOfficer and Treasurer.  We haveannounced that Mr. Miller will become Executive Vice President and ChiefOperating Officer in February 2003. Prior to joining us, Mr. Miller served in several positions withShowboat, Inc., and its subsidiaries, including Executive Vice President –Financial Administration from November 1997 until May 1998, and as ExecutiveVice President of Operations from July 1994 through November 1997.  Mr. Miller served as President and CEO ofAtlantic City Showboat, Inc.  (asubsidiary of Showboat), as well as other positions with that company, between1985 and 1995.

 

*Foster A. Stewart, Jr., Senior VicePresident, General Counsel and Secretary. *Mr. Stewart joined us in January 1998, as VicePresident and Assistant General Counsel. He became General Counsel in April 1999, and was promoted to Senior VicePresident, General Counsel and Secretary in April 2001.  From September 1992 to January 1998, Mr.Stewart was an attorney with the Portland, Maine law firm of Pierce Atwood,where his practice focused on commercial and business law.

 

*Helen E. (Betsy) Wallace, SeniorVice President. *Ms.Wallace joined us in December 2002, as Senior Vice President.  We have announced that she will become ourChief Financial Officer and Treasurer in March 2003.  From 2000 through December 2002, Ms. Wallace served as ChiefFinancial Officer of Cyrano Sciences, Inc., a late stage start-up technologycompany, where she was responsible for all financial, budgeting and legalaspects of the organization.  From 1998to 2000, Ms. Wallace held the positions of Vice President, Director of BusinessDevelopment and Vice President, Regional Financial Controller InvestmentProducts & Distribution, with Citigroup, Singapore, a leading internationalprovider of financial services.  From 1995to 1996, Ms. Wallace held senior financial positions in Singapore with Hubbell,Inc., a Fortune 1000 manufacturing company, and International BusinessMachines.  Prior to joining IBM, Ms.Wallace served as Director of Finance for Esprit de Corporation from 1988 to1995.

 

SECTION 16(a)BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of theExchange Act requires our executive officers and directors and persons who ownmore than ten percent of a registered class of our equity securities to fileinitial reports of ownership and changes in ownership with the Securities andExchange Commission (“SEC”).  Suchofficers, directors and shareholders are required by SEC regulations to furnishus with copies of all Section 16(a) forms they file.  Based solely on a review of the copies of such forms furnished tous, all persons subject to the reporting requirements of Section 16(a) filedthe required reports on a timely basis for the fiscal year ended July 28, 2002.

 

49

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**Item 11**

**ExecutiveCompensation**

 

EXECUTIVE COMPENSATION AND OTHER INFORMATION

 

The following tableprovides information concerning compensation paid by us to William J.  Fair, President and Chief Executive Officer,and our other four highest paid executive officers whose compensation was at least$100,000 for Fiscal 2002 (collectively, the “Named Executive Officers”).

 

SUMMARYCOMPENSATION TABLE

 
| **Name and Principal Position**                       |   | **Fiscal Year** |   | **Annual Compensation** |          |      |   | **Long-Term Compensation(6)** |   |
|-------------------------------------------------------|--------|-----------------|--------|-------------------------|---------------|-----------|--------|-------------------------------|--------|
|                                                  |   |            |   | **Salary**              |          | **Bonus** |   | **Other annual compensation** |   | **Securities underlying Options/SARs** |   | **All other Compensation** |   |
| **William J. Fair**                                   |   | 2002            |   | $                       | 400,000  |      | $      | 435,000                       | (2)    | $ | 15,026 | (5) | — |   | — |   |
| **President  and**                                    |   | 2001            |   | $                       | 300,000       |      | $      | 69,518                        | (3)    | $ | 5,474 | (5) | — |   | — |   |
| **Chief  Executive Officer**                          |   | 2000            |   | $                       | 57,692        | (1)       | $      | 75,000                        | (4)    | $ | **—** |   | 400,000 |   | — |   |
|                                                  |   |            |   |                    |          |      |   |                          |   |   |   |   |   |
| **Hernan  R. Martinez(7)**                            |   | 2002            |   | $                       | 300,000       |      | $      | 250,000                       | (8)    | $ | 18,188 | (5) | — |   | — |   |
| **Former  Chief Operating Officer**                   |   | 2001            |   | $                       | 300,000       |      | $      | —                        |   | $ | — |   | — |   | — |   |
| **American  Skiing Company**                          |   | 2000            |   | $                       | 23,077        | (9)       | $      | —                        |   | $ | — |   | 400,000 |   | — |   |
| **Resort  Properties, Inc.**                          |   |            |   |                    |          |      |   |                          |   |   |   |   |   |
|                                                  |   |            |   |                    |          |      |   |                          |   |   |   |   |   |
| **Mark J.  Miller**                              |   | 2002            |   | $                       | 300,000       |      | $      | 450,0000                      | (10)   | $ | — |   | — |   | — |   |
| **Chief  Financial Officer,**                         |   | 2001            |   | $                       | 300,000       |      | $      | 69,518                        | (3)    | $ | — |   | — |   | — |   |
| **Senior  Vice President**                            |   | 2000            |   | $                       | 277,885       |      | $      | 7,391                         | (4)    | $ | — |   | 175,000 |   | — |   |
|                                                  |   |            |   |                    |          |      |   |                          |   |   |   |   |   |
| **Foster A. Stewart, Jr.**                            |   | 2002            |   | $                       | 205,000       |      | $      | 192,500                       | (11)   | $ | 3,000 | (5) | —  |   | — |   |
| **Senior  Vice President,**                           |   | 2001            |   | $                       | 180,000       |      | $      | 19,582                        | (3)    | $ | — |   | 60,000 |   | — |   |
| **General  Counsel and Secretary**                    |   | 2000            |   | $                       | 145,000       |      | $      | 1,707                         | (4)    | $ | — |   | 20,000 |   | — |   |
|                                                  |   |            |   |                    |          |      |   |                          |   |   |   |   |   |
| **Peter  Tomai(12)**                                  |   | 2002            |   | $                       | 225,000  |      | $      | 152,500                       | (13)   | $ | 7,656 | (5) | — |   | — |   |
| **Former  Executive Vice**                            |   | 2001            |   | $                       | 163,462       | (14)      | $      | —                        |   | $ | 4,911 | (5) | 100,000 |   | — |   |
| **President**                                         |   | 2000            |   | $                       | —        |      | $      | —                        |   | $ | — |   | — |   | — |   |
| **American  Skiing Company  Resort Properties, Inc.** |   |            |   |                    |          |      |   |                          |   |   |   |   |   |

 

----

(1)                  Mr. Fair becamean employee of ours in May 2000, and fiscal 2000 salary consequently reflectspartial year compensation rather than his annual rate of salary for that fiscalyear.

(2)                  Mr. Fair’sfiscal year 2002 bonus consists of a $35,000 incentive bonus paid in August2001 and a $400,000 retention bonus paid in May 2002.

(3)                  Represents bonusfor fiscal 2001, paid in fiscal 2002.

(4)                  Represents bonusfor fiscal 2000, paid in fiscal 2001.

(5)                  Representsvehicle and housing allowance.

(6)                  See Long-TermIncentive Plan Table below for description of additional long-term compensationgrants for fiscal 2002 made to some of the Named Executive Officers.

(7)                  Mr. Martinezresigned from our company in August 2002.

(8)                  Mr. Martinez’sfiscal year 2002 bonus consists of a $25,000 incentive bonus paid in August2001 and $225,000 retention bonus paid in May 2002.

(9)                  Mr. Martinezbecame an employee of ours in July 2000, and fiscal 2000 salary consequentlyreflects partial year compensation rather than his annual rate of salary forsuch fiscal year.

(10)            Mr. Miller’s fiscalyear 2002 bonus consists of a $25,000 incentive bonus paid in August 2001, a$100,000 signing bonus paid in March 2002, a $225,000 retention bonus paid inMay 2002, and a $100,000 incentive bonus for fiscal 2002, paid in fiscal 2003.

(11)            Mr. Stewart’s fiscalyear 2002 bonus consists of a $17,500 incentive bonus paid in August 2001, a$105,000 retention bonus paid in May 2002 and a $70,000 incentive bonus forfiscal 2002, paid in fiscal 2003.

(12)            Mr. Tomai resignedfrom our company in September 2002.

(13)            Mr. Tomai’s fiscalyear 2002 bonus consists of a $17,500 incentive bonus paid in August 2001 and a$135,000 retention bonus paid in May 2002.

(14)            Mr. Tomai became anemployee of ours in November 2000, and fiscal 2001 salary consequently reflectspartial year compensation rather than his annual rate of salary for that fiscalyear.

 

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No individual grants of stock options were made underour Stock Option Plan during Fiscal 2002 to the Named Executive Officers.

 

**AggregatedOptions/SAR Exercises During Fiscal Year Ended July 28, 2002, and Option/SARValues as of July 28, 2002**

 

The following table sets forth information concerningeach exercise of stock options during Fiscal 2002 by each of the NamedExecutive Officers and the value of unexercised options at July 28, 2002.

 
| **NAME**                          |   | **SHARES ACQUIRED  ON EXERCISE (#)** |   | **VALUE  REALIZED ($)** |   | **NUMBER OF SECURITIES  UNDERLYING UNEXERCISED  OPTIONS/SARS  (Exercisable/Unexercisable)** |   | **VALUE OF UNEXERCISED IN-  THE-MONEY OPTIONS/SARS  (Exercisable/Unexercisable)(1)** |                |
|-----------------------------------|--------|--------------------------------------|--------|-------------------------|--------|---------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------|---------------------|
|                              |   |                                 |   |                    |   |                                                                                        |   |                                                                                 |                |
| **William  J.  Fair**        |   | N/A                                  |   | N/A                     |   | 340,000/60,000                                                                              |   | $                                                                                    |  —/— |   |
|                              |   |                                 |   |                    |   |                                                                                        |   |                                                                                 |                |
| **Hernan R.  Martinez(2)**        |   | N/A                                  |   | N/A                     |   | 200,000/—                                                                              |   | $                                                                                    |  —/— |   |
|                              |   |                                 |   |                    |   |                                                                                        |   |                                                                                 |                |
| **Mark J.  Miller**          |   | N/A                                  |   | N/A                     |   | 205,000/70,000                                                                              |   | $                                                                                    |  —/— |   |
|                              |   |                                 |   |                    |   |                                                                                        |   |                                                                                 |                |
| **Foster  A.  Stewart, Jr.** |   | N/A                                  |   | N/A                     |   | 55,200/38,800                                                                               |   | $                                                                                    |  —/— |   |
|                              |   |                                 |   |                    |   |                                                                                        |   |                                                                                 |                |
| **Peter A.  Tomai(3)**       |   | N/A                                  |   | N/A                     |   | 20,000/—                                                                               |   | $                                                                                    |  —/— |   |

 

(1)        The “Value of UnexercisedIn-the-Money Options/SARs at July 28, 2002” was calculated by determining thedifference between the closing price on the over-the-counter market of theunderlying Common Stock at July 28, 2002, of $0.14 and the exercise price ofthe option.  An option is “In-the-Money”when the fair market value of the underlying Common Stock exceeds the exerciseprice of the option.  None of theoptions were “In-the-Money”.

(2)        Mr. Martinez resigned fromour company in August 2002.

(3)        Mr. Tomai resigned from ourcompany in September 2002.

 

# **LONG-TERMINCENTIVE AWARDS**

 

The table below provides information regarding grantsof long-term incentive awards under the American Skiing Company Phantom EquityPlan, which was ratified by our Board of Directors on March 6, 2003 (the“LTIP”) in the fiscal year ended July 28, 2002 to the Named Executive Officers:

 
| **Name**                   |   | **Number of  Shares, Units or  Other Rights(2)** |   | **Performance  or Other  Period Until  Maturation  or Payout(3)** |   | **Estimated  Future Payouts Under Non-Stock  Priced Based Plans(1)** |   |
|----------------------------|--------|--------------------------------------------------|--------|-------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
| **Threshold ($  or #)(4)** |   | **Target(5)**                                    |   | **Maximum**                                                       |   |
| William J. Fair            |   | 0                                                |   |                                                              |   | 0                                                                    |   |   |   | 0 |   |
| Mark Miller                |   | 12.5                                             | %      |                                                              |   | 0                                                                    |   |   | (5) | $ | 4,000,000 |   |
| Hernan  Martinez(6)        |   | 12.5                                             | %      |                                                              |   | 0                                                                    |   |   | (5) | $ | 4,000,000 |   |
| Foster Stewart             |   | 8.5                                              | %      |                                                              |   | 0                                                                    |   |   | (5) | $ | 2,750,000 |   |
| Peter Tomai(7)             |   | 6.5                                              | %      |                                                              |   | 0                                                                    |   |   | (5) | $ | 2,080,000 |   |

 

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(1)        Under the terms of theLTIP, each award to a Participant establishes the percent of the Total PlanPool (the minimum value of the Total Plan Pool is $2 million and the maximum is$32 million) to which such Participant may be entitled upon a Valuation Event,or in certain cases, following a Participant’s termination of employment.

The Total Plan Pool is determined as follows:  $2 million + (Total Equity Pool Value timesthe Total Pool Percentage).

 

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The Total Equity Pool Value is equal to the TotalEnterprise Value of the Company minus the value of outstanding debt of theCompany.  For this purpose preferredstock of the Company is not treated as debt of the Company.  Total Enterprise Value equals the totalpurchase price paid for the Company (or, in absence of an acquisition of theCompany, the total value of the Company determined by an independent thirdparty) at the time of a Valuation Event. Once Total Equity Value is determined, Total Plan Pool Percentage isdetermined by reference to the following chart:

 
| **Total Equity Value**  |   | **Total Plan  Pool Percentage** |   |
|-------------------------|--------|---------------------------------|--------|
| $ 1.00                  |   | 0.00                            | %      |
| $ 50 million            |   | 1.50                            | %      |
| $ 100 million           |   | 2.00                            | %      |
| $ 150 million           |   | 2.25                            | %      |
| $ 200 million           |   | 2.50                            | %      |
| $ 250 million           |   | 3.00                            | %      |
| $ 300 million           |   | 3.50                            | %      |
| $ 400 million           |   | 5.00                            | %      |
| $ 500 million or  above |   | 6.00                            | %      |

 

The payout to which a Participant will be entitledupon a Valuation Event is the percentage of the Total Plan Pool provided in hisor her Award and indicated in column (b) of the preceding LTIP table for eachof the Named Executive Officers of the Company.  Awards granted in fiscal 2002, vest 25 percent per year.  Awards become 100 percent vested upon aChange in Control (see definition in note 3).

(2)          Each Award establishesthe percent of the Total Plan Pool to which a Participant will be entitled upona Valuation Event.  Awards are paidsolely in cash.

(3)          Participants areentitled to a payment on Awards granted under the LTIP, to the extent vestedupon a Valuation Event or in certain cases upon termination of employment.  A Valuation Event is any of thefollowing:  (i) a sale ordisposition a significant Company operation or property as determined by theBoard; (ii) a merger, consolidation or similar event of the Company otherthan one (A) in which the Company is the surviving entity or (B) where noChange in Control has occurred; (iii) a public offering of equitysecurities by the Company that yields net proceeds to the Company in excess of$50 million; or (iv) a Change in Control. A Change in Control means the occurrence of any of the following:  (i) the acquisition by any person of 50percent or more of the combined voting power of the Company’s then outstandingvoting securities, other than any person holding 50 percent or more of suchcombined voting power on the date hereof; (ii) the individuals who weremembers of the Board during the previous twelve (12) month period, cease forany reason to constitute at least a majority of the Board; or (iii) approval bystockholders of the Company of (a) a merger or consolidation involving theCompany in which the stockholders of the Company, immediately before suchmerger or consolidation do not, as a result of such merger or consolidation,own, directly or indirectly, more than 60 percent of the combined voting powerof the then outstanding voting securities of the corporation resulting fromsuch merger or consolidation in substantially the same proportion as theirownership of the combined voting power of the securities of the Company outstandingimmediately before such merger or consolidation, or (b) a complete liquidationor dissolution of the Company or an agreement for the sale or other dispositionof all or substantially all of the assets of the Company.  As of December 21, 2002 each of Messrs.  Miller and Stewart are 25 percent vested intheir Awards.

(4)          Neither the terms of theLTIP nor the Awards granted thereunder provide for a threshold or target,rather the LTIP and the Awards granted thereunder contemplate payment on aValuation Event, in accordance with the formula described in (1).

(5)          Neither the terms of theLTIP nor the Awards granted thereunder provide for a threshold or target,rather the LTIP and the Awards granted thereunder contemplate payment on aValuation Event, in accordance with the formula described in (1).  In addition, neither, a representativeamount based on the Company’s previous fiscal year’s performance nor a targetaward amount may be determined because Awards payout solely on (i) a ValuationEvent (described above) or (ii) if provided in the governing award, following aparticipant’s termination due to disability, without Cause, or for Good Reason(in each case as defined in the Participant’s Award agreement) prior to aValuation Event.  In the event of such atermination, the Total Enterprise Value would be determined by a qualifiedthird party.  To date it has not beennecessary for the Company to engage such a third party to make such adetermination.

(6)          Mr. Martinez resignedfrom the Company in August 2002.

(7)          Mr. Tomai resigned fromthe Company in September 2002.

 

**Employment Agreements**

 

We have entered into employment agreements withseveral of our key executive officers.

 

**William J. Fair**

 

On May 17, 2000, we entered into an employmentagreement with William J. Fair for a term of three years as Chief OperatingOfficer.  In 2001, Mr. Fair  was promoted to President and ChiefExecutive Officer.

 

Mr. Fair’s employment agreement provides an annualbase salary of $300,000.  In connectionwith his promotion to CEO, his base salary was increased to $400,000.  The compensation committee may award Mr.Fair an annual bonus of up to 70% of his base salary in accordance with theprovisions of our bonus plan.  Mr. Fairreceived a signing bonus of $75,000 on May 17, 2000.  In Fiscal 2000, we also granted Mr. Fair incentive stock optionsfor 400,000 shares of our common stock, at an exercise price of $2.00 pershare, subject to vesting and forfeiture conditions.

 

Mr. Fair will be entitled to severance if his employmentis terminated as a result of any of the following circumstances: (i)disability; (ii) our termination of Mr. Fair’s employment without cause, assuch term is defined in his Employment Agreement; or (iii) Mr. Fair’stermination of his own employment on account of certain material 

 

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changes in the terms and conditions of his employment without hisconsent as described in his employment agreement.  Such termination by Mr. Fair is commonly referred to as goodreason.  Mr. Fair’s severance underthese circumstances will be the greater of his base salary through the end ofthe term or one year.  Followingtermination, severance is payable in accordance with our ordinary payrollpractices.  However, in the event Mr.Fair’s employment is terminated by Mr. Fair for good reason or by us withoutcause within one year following, or in connection with, a change in control ofour company (as such term is defined in his Employment Agreement), Mr. Fair isentitled to receive an amount equal to 200% percent of his then current annualbase salary in a lump sum within ten days of such termination.

 

Mr. Fair’s employment agreement also provides thatduring the term of the agreement and for a period of one year thereafter, hewill not have an ownership interest in, manage or control ski resortsthroughout North America and will not solicit our employees to leave us, orinterfere with or disrupt any contractual relationships between us and anythird party.  In addition, Mr. Fair isprohibited from disclosing our confidential information.

 

**FosterA. Stewart**

 

On July 30, 2001, we enteredinto an Executive Employment Agreement (the “Stewart Agreement”) with Mr.Stewart providing for his employment as Senior Vice President and GeneralCounsel.  The Stewart Agreement has atwo (2) year term with an additional one (1) year extension if Mr. Stewartrelocates to Park City, Utah and, in either case, includes one (1) yearextensions unless terminated sooner with 60 days notice prior to the end of anyterm.

 

The Stewart Agreementprovides for an annual base salary of $180,000 with an annual bonus asfollows:  target — forty percent (40%)of base salary up to a maximum bonus of sixty percent (60%) of base salary.  Mr. Stewart participates in our PhantomEquity Plan at a participation percentage equal to eight and one-half percent(8.5%).  See LTIP table for furtherexplanation.  In July 2002, Mr.Stewart’s annual base salary was increased to $205,000, and in October 2002,Mr. Stewart’s annual base salary was further increased to $214,000.

 

In addition, in accordance with the Stewart Agreement,Mr. Stewart received a retention bonus of $105,000 on April 1, 2002.  In the event of Mr. Stewart’s death ordisability, we shall pay to Mr. Stewart’s estate or to Mr. Stewart, as the casemay be, a lump sum payment of an amount equal to (i) his base salary throughsuch termination date, (ii) a pro rata portion of his annual bonus with respectto the fiscal year in which the termination occurred and (iii) any accrued butunpaid vacation through the date of such termination.

 

However, the Stewart Agreement provided Mr. Stewartwith an inducement to relocate to Park City, Utah, but in the event Mr. Stewartgave notice by April 30, 2002, of his intention not to relocate to Park City,his severance is limited to a lump sum equal to 90 days of base salary.  Mr. Stewart gave such notice on May 28,2002, and accordingly, in the event Mr. Stewart’s employment is terminated forany reason other than Cause, as such term is defined in the Stewart Agreement,his severance will be 90 days of base salary paid in a lump sum.

 

The Stewart Agreement also provides that during theterm of the agreement and for one year thereafter, he will not solicit ouremployees.  In addition, Mr. Stewart isprohibited from disclosing our confidential information.

 

**Helen E.Wallace**

 

Effective November 7, 2002,we entered into an Executive Employment Agreement (the “Wallace Agreement”)with Ms. Wallace providing for her employment as Senior Vice President andChief Financial Officer.  The WallaceAgreement has a term of three (3) years, with an additional three (3) yearextension unless earlier terminated on no less than one-year’s notice.

 

The Wallace Agreementprovides annual base salary of $259,000 (“Base Salary”) with an annual bonus asfollows:  target – fifty percent (50%)of Base Salary up to maximum bonus amount of seventy-five percent (75%) of basesalary with a guaranteed minimum bonus of $50,000 for Fiscal 2003.  Ms. Wallace received a $30,000 signing bonusfollowing 30 days of employment.  Ms.Wallace will also be eligible to participate in our Phantom Equity Plan at aparticipation percentage equal to nine and one-half percent (9.5%).  See LTIP table for further explanation.

 

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In the event of Ms.Wallace’s death or disability, we shall pay to Ms. Wallace’s estate or to Ms.Wallace, as the case may be, a lump sum payment of an amount equal to (i) herBase Salary through such termination date, (ii) a pro rata portion of herannual bonus with respect to the fiscal year in which the termination occurredand (iii) any accrued but unpaid vacation through the date of such termination.

 

If Ms. Wallace’s employmentis terminated without cause, as such term is defined in the Wallace Agreement(other than on account of death or disability), or if she terminates heremployment for Good Reason, as such term is defined in the Wallace Agreement,she will receive a lump sum payment equal to 100% of her annual Base Salary asin effect on the date of termination. The Wallace Agreement also provides for a12 month post termination restrictive period in which Ms. Wallace may notsolicit our employees.  In addition, Ms.Wallace is prohibited from disclosing our confidential information.

 

**James P. Lacey**

 

Effective August 19, 2002,we entered into an employment letter with Mr. Jim Lacey providing for hisemployment as Senior Vice President of Sales and Marketing.  Mr. Lacey’s initial term of employment istwo (2) years, with two options to extend for two additional years perextension.

 

The employment letterprovides Mr. Lacey with an annual base salary of $240,000 (“Base Salary”) andan annual bonus as follows:  target –thirty percent (30%) of Base Salary up to maximum bonus amount of forty-fivepercent (45%) of Base Salary.  Mr. Laceywill also be eligible to participate in our Phantom Equity Plan at aparticipation percentage equal to seven and one-half percent (7.5%).  See LTIP table for further explanation.

 

In the event of Mr. Lacey’s termination prior to theend of the term he is entitled to a payment equal to 50% of his annual BaseSalary.

 

**Mark J.Miller**

 

Effective January 15, 2002, we entered into anExecutive Employment Agreement with Mr. Miller providing for his employment asExecutive Vice President and Chief Operating Officer.  The Agreement has a three year term beginning September 30, 2001with automatic one year renewals unless either party gives 60 days notice ofnon-renewal.  Mr. Miller currentlyserves as our Chief Financial Officer, and is expected to become ChiefOperating Officer in March 2003.

 

Mr. Miller’s agreement provides an annual base salaryof $300,000 subject to annual review and possible increase and an annual bonusopportunity subject to our performance of 70% of base salary.  Mr. Miller participates in our PhantomEquity Plan at a participation percentage of 12.5%.  See LTIP table for further explanation.

 

In addition, Mr. Miller was provided with certainrelocation benefits related to his relocation to the Park City, Utah area.

 

Mr. Miller’s agreement also provided for a retentionbonus of $225,000, which was paid on April 30, 2002.

 

In the event of Mr. Miller’s death or disability, weshall pay to Mr. Miller’s estate or to Mr. Miller, as the case may be, a lumpsum payment of an amount equal to (i) his base salary through such terminationdate, (ii) a pro rata portion of his annual bonus with respect to the fiscalyear in which the termination occurred and (iii) any accrued but unpaidvacation through the date of such termination.

 

In the event Mr. Miller is terminated by us withoutcause (as such term is defined in his agreement) or terminates his employmentfor Good Reason (as such term is defined in his agreement), he shall receive alump sum payment equal to the sum of (i) his annual base salary in effect onhis termination date and (ii) the amount of his annual bonus for the prioryear.  Mr. Miller will be entitled tohealth care coverage for no longer than one year from his date oftermination.  In addition, in the eventMr. Miller is terminated by us without cause (as such term is defined in hisagreement) or terminates his employment for Good Reason (as such term isdefined in his agreement), within one year following a Change in Control, Mr.Miller will receive a lump sum payment equal to two (2) times 

 

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the sum of (i) his annual base salary in effect on his termination dateand (ii) the amount of his annual bonus for the prior year.  After September 30, 2004, Mr. Miller mayvoluntarily terminate his employment at any time and receive a $250,000 lumpsum payment.

 

REPORT ON EXECUTIVECOMPENSATION

 

The Compensation Committee is responsible forestablishing and administering our executive compensation programs anddetermining awards under our 1997 Stock Option Plan and 2002 Phantom EquityPlan.

 

The report of the Compensation Committee shall not bedeemed incorporated by reference by any general statement incorporating byreference this Proxy Statement into any filing under the Securities Act of1933, as amended (the “Securities Act”) or the Securities Exchange Act of 1934,as amended (the “Exchange Act”), except to the extent that we specificallyincorporate this information by reference, and shall not otherwise be deemedfiled under such Acts.  References inthe report to the Company are to American Skiing Company.

 

**Compensation Philosophy**

 

The Compensation Committee’s compensation philosophyis designed to support our primary objective of creating long term value forshareholders.  The CompensationCommittee follows a three-pronged compensation strategy applicable to ourexecutive officers and other key employees, including the Chief ExecutiveOfficer (“CEO”), whereby such employees are compensated through three separatebut related compensation schemes:

 

First, each such employee receives a base salaryconsistent with his or her core responsibilities;

 

Second, a short term bonus, generally  determined annually, is established toprovide reward and incentive for shorter term productivity; and

 

Third, awards under our 2002 Phantom Equity Plan aremade to provide a longer term incentive and reward longer term loyalty andperformance.

 

This strategy  is  intended to:  (i)  attract  and  retain   talented executives;  (ii) emphasize pay for performance;  and (iii) encourage management devotion tothe long-term valuation of our company.

 

The Internal Revenue Code imposes a limitation on thededuction for certain executive officers’ compensation unless certainrequirements are met.  The CompensationCommittee has carefully considered the impact of these tax laws and has takencertain actions intended to preserve our tax deduction with respect to anyaffected compensation.  Our 1997 StockOption Plan qualifies for tax deductibility. The following are descriptions of our compensation programs forexecutive officers, including the CEO.

 

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**Base Salary**

 

We generally establish base salary ranges byconsidering compensation levels in similarly sized companies in theresort/leisure/hospitality industry and the real estate developmentindustry.  The base salary andperformance of each executive officer is reviewed periodically (at leastannually) by his or her immediate supervisor (or the Compensation Committee, inthe case of the CEO) resulting in salary actions as appropriate.  An employee’s level of responsibility is theprimary factor used in determining base salary.  Individual performance and industry information are alsoconsidered in determining any salary adjustment.  The Compensation Committee reviews and approves all executiveofficer salary adjustments as recommended by the CEO.  The Compensation Committee reviews the performance of the CEO andestablishes his base salary.

 

**Bonus Plan**

 

We have established an incentive compensation plan forcertain of our employees, which is designed to provide rewards for shorter termproductivity by key employees. The bonus plan is generally directed at keymembers of the management team, and currently includes approximately 200employees.  The plan provides forpayment of cash bonuses if certain levels of resort and company-wide earningsare met. The bonus plan for our 2003 fiscal year remains subject to approval bythe Compensation Committee.

 

**Phantom Equity Plan**

 

Our 2002 Phantom Equity Plan is designed to alignmanagement interests with those of shareholders.  In furtherance of this objective, the level of phantom equitygrants for executive officers is determined by the Compensation Committee uponadoption of the plan or, if later, upon the executive’s hire date, in each casetypically in consultation with the CEO, except with respect to the CEOhimself.  Awards for all executiveofficers are determined by giving equal consideration to base salary, level ofresponsibility and industry long-term compensation information.

 
|   | Compensation Committee    |
|--------|---------------------------|
|   |                      |
|   |                      |
|   |                      |
|   | /s/ Bradford E. Bernstein |   |
|   | /s/ Paul Wachter          |   |

 

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PERFORMANCE GRAPH

 

The following table compares the performance of ourCommon Stock to the Russell 2000 and our Peer Group Index*.

 

[GRAPHIC]

 

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*Our peer group index performance is weighted according to marketcapitalization.

 

The totalshareholder return assumes that $100 is invested at the beginning of the periodin our Common Stock, The Russell 2000, and our peer group.  Our peer group, as selected by us, iscomprised of Vail Resorts, Inc., Intrawest Corp., Boca Resorts, Premier Parks,Inc., and Cedar Fair, L.P. We have selected this peer group because thesecompanies operate in the Resort/Leisure/Hospitality sector or the Resort RealEstate Development sector. We included The Russell 2000 in the graph because weare included in such index and because there is no industry index for ourbusiness.  Total shareholder return isweighted according to market capitalization; therefore companies with a largermarket capitalization have a greater impact on the peer group indexresults.  Historical stock performanceduring this period may not be indicative of future stock performance.

 

**Item 12****Security Ownership of CertainBeneficial Owners and Management**

 

Set forth in the following table is the beneficialownership of Common Stock, Class A Common Stock and Series C-1 Preferred Stock,as of January 26, 2003, for all of our Directors and named executive officersand all Directors and executive officers as a group.  No Director or executive officer owns more than 1% of the outstandingshares of Common Stock (including exercisable options), with the exception ofMr. Otten, who owns approximately 3.86% of the total outstanding shares ofCommon Stock (including exercisable options) and all of the outstanding sharesof Class A Common Stock.  All Directorsand executive officers as a group own approximately 21.95% of the totaloutstanding shares of voting stock (including exercisable options).  No Director or executive officer, other thanMr. Otten, owns any Class A Common Stock. No Director or executive officers could be deemed to beneficially ownany Series C-1 Preferred Stock.  NoDirector or executive officer owns any Series A Preferred Stock or Series 

 

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D Preferred Stock.  Our SeriesC-2 Preferred Stock is non-voting and is not included in the followingtable.  All of the holders of our SeriesB Preferred Stock have contractually agreed with us not to exercise their rightto vote those shares, and accordingly such shares have been excluded from thefollowing table.

 
| **Directors and Executive  Officers(1)**             |   | **Common Stock(2)** |   | **Class A Common Stock** |   | **Series C-1  Preferred Stock** |   | **Total All  Voting  Stock(3)** |   |
|------------------------------------------------------|--------|---------------------|--------|--------------------------|--------|---------------------------------|--------|---------------------------------|--------|
| **Shares**                                           |   | **%**               |   | **Shares**               |   | **%**                           |   | **Shares**                      |   | **%** |   | **%** |   |
| **William J.  Fair(4)**                              |   | 340,000             |   | 1.96                     | %      | —                          |   | —                          |   | — |   | — |   |   | * |
| **Mark J.  Miller(4)**                          |   | 205,000             |   | 1.19                     | %      | —                          |   | —                          |   | — |   | — |   |   | * |
| **Hernan R.  Martinez(4),(16)**                      |   | 200,000             |   | 1.17                     | %      | —                          |   | —                          |   | — |   | — |   |   | * |
| **Foster  A.  Stewart, Jr(4)**                  |   | 55,200              |   |                     | *      | —                          |   | —                          |   | — |   | — |   |   | * |
| **Peter A.  Tomai(4),(17)**                          |   | 20,000              |   |                     | *      | —                          |   | —                          |   | — |   | — |   |   | * |
|                                                 |   |                |   |                     |   |                            |   |                            |   |   |   |   |   |   |   |
| **Bradford E.  Bernstein (5)**                       |   |                |   | —                   |   | —                          |   | —                          |   | — |   | — |   | — |   |
| **Robert J.  Branson(6)**                            |   | 8,000               |   |                     | *      | —                          |   | —                          |   | — |   | — |   |   | * |
| **J.  Taylor Crandall (7)**                     |   |                |   | —                   |   | —                          |   | —                          |   | — |   | — |   | — |   |
| **David B.  Hawkes(8)**                              |   | 21,000              |   |                     | *      | —                          |   | —                          |   | — |   | — |   |   | * |
| **Alexandra C.  Hess (9)**                           |   |                |   | —                   |   | —                          |   | —                          |   | — |   | — |   | — |   |
| **Gordon M.  Gillies(10)**                           |   | 21,000              |   |                     | *      | —                          |   | —                          |   | — |   | — |   |   | * |
| **Steven B.  Gruber(11)**                            |   |                |   | —                   |   | —                          |   | —                          |   | — |   | — |   | — |   |
| **William Janes(12)**                                |   |                |   | —                   |   | —                          |   | —                          |   | — |   | — |   | — |   |
| **Leslie B.  Otten(13)**                             |   | 680,000             |   | 3.86                     | %      | 14,760,530                      |   | 100.00                          | %      | — |   | — |   | 21.00 | % |
| **Paul  Wachter(14)**                                |   | 30,000              |   |                     | *      | —                          |   | —                          |   | — |   | — |   |   | * |
|                                                 |   |                |   |                     |   |                            |   |                            |   |   |   |   |   |   |   |
| **Directors and  Executive Officers as a group(15)** |   | 1,580,200           |   | 8.53                     | %      | 14,760,530                      |   | 100.00                          | %      | — |   | — |   | 21.95 | % |

 

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 *  Less than one percent

 

(1)                                Theexecutive officers in this table are Messrs. Fair, Martinez, Miller, Stewart and Tomai.

 

(2)                                Incomputing the number of shares of Common Stock beneficially owned by a person,shares of Common Stock subject to options and warrants held by that person thatare currently exercisable or that become exercisable within 60 days of January26, 2003 are deemed outstanding.  Forpurposes of computing the percentage of outstanding shares of Common Stockbeneficially owned by such person, such shares of stock subject to options orwarrants that are currently exercisable or that become exercisable within 60days of January 26, 2003 are deemed to be outstanding for such person but arenot deemed to be outstanding for purposes of computing the ownership percentageof any other person.

 

(3)                                Includingshares of Series A Preferred Stock not held by any of our directors orexecutive officers.

 

(4)                                Allshares of Common Stock beneficially owned by such person are issuable underexercisable options granted under our 1997 Stock Option Plan.

 

(5)                                Doesnot include 65,000 shares of Common Stock issuable under exercisable optionsgranted to Oak Hill Capital Management, Inc., under our 1997 Stock OptionPlan.  Mr. Bernstein, one of ourdirectors, is a limited partner of certain Oak Hill entities.  Mr. Bernstein disclaims beneficial ownershipof the 65,000 shares of Common Stock referred to above, except to the extent ofhis pecuniary interest therein.

 

(6)                                Includes5,000 shares of Common Stock issuable under exercisable options granted underour 1997 Stock Option Plan and 3,000 shares of Common Stock held by The BransonFamily LLC, which Mr. Branson is the managing member of, but as to which Mr.Branson disclaims beneficial ownership.

 

(7)                                Doesnot include 65,000 shares of Common Stock issuable under exercisable optionsgranted to Oak Hill Capital Management, Inc., under our 1997 Stock OptionPlan.  Mr. Crandall, one of ourdirectors, is a Vice President of Oak Hill Capital Management, Inc., and aManager and Vice President of OHCP MGP, LLC (the general partner of the generalpartner of Oak Hill Capital Partners, L.P. and Oak Hill Capital Management Partners, L.P.) and a limited partner ofcertain other Oak Hill entities.  Mr.Crandall disclaims beneficial ownership of the 65,000 shares of Common Stockreferred to above, except to the extent of his pecuniary interest therein.

 

(8)                                Allshares of Common Stock beneficially owned by such person are issuable underexercisable options granted under our 1997 Stock Option Plan.

 

58

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(9)                                Doesnot include 65,000 shares of Common Stock issuable under exercisable optionsgranted to Oak Hill Capital Management, Inc., under our 1997 Stock OptionPlan.  Ms. Hess, one of our directors,is a limited partner in certain other Oak Hill entities.  Ms. Hess disclaims beneficial ownership ofthe 65,000 shares of Common Stock referred to above, except to the extent ofher pecuniary interest therein.

 

(10)                          Includes20,000 shares of Common Stock issuable under exercisable options granted underour 1997 Stock Option Plan.

 

(11)                          Does notinclude 65,000 shares of Common Stock issuable under exercisable optionsgranted to Oak Hill Capital Management, Inc., under our 1997 Stock OptionPlan.  Mr. Gruber, one of our directors,is a Vice President of Oak Hill Capital Management, Inc., and a Manager andVice President of OHCP MGP, LLC (the general partner of the general partner ofOak Hill Capital Partners, L.P.  and OakHill Capital Management Partners, L.P.) and a limited partner of certain otherOak Hill entities.  Mr. Gruber disclaimsbeneficial ownership of the 65,000 shares of Common Stock referred to above,except to the extent of his pecuniary interest therein.

 

(12)                          Does notinclude 65,000 shares of Common Stock issuable under exercisable optionsgranted to Oak Hill Capital Management, Inc., under our 1997 Stock OptionPlan.  Mr. Janes, one of our directors,is a limited partner of certain other Oak Hill entities.  Mr. Janes disclaims beneficial ownership ofthe 65,000 shares of Common Stock referred to above, except to the extent ofhis pecuniary interest therein.

 

(13)                          Includes660,000 shares of Common Stock issuable under exercisable options granted underour 1997 Stock Option Plan.  Alsoincludes 20,000 shares of Common Stock owned by Albert Otten Trust f.b.o.  Mildred Otten, as to which Mr. Otten istrustee and co-beneficiary.  Does notinclude 20,510 shares of Common Stock issuable under exercisable optionsgranted under our 1997 Stock Option Plan to Mr. Otten’s spouse, ChristineOtten, as to which Mr. Otten disclaims beneficial ownership.  As of January 26, 2003, all of Mr. Otten’sshares of Class A Common Stock were pledged to secure a margin loan from INGU.S.  Capital LLC, the proceeds of whichwere used by Mr. Otten to purchase approximately 833,333 shares of Common Stockin the initial public offering on November 6, 1997.

 

(14)                          Includes17,500 shares of common stock issuable under exercisable options granted underour 1997 Stock Option Plan to Mr. Wachter, and 12,500 shares of common stockissuable under exercisable options granted under our 1997 Stock Option Plan toMain Street Advisors, Inc., in which Mr. Wachter is a principal.

 

(15)                          Includes1,552,700 shares of common stock issuable under exercisable options grantedunder our 1997 Stock Option Plan.

 

(16)                          Mr.Martinez resigned from our company in August 2002.

 

(17)                          Mr. Tomairesigned from our company in September 2002.

 

59

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INFORMATION AS TO CERTAINSTOCKHOLDERS

 

Set forth below is certain information with respect tothe only persons known to us who owned beneficially more than 5% of any classof our voting securities as of January 26, 2003.

 
| **Five Percent Shareholders**                     |       | **Common Stock  Beneficially  Owned** |            | **Class A  Common Stock  Beneficially  Owned** |       | **Series A  Preferred Stock  Beneficially  Owned** |            | **Series B & C1  Preferred Stock  Beneficially  Owned** |      | **% of All  Voting Stock  Beneficially  Owned** |            |
|---------------------------------------------------|------------|---------------------------------------|-----------------|------------------------------------------------|------------|----------------------------------------------------|-----------------|-------------------------------------------------------------|-----------|-------------------------------------------------|-----------------|
|                                              | **Shares** |                                  | **% of  Class** |                                           | **Shares** |                                               | **% of  Class** |                                                        | **Share** |                                            | **% of  Class** |   | **Shares** |   | **% of  Class** |   |   |   |
|                                              |       |                                  |            |                                           |       |                                               |            |                                                        |      |                                            |            |   |   |   |   |   |   |   |   |
| **Oak Hill Capital Partners, L.P.(6)**            |       | 879,133                               | (1)             | 5.18                                           | %          | —                                             |            | —                                                      |      | —                                          |            | — |   | B-131,870 | (1) | 87.79 | % | 46.41 | % |
| 201 Main Street                                   |       |                                  |            |                                           |       |                                               |            |                                                        |      |                                            |            |   |   | C1-35,165 | (1) | 87.79 | % |   |   |
| Fort Worth, Texas 76102                           |       |                                  |            |                                           |       |                                               |            |                                                        |      |                                            |            |   |   |   |   |   |   |   |   |
|                                              |       |                                  |            |                                           |       |                                               |            |                                                        |      |                                            |            |   |   |   |   |   |   |   |   |
| **Oak Hill Capital Management Partners, L.P.(6)** |       | 22,200                                | (2)             |                                           | *          | —                                             |            | —                                                      |      | —                                          |            | — |   | B-3,330 | (2) | 2.22 | % | 1.17 | % |
| 201 Main Street                                   |       |                                  |            |                                           |       |                                               |            |                                                        |      |                                            |            |   |   | C1-888 | (2) | 2.22 | % |   |   |
| Fort Worth, Texas 76102                           |       |                                  |            |                                           |       |                                               |            |                                                        |      |                                            |            |   |   |   |   |   |   |   |   |
|                                              |       |                                  |            |                                           |       |                                               |            |                                                        |      |                                            |            |   |   |   |   |   |   |   |   |
| **Oak Hill Securities Fund, L.P.(6)**             |       | 49,334                                | (3)             |                                           | *     | —                                             |            | —                                                      |      | —                                          |            | — |   | B-7,400 | (3) | 4.99 | % | 2.61 | % |
| 201 Main Street                                   |       |                                  |            |                                           |       |                                               |            |                                                        |      |                                            |            |   |   | C1-1,974 | (3) | 4.99 | % |   |   |
| Fort Worth, Texas 76102                           |       |                                  |            |                                           |       |                                               |            |                                                        |      |                                            |            |   |   |   |   |   |   |   |   |
|                                              |       |                                  |            |                                           |       |                                               |            |                                                        |      |                                            |            |   |   |   |   |   |   |   |   |
| **Oak Hill Securities Fund II, L.P.(6)**          |       | 49,333                                | (4)             |                                           | *     | —                                             |            | —                                                      |      | —                                          |            | — |   | B-7,400 | (4) | 4.99 | % | 2.60 | % |
| 201 Main Street                                   |       |                                  |            |                                           |       |                                               |            |                                                        |      |                                            |            |   |   | C1-1,973 | (4) | 4.99 | % |   |   |
| Fort Worth, Texas 76102                           |       |                                  |            |                                           |       |                                               |            |                                                        |      |                                            |            |   |   |   |   |   |   |   |   |
|                                              |       |                                  |            |                                           |       |                                               |            |                                                        |      |                                            |            |   |   |   |   |   |   |   |   |
| **OHCP Ski, L.P.(6)**                             |       | 13,333                                | (5)             |                                           | *     | —                                             |            | —                                                      |      | —                                          |            | — |   | B-2,000 | (5) | 1.33 | % | 0.70 | % |
| 201 Main Street                                   |       |                                  |            |                                           |       |                                               |            |                                                        |      |                                            |            |   |   | C1-533 | (5) | 1.33 | % |   |   |
| Fort Worth, Texas 76102                           |       |                                  |            |                                           |       |                                               |            |                                                        |      |                                            |            |   |   |   |   |   |   |   |   |
|                                              |       |                                  |            |                                           |       |                                               |            |                                                        |      |                                            |            |   |   |   |   |   |   |   |   |
| **Leslie B.  Otten**                         |       | 680,000                               | (7)             | 3.86                                           | %          | 14,760,530                                         |            | 100                                                         | %         | —                                          |            | — |   | — |   | — |   | 21.00 | % |
| P.O.  Box  547                               |       |                                  |            |                                           |       |                                               |            |                                                        |      |                                            |            |   |   |   |   |   |   |   |   |
| Bethel, ME 04217                                  |       |                                  |            |                                           |       |                                               |            |                                                        |      |                                            |            |   |   |   |   |   |   |   |   |
|                                              |       |                                  |            |                                           |       |                                               |            |                                                        |      |                                            |            |   |   |   |   |   |   |   |   |
| **Madeleine LLC**                                 |       | 1,352,800                             |            | 7.97                                           | %          | —                                             |            | —                                                      |      | 36,626                                          | (8)             | 100 | % | — |   | — |   | 6.90 | % |
| c/o Cerberus                                      |       |                                  |            |                                           |       |                                               |            |                                                        |      |                                            |            |   |   |   |   |   |   |   |   |
| 450 Park Avenue                                   |       |                                  |            |                                           |       |                                               |            |                                                        |      |                                            |            |   |   |   |   |   |   |   |   |
| New York, NY 10022                                |       |                                  |            |                                           |       |                                               |            |                                                        |      |                                            |            |   |   |   |   |   |   |   |   |
|                                              |       |                                  |            |                                           |       |                                               |            |                                                        |      |                                            |            |   |   |   |   |   |   |   |   |
| **Performance Capital Group, LLC**                |       | 2,864,000                             |            | 16.88                                          | %          | —                                             |            | —                                                      |      | —                                          |            | — |   | — |   | — |   | 3.93 | % |
| 14 Wall Street, 27th Floor                        |       |                                  |            |                                           |       |                                               |            |                                                        |      |                                            |            |   |   |   |   |   |   |   |   |
| New York,   New York, 10005                  |       |                                  |            |                                           |       |                                               |            |                                                        |      |                                            |            |   |   |   |   |   |   |   |   |

 

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*Less than one percent

 

(1)                                Includes13,333 shares of Common Stock, 2,000 shares of Series B Preferred Stock and 533shares of Series C-1 Preferred Stock held directly by OHCP Ski, L.P., as OakHill Capital Partners, L.P.  is thegeneral partner of OHCP Ski, L.P. However, Oak Hill Capital Partners, L.P.  disclaims such beneficial ownership.  Each of OHCP MGP, LLC, the general partner of OHCP GenPar, L.P.,and OHCP GenPar, L.P., the general partner of Oak Hill Capital Partners,L.P.  may be deemed beneficial owner ofthe shares of our capital stock reported herein.  Each such entity disclaims beneficial ownership of these sharesin excess of its direct and/ or indirect pecuniary interest in such shares.

 

(2)                                Eachof OHCP MGP, LLC, the general partner of OHCP GenPar, L.P., and OHCP GenPar,L.P.  may be deemed beneficial owner ofthe shares of our capital stock reported herein.  Each such entity disclaims beneficial ownership of these sharesin excess of its direct and/ or indirect pecuniary interest in such shares.

 

(3)                                Eachof Glenn R.  August, the controllingstockholder of Oak Hill Securities MGP, Inc., Oak Hill Securities MGP, Inc.,the general partner of Oak Hill Securities GenPar, L.P.  and Oak Hill Securities GenPar, L.P., thegeneral partner of Oak Hill Securities Fund, L.P.  may be deemed beneficial owner of the shares of our capital stockreported herein.  Each such entitydisclaims beneficial ownership of these shares in excess of its direct and/ orindirect pecuniary interest in such shares.

 

(4)                                Eachof Glenn R.  August, the controllingstockholder of Oak Hill Securities MGP II, Inc., Oak Hill Securities MGP II,Inc., the general partner of Oak Hill Securities GenPar II, L.P.  and Oak Hill Securities GenPar II, L.P., thegeneral partner of Oak Hill Securities Fund II, L.P.  may be deemed beneficial owner of the shares of our capital stockreported herein.  Each such entitydisclaims beneficial ownership of these shares in excess of its direct and/ orindirect pecuniary interest in such shares.

 

60

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(5)                                Eachof OHCP MGP, LLC, the general partner of OHCP GenPar, L.P., OHCP GenPar, L.P.,the general partner of Oak Hill Capital Partners, L.P., the general partner ofOHCP Ski, L.P., may be deemed beneficial owner of the shares of our capitalstock reported herein.  Each such entitydisclaims beneficial ownership of these shares in excess of its direct and/ orindirect pecuniary interest in such shares.

 

(6)                                Eachentity referred to in footnotes 1 to 5 inclusive, as well as Oak Hill CapitalManagement, Inc., which directly holds options to purchase 65,000 shares of ourCommon Stock may be deemed to be a member of a “group” for purposes of Section13(d) of the Exchange Act.  However,each such entity disclaims such group membership as well as the beneficialownership of the shares owned by any other entity in excess of such entity’sdirect or indirect pecuniary interest in such shares.  Together the Oak Hill entities beneficially own 100% of theSeries B Preferred Stock and the Series C-1 Preferred Stock as well as 52.81%of our outstanding voting stock.

 

(7)                                Includes660,000 shares of Common Stock issuable under exercisable options granted underour 1997 Stock Option Plan.  Does notinclude 20,510 shares of Common Stock issuable under exercisable optionsgranted under our 1997 Stock Option Plan to Mr. Otten’s spouse, ChristineOtten, as to which Mr. Otten disclaims beneficial ownership.

 

(8)                                Togetherwith accrued and unpaid dividends through January 26, 2003, the Series APreferred Stock is convertible into 3,678,798 shares of Common Stock.

 

**Item 13**

**Certain Relationships and RelatedTransactions**

 

**Recapitalization**

 

On July 15, 2001, we entered into a securitiespurchase agreement with Oak Hill to assist us in meeting our current financingneeds.  The agreement closed on August31, 2001 and included the following key terms:

 

•                  Weissued, and Oak Hill purchased, $12.5 million aggregate principal amount ofJunior Subordinated Notes, which are convertible into shares of our Series DParticipating Preferred Stock (Series D Preferred Stock);

 

•                  OakHill funded $2.5 million of the $3.5 million of availability remaining underTranche C of the Real Estate Term Facility to facilitate amendments to thatcredit facility.  This was the finaladvance under Tranche C, as the maximum availability under this facility wasreduced from $13 million to $12 million;

 

•                  OakHill agreed to provide a guaranty for a $14 million equipment lease for theHeavenly gondola, which guaranty was released upon the sale of Heavenly.  The fair value of the lease guaranty was approximately$1.7 million;

 

•                  OakHill purchased 1 million shares of our common stock for an aggregate purchaseprice of $1 million;

 

•                  OakHill agreed to cancel an agreement to provide it with warrants for 6 millionshares of our common stock or 15% of the common stock of Resort Properties, thefair value of which was $2.2 million on the date of the transaction;

 

•                  Theoutstanding Series B Preferred Stock that was held by Oak Hill was stripped ofall of its economic and governance rights and preferences, with the exceptionof the right to elect up to six directors in exchange for the items mentionedabove and us issuing to Oak Hill two new series of Preferred Stock: (i) $40million face value of Series C-1 Preferred Stock; and (ii) $139.5 million facevalue of Series C-2 Preferred Stock;

 

•                  AtOak Hill’s option, and subject to the consent of the other lenders under theReal Estate Term Facility, Tranche C of the Real Estate Term Facility isexchangeable in whole or in part into our indebtedness when permitted under theexisting debt agreements.

 

** Registration Rights Agreement**

** **

On August 31, 2001, we entered into a registrationrights agreement with Oak Hill (the “Registration Rights Agreement”).  Under the Registration Rights Agreement, wegranted Oak Hill the following registration rights with respect to the JuniorSubordinated Notes, the Series D Preferred Stock issuable upon conversion ofthe Junior Subordinated Notes, the Series C-1 Preferred Stock, the Common Stockissuable upon conversion of the Series C-1 

 

61

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Preferred Stock, the Series C-2 Preferred Stock, the Common Stock andany other series or class of our capital stock held from time to time by OakHill (collectively, the “Registrable Securities”):

 

•                  Theholders of Registrable Securities are entitled to make six requests forregistration of the Registrable Securities, so long as each such request ismade by the holders of at least 10% of the class of Registrable Securities tobe registered pursuant to the request, or a lesser percentage if theanticipated aggregate offering price would exceed $25.0 million;

 

•                  Theholders of Registrable Securities are entitled to incidental registrationrights;

 

•                  Theholders of Registrable Securities may use up to four of their requests forregistration to request that we file a shelf registration statement, whichshall be filed within 30 days of the request and maintained effective until theearlier of the date on which all Registrable Securities covered by the shelf registrationstatement have been sold or the second anniversary of such effective date.

 

•                  Ifso requested by the holders of such rights, we must include securities coveredby the registration rights previously granted to ING (U.S.) Capital Corporationand/ or Madeleine L.L.C.  in anyregistration of the Registrable Securities pursuant to the Registration RightsAgreement.

 

•                  Wemay suspend the use of an effective registration statement in certaincircumstances, for a period not to exceed 120 days every consecutivetwelve-month period.

 

**StockholdersAgreement**

 

We, Oak Hill and Mr. Otten entered into a StockholdersAgreement, dated as of August 6, 1999, amended on July 31, 2000 (as amended,the “Stockholders Agreement”), pursuant to which each of Mr. Otten and Oak Hillagreed to vote their capital stock of our company so as to cause there to be:

 

•                  Sixdirectors of our company nominated by Oak Hill, so long as Oak Hill owns 80% ofthe shares of Common Stock it owned as of July 30, 2000 on a fully dilutedbasis, such number of directors decreasing ratably with the percentage of OakHill’s ownership of the Common Stock on a fully diluted basis compared to suchownership as of July 30, 2000; and

 

•                  Twodirectors of our company nominated by Mr. Otten, so long as Mr. Otten owns 15%of the shares of Common Stock outstanding on a fully diluted basis, and onedirector so nominated, so long as Mr. Otten owns at least 5% of the shares ofCommon Stock outstanding on a fully diluted basis.

 

As of the date hereof, Oak Hill owns 80% of the sharesof Common Stock it owned as of July 30, 2000, on a fully diluted basis,therefore, two of the four members of the Board of Directors to be elected byMr. Otten, as sole owner of the Class A Common Stock pursuant to the terms ofour certificate of incorporation will be chosen by Oak Hill and elected by Mr.Otten.

 

The Stockholders Agreement provides that, so long asOak Hill owns at least 20% of the outstanding shares of Common Stock on a fullydiluted basis, the affirmative vote of at least one Oak Hill director isrequired prior to the approval of (i) our annual budget, (ii) significantexecutive personnel decisions, (iii) material actions likely to have an impactof 5% or more on our consolidated revenues or earnings, amendments to ourarticles of incorporation or bylaws, (iv) any liquidation, reorganization orbusiness combination of our company, (v) the initiation of certain materiallitigation, and (vi) any material financing of our company.

 

Under the Stockholders Agreement, Oak Hill and Mr.Otten have agreed not to dispose of their securities of our company if, (i) asa result of such transfer, the transferee would own more than 10% of theoutstanding shares of our Common Stock (on a fully diluted basis), unless suchtransfer is approved by the Board of Directors (x) including a majority of theCommon Directors, as defined,, or (y) our public stockholders are given theopportunity to participate in such transfer on equivalent terms, (ii) thetransferee is a competitor of our company or any of its 

 

62

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subsidiaries, unless such transfer is approved by the Board ofDirectors, or (iii) such transfer would materially disadvantage our business orany of our subsidiaries.  TheStockholders Agreement provides for additional customary transfer restrictionsapplicable to each of Mr. Otten and Oak Hill as well as standstill provisionsapplicable to Oak Hill.

 

The Stockholders Agreement provides that, upon ourissuance of shares of Common Stock or securities convertible into Common Stock,Mr. Otten and Oak Hill will have the right to purchase at the same price and onthe same terms, the number of shares of Common Stock or securities convertibleinto Common Stock necessary for each of them to maintain individually the samelevel of beneficial ownership of our Common Stock on a fully diluted basis asit owned immediately prior to the issuance. This anti-dilution provision is subject to customary exceptions.

 

**Transactionswith Mr. Otten**

 

On March 28, 2001, Mr. Otten resigned as our Chairmanand Chief Executive Officer.  Mr. Ottenis still a major shareholder in our company and is a member of our Board ofDirectors.  As part of his separationagreement, we will continue to pay Mr. Otten and his executive assistant theirsalary and medical benefits for two years. In addition, we have granted Mr. Otten the use of our office space forup to two years and we also transferred ownership of one of our vehicles to Mr.Otten at no charge.

 

**Transactionswith Mr. Wachter**

 

Mr. Wachter is the founder and Chief Executive Officerof Main Street Advisors.  Main StreetAdvisors, through Mr. Wachter, acted as one of our investment bankers inconnection with the marketing of the Steamboat ski resort for sale and alsoacted as our investment banker in connection with the sale of the Heavenly skiresort.  Main Street Advisors isentitled to a percentage-based fee in the event of the sale of the Steamboatski resort or any other of our significant assets, other than the Sugarbushresort and certain undeveloped real estate properties.  During fiscal year 2002, in conjunction withthe sale of the Heavenly ski resort, Main Street Advisors was paid apercentage-based fee of $1,066,221.

 

63

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**PART IV**

 

**Item 14**

**Exhibits****, FinancialStatement Schedules and Reports on Form 8-K**

 
| (a) Documents filed as part of this report: |
|---------------------------------------------|
|                                        |
| 1.                                          | Index to financial statements, financial statement  schedules,  and supplementary data, filed as part of this report: |
|                                        |   | **Page** |
|                                        | Independent Auditors’  Report | F-1 |
|                                        |   |
|                                        | Consolidated Balance Sheets | F-2 |
|                                        |   |
|                                        | Consolidated  Statements of Operations | F-3 |
|                                        |   |
|                                        | Consolidated  Statements of Shareholders’ Equity (Deficit) | F-4 |
|                                        |   |
|                                        | Consolidated  Statements of Cash Flows | F-5 |
|                                        |   |
|                                        | Notes to  Consolidated Financial Statements | F-6 |
|                                        |   |
| 2.                                          | Financial Statement Schedules:  All schedules are omitted because they are  not applicable or the required information is shown in the consolidated  financial statements or notes thereto. |
|                                        |   |
| 3.                                          | Exhibits filed as part of this report: |

 
| **Exhibit  No.** |   | **Description**                                                                                                                                                                                                                                             |
|------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |   |                                                                                                                                                                                                                                                        |
| 3.1              |   | Certificate of Incorporation of American Skiing  Company (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-K  for the report date of October 22, 1999).                                                                               |
|             |   |                                                                                                                                                                                                                                                        |
| 3.2              |   | Certificate of Designation of 12% Series C-1  Convertible Participating Preferred Stock of the Company (incorporated by reference  to Exhibit 3.2 to the Company’s Form 8-K for the report date of September 4,  2001).                                |
|             |   |                                                                                                                                                                                                                                                        |
| 3.3              |   | Certificate of Designation of 15% Series C-2  Preferred Stock of the Company (incorporated by reference to Exhibit 3.3 to  the Company’s Form 8-K for the report date of September 4, 2001).                                                           |
|             |   |                                                                                                                                                                                                                                                        |
| 3.4              |   | Certificate of Designation of Series D Participating  Preferred Stock of the Company (incorporated by reference to Exhibit 3.4 to  the Company’s Form 8-K for the report date September 4, 2001).                                                      |
|             |   |                                                                                                                                                                                                                                                        |
| 3.5              |   | Amended and Restated Bylaws of the Company Adopted  July 10, 2001 (incorporated by reference to Exhibit 3.1 to the Company’s Form  8-K for the report date of September 4, 2001).                                                                      |
|             |   |                                                                                                                                                                                                                                                        |
| 3.6              |   | Articles of Merger ASC East, Inc.  and ASC West, Inc.  into American Skiing Company dated October  5, 1999 with Plan of Merger (incorporated by reference to Exhibit 4.3 to the  Company’s Form 8-K for the report date of October 6, 1999). |
|             |   |                                                                                                                                                                                                                                                        |
| 3.7              |   | Articles of Merger American Skiing Company into ASC  Delaware, Inc.  dated October 12, 1999  with Agreement and Plan of Merger (incorporated by reference to Exhibit 4.3  to the Company’s Form 8-K for the report date of October 6, 1999).      |

 

64

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| 4.1.   |   | Specimen Certificate for shares of Common Stock, $.01  par value, of the Company (incorporated by reference to Exhibit 4.1 to the  Company’s Form 10-K for the report date of October 22, 1999).                                                                                                                                       |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                        |
| 4.2    |   | Indenture relating to 10 1/2% Repriced Convertible  Subordinated Debentures (incorporated by reference to Exhibit 4.3 to the  Company’s Registration Statement on Form S-1, Registration No. 333-33483).                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                        |
| 4.3    |   | Indenture relating to 11.3025% Convertible  Subordinated Notes Due 2007 dated as of August 31, 2001 (incorporated by  reference to Exhibit 4.1 to the Company’s Form 8-K for the report date of  September 4, 2001).                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                        |
| 4.4    |   | Specimen Certificate for Class A Common Stock, $.01  par value, of the Company (incorporated by reference to Exhibit 4.4 to the  Company’s Form 10-K for the report date of November 14, 2001).                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                        |
| 4.5    |   | Specimen Certificate for Series B Convertible  Participating Preferred Stock, $.01 par value, of the Company (incorporated  by reference to Exhibit 4.5 to the Company’s Form 10-K for the report date of  November 14, 2001).                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                        |
| 4.6    |   | Specimen Certificates for Series C-1 Preferred  Stock, $.01 par value, of the Company (incorporated by reference to  Exhibit 4.6 to the Company’s Form 10-K for the report date of November  14, 2001).                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                        |
| 4.7    |   | Specimen Certificates for Series C-2 Preferred  Stock, $.01 par value, of the Company (incorporated by reference to  Exhibit 4.7 to the Company’s Form 10-K for the report date of November  14, 2001).                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                        |
| 4.8    |   | Specimen Certificates for Series D Preferred Stock,  $.01 par value, of the Company (incorporated by reference to Exhibit 4.8  to the Company’s Form 10-K for the report date of November 14, 2001).                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                        |
| 4.9    |   | Indenture dated as of June 28, 1996 among ASC East,  certain of its subsidiaries and United States Trust Company of New York,  relating to Series A and Series B 12% Senior Subordinated Notes Due 2006  (incorporated by reference to Exhibit 4.1 to ASC East’s Registration  Statement on Form S-4, Registration No. 333-9763). |
|   |   |                                                                                                                                                                                                                                                                                                                                        |
| 4.10   |   | First Supplemental Indenture dated as of November  12, 1997 among ASC East, Inc., its subsidiaries party thereto, and United  States Trust Company of New York as Trustee (incorporated by reference to  Exhibit 10.3 to the Company’s quarterly report on Form 10-Q for the quarter  ended October 25, 1998).                         |
|   |   |                                                                                                                                                                                                                                                                                                                                        |
| 4.11   |   | Second Supplemental Indenture dated as of September  4, 1998 among ASC East, Inc., its subsidiaries party thereto, and United  States Trust Company of New York as Trustee (incorporated by reference to  Exhibit 4.3 to the Company’s Form 8-K for the Report date of October 6,  1999).                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                        |
| 4.12   |   | Third Supplemental Indenture dated as of August 6,  1999 among ASC East, Inc., its subsidiaries party thereto, and United States  Trust Company of New York as Trustee (incorporated by reference to Exhibit  4.3 to the Company’s Form 8-K for the report date of October 6, 1999).                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                        |
| 4.13   |   | Fourth Supplemental Indenture dated as of October 6,  1999 among ASC East, Inc., its subsidiaries party thereto, and United States  Trust Company of New York as Trustee (incorporated by reference to Exhibit  4.3 to the Company’s Form 8-K for the report date of October 6, 1999).                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                        |
| 4.14   |   | Fifth Supplemental Indenture dated as of April 19,  2002 among the Company, its subsidiaries party thereto, and The Bank of New  York as Trustee (incorporated by reference to Exhibit 99.2 to the Company’s  Form 8-K for the report date of April 23, 2002).                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                        |
| 4.15   |   | Acknowledgement of The Bank of New York as Trustee  dated May 9, 2002 releasing Heavenly Valley, Limited Partnership from its  guaranty under the Indenture dated as of June 28, 1996.                                                                                                                                                      |

 

65

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| 4.16   |   | Amended, Restated and Consolidated Credit Agreement  dated as October 12, 1999, among the Company, certain Subsidiaries as  Borrowers, the Lenders party thereto, and Fleet National Bank as Agent for  the Lenders (incorporated by reference to Exhibit 10.11 to the Company’s Form  10-K for the report date of October 22, 1999).                                                                                                                                                             |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.17   |   | First Amendment to Amended Restated and Consolidated  Credit Agreement among Registrant, Fleet National Bank, as Agent, and certain  other lenders party thereto, dated March 6, 2000 (incorporated by reference  to Exhibit 2 to the Company’s Form 10-Q for the report date March 14, 2000).                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.18   |   | Second Amendment to the Amended, Restated and  Consolidated Credit Agreement, dated as of April 29, 2001 with respect to the  Amended, Restated and Consolidated Credit Agreement dated as of October 12,  1999 by and among American Skiing Company and the other borrowers party  thereto, the lenders party thereto and Fleet National Bank, N.A.  as agent (incorporated by reference to  Exhibit 99.3 to the Company’s Form 8-K for the Report date July 16, 2001).                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.19   |   | Amendment to Second Amendment to Amended, Restated  and Consolidated Credit Agreement, dated as of October 15, 2001 with respect  to the Amended, Restated and Consolidated Credit Agreement dated as of  October 12, 1999 by and among American Skiing Company and the other borrowers  party thereto, the lenders party thereto and Fleet National Bank, N.A.  as agent (incorporated by reference to  Exhibit 10.9 to the Company’s Form 10-K for the report date of November 14,  2001). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.20   |   | Third Amendment to the Amended, Restated and  Consolidated Credit Agreement dated as of September 10, 2001 with respect to  the Amended, Restated and Consolidated Credit Agreement dated as of October  12, 1999 by and among American Skiing Company and the other borrowers party  thereto, the lenders party thereto and Fleet National Bank, N.A.  as agent (incorporated by reference to  Exhibit 10.10 to the Company’s Form 10-K for the report date of November 14,  2001).         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.21   |   | Fourth Amendment to the Amended, Restated and  Consolidated Credit Agreement dated as of October 29, 2001 with respect to  the Amended, Restated and Consolidated Credit Agreement dated as of October  12, 1999 by and among American Skiing Company and the other borrowers party  thereto, the lenders party thereto and Fleet National Bank, N.A.  as agent (incorporated by reference to  Exhibit 10.2 to the Company’s Form 10-Q for the report date of December 12,  2001).           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.22   |   | Fifth Amendment to the Amended, Restated and  Consolidated Credit Agreement dated as of January 14, 2002 with respect to  the Amended, Restated and Consolidated Credit Agreement dated as of October  12, 1999 by and among American Skiing Company and the other borrowers party  thereto, the lenders party thereto and Fleet National Bank, N.A.  as agent (incorporated by reference to  Exhibit 10.2 to the Company’s Form 10-Q for the report date of March 18,  2002).               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.23   |   | Sixth Amendment to the Amended, Restated and  Consolidated Credit Agreement dated as of April 5, 2002 with respect to the  Amended, Restated and Consolidated Credit Agreement dated as of October 12,  1999 by and among American Skiing Company and the other borrowers party  thereto, the lenders party thereto and Fleet National Bank, N.A.  as agent.                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.24   |   | Seventh Amendment to the Amended, Restated and  Consolidated Credit Agreement dated as of April 28, 2002 with respect to the  Amended, Restated and Consolidated Credit Agreement dated as of October 12,  1999 by and among American Skiing Company and the other borrowers party  thereto, the lenders party thereto and Fleet National Bank, N.A.  as agent (incorporated by reference to  Exhibit 10.6 to the Company’s Form 10-Q for the report date of June 12, 2002).                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.25   |   | Eighth Amendment to the Amended, Restated and  Consolidated Credit Agreement dated as of October 22, 2002 with respect to  the Amended, Restated and Consolidated Credit Agreement dated as of October  12, 1999 by and among American Skiing Company and the other borrowers party  thereto, the lenders party thereto and Fleet National Bank, N.A.  as agent.                                                                                                                                  |

 

66

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| 4.26   |   | Ninth Amendment to the Amended, Restated and  Consolidated Credit Agreement dated as of January 7, 2003 with respect to the  Amended, Restated and Consolidated Credit Agreement dated as of October 12,  1999 by and among American Skiing Company and the other borrowers party  thereto, the lenders party thereto and Fleet National Bank, N.A.  as agent.          |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 4.27   |   | Second Amended and Restated Credit Agreement dated  July 31, 2000 among American Skiing Company Resort Properties, Inc., Fleet  National Bank, as Agent, and the other Lenders party thereto (incorporated by  reference to Exhibit 10.1 to the Company’s Form 8-K for the report date  August 2, 2000).                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 4.28   |   | First Amendment to Second Amended and Restated  Credit Agreement among American Skiing Company Resort Properties, Inc.  and Fleet National Bank, as agent for the  Lenders dated August 20, 2001 (incorporated by reference to Exhibit 10.12 to  the Company’s Form 10-K for the report date November 14, 2001).                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 4.29   |   | Forbearance Agreement dated November 22, 2002, among  American Skiing Company Resort Properties, Inc., Fleet National Bank, as  Agent, and the other lenders party thereto (incorporated by reference to  Exhibit 99.2 to the Company’s Form 8-K for the report date November 27,  2002).                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 4.30   |   | Loan and Security Agreement among Grand Summit  Resort Properties, Inc., Textron Financial Corporation and certain lenders  dated as of September 1, 1998 (incorporated by reference to Exhibit 10.1 to  the Company’s quarterly report on Form 10-Q for the quarter ended October 25,  1998).                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 4.31   |   | First Amendment Agreement Re:  Loan and Security Agreement Among Grand  Summit Resort Properties, Inc., as Borrower and Textron Financial  Corporation, as Administrative Agent dated as of April 5, 1999 (incorporated  by reference to Exhibit 10.1 to the Company’s quarterly report on Form 10-Q  for the quarter ended April 25, 1999).                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 4.32   |   | Accession, Loan Sale and Second Amendment Agreement  Re:  Loan and Security Agreement among  Grand Summit Resort Properties, Inc.   and Textron Financial Corp.   and The Lenders Listed therein dated June 24, 1999 (incorporated by  reference to Exhibit 10.22 to the Company’s annual report on Form 10-K for  the fiscal year ended July 25, 1999). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 4.33   |   | Third Amendment Agreement Re:  Loan and Security Agreement Among Grand  Summit Resort Properties, Inc., as Borrower and Textron Financial Corporation,  as Administrative Agent dated as of January 2000 (incorporated by reference  to Exhibit 10.16 to the Company’s Form 10-K for the report date November 14,  2002).                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 4.34   |   | Fourth Amendment Agreement Re:  Loan and Security Agreement Among Grand  Summit Resort Properties, Inc., as Borrower and Textron Financial  Corporation, as Administrative Agent dated as of September 15, 2000  (incorporated by reference to Exhibit 10.17 to the Company’s Form 10-K for  the report date November 14, 2002).                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 4.35   |   | Fifth Amendment Agreement Re:  Loan and Security Agreement Among Grand  Summit Resort Properties, Inc., as Borrower and Textron Financial  Corporation, as Administrative Agent dated as of August 20, 2001  (incorporated by reference to Exhibit 10.18 to the Company’s Form 10-K for  the report date November 14, 2002).                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 4.36   |   | Sixth Amendment Agreement Re:  Loan and Security Agreement Among Grand  Summit Resort Properties, Inc., as Borrower and Textron Financial  Corporation, as Administrative Agent dated as of August 29, 2002  (incorporated by reference to Exhibit 99.2 to the Company’s Form 8-K for the  report date October 11, 2002).                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 4.37   |   | Statement of Intention and Special Additional  Financing Agreement dated July 25, 2000 between Grand Summit Resort  Properties, Inc.  and Textron  Financial Corporation.  (incorporated  by reference from the Registrant’s Form 10-K for the fiscal year ended July  30, 2000).                                                                             |

 

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| 4.38   |   | First Amendment Agreement to the Statement of Intention  and Special Additional Financing Agreement between Grand Summit Resort  Properties, Inc.  and Textron  Financial Corporation dated August 20, 2001 (incorporated by reference to  Exhibit 10.20 to the Company’s Form 10-K for the report date November 14, 2002).                                                            |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.39   |   | Second Amendment Agreement to the Statement of  Intention and Special Additional Financing Agreement between Grand Summit  Resort Properties, Inc.  and Textron  Financial Corporation dated as of August 29, 2002 (incorporated by reference  to Exhibit 99.2 to the Company’s Form 8-K for the report date October 11,  2002).                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.40   |   | $91,500,000 Credit Agreement dated as of February  14, 2003 among American Skiing Company, certain of its subsidiaries as  borrowers, the lenders from time to time party thereto, and General Electric  Capital Corporation, as Agent (incorporated by reference to Exhibit 4.1 to  the Company's Form 8-K for the report date of February 14, 2003).                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.1   |   | Registration Rights Agreement dated November 10,  1997 by and between American Skiing Company and ING (U.S.) Capital  Corporation (incorporated by reference to Exhibit 3 to the Company’s  quarterly report on Form 10-Q for the quarter ended October 26, 1997).                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.2   |   | Preferred Stock Subscription Agreement dated July 9,  1999 between the Registrant and the Purchasers listed on Annex A thereto,  including a form of Stockholders Agreement, Voting Agreement and Certificate  of Designation relating to the preferred stock to be issued (incorporated by  reference to Exhibit 2.1 to the Company’s Form 8-K for the report date of  July 9, 1999). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.3   |   | Stockholders Agreement dated as of August 6, 1999  among Oak Hill Capital Partners, L.P., and the other entities identified in  Annex A attached thereto, Leslie B.   Otten and the Registrant (incorporated by reference to Exhibit 10.2 to  the Company’s Form 10-K for the report date of October 22, 1999).                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.4   |   | Amendment to Stockholders Agreement dated July 31,  2000 among the Registrant, Oak Hill Capital Partners, L.P.  and Leslie B.  Otten (incorporated by reference to Exhibit 10.2 to the  Company’s Form 8-K for the report date of July 31, 2000).                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.5   |   | Securities Purchase Agreement dated July 31, 2000  among the Registrant, American Skiing Company Resort Properties, Inc.  and Oak Hill Capital Partners, L.P.  (incorporated by reference to Exhibit 2.1  to the Company’s Form 8-K for the report date of July 31, 2000).                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.6   |   | Securities Purchase Agreement dated as of July 15,  2001 among American Skiing Company, a Delaware corporation, Oak Hill Capital  Partners, L.P., a Delaware limited partnership, and other entities identified  in Annex A thereto (incorporated by reference to Exhibit 99.2 to the  Company’s Form 8-K for the report date of July 16, 2001).                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.7   |   | Amendment No. 1 to Securities Purchase Agreement  among American Skiing Company, a Delaware corporation, Oak Hill Capital  Partners, L.P., a Delaware Limited partnership dated August 22, 2001  (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K for the  report date of August 31, 2001).                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.8   |   | Stock Purchase Agreement dated as of August 1, 1997,  among Kamori International Corporation, ASC West and the Company  (incorporated by reference to Exhibit 2.1 of the Company’s Registration  Statement on Form S-1, Registration No. 333-33483).                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.9   |   | Purchase Agreement dated as of April 13, 1994, among  Mt.  Attitash Lift Corporation,  certain of its shareholders and L.B.O.   Holding, Inc.  (incorporated by  reference to Exhibit 10.35 to ASC East’s Registration Statement on Form S-4,  Registration No. 333-9763).                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.10  |   | Stock Purchase Agreement dated August 17, 1994,  between Sugarloaf Mountain Corporation and S-K-I Ltd.  (incorporated by reference to Exhibit  10.36 to ASC East’s Registration Statement on Form S-4, Registration No. 333-9763).                                                                                                                                                     |

 

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| 10.11  |   | Purchase and Sale Agreement dated as of August 30,  1996, among Waterville Valley Ski Area, Ltd., Cranmore, Inc., ASC East and  Booth Creek Ski Acquisition Corp.   (incorporated by reference to Exhibit 10.61 to ASC East’s Registration  Statement on Form S-4, Registration No. 333-9763).                                                                                                                             |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.12  |   | Purchase and Sale Agreement dated as of October 16,  1996, among Sherburne Pass Mountain Properties, LLC, Pico Mountain Sports  Center, LLC, Pico Mountain Operating Company, LLC, Harold L.  and Edith Herbert, and Pico Ski Area  Management Company (incorporated by reference to Exhibit 10.62 to ASC East’s  Registration Statement on Form S-4, Registration No. 333-9763).                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.13  |   | Purchase and Sale Agreement dated July 3, 1997,  between Wolf Mountain Resorts, L.C., and ASC Utah (incorporated by reference  to Exhibit 10.74 to the Company’s Registration Statement on Form S-1,  Registration No. 333-33483).                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.14  |   | Letter of Agreement dated August 27, 1996, among SKI  Ltd and certain shareholders of Sugarloaf Mountain Corporation (incorporated  by reference to Exhibit 10.63 to ASC East’s Registration Statement on Form  S-4, Registration No. 333-9763).                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.15  |   | ISDA Master Agreement between BankBoston, N.A.  and the Company dated as of May 12, 1998  (incorporated by reference to Exhibit 10.38 to the Company’s annual report on  Form 10-K for the year ended July 26, 1998).                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.16  |   | Credit Support Annex to ISDA Master Agreement  between BankBoston, N.A.  and the  Company dated as of May 12, 1998 (incorporated by reference to Exhibit 10.39  to the Company’s annual report on Form 10-K for the year ended July 26,  1998).                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.17  |   | Form of Master Lease Agreement dated as of various  dates among BancBoston Leasing, Inc.   as Lessor and Heavenly Valley Limited Partnership, Killington, Ltd.,  Mount Snow, Ltd., ASC Leasing, Inc., Steamboat Ski & Resort Corporation,  and Sunday River Skiway Corp.  as  Lessees (incorporated by reference to Exhibit 10.41 to the Company’s annual  report on Form 10-K for the year ended July 26, 1998). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.18  |   | Unlimited Guaranty by the Company in favor of  BancBoston Leasing, Inc., dated as of July 20, 1998 (incorporated by  reference to Exhibit 10.40 to the Company’s annual report on Form 10-K for  the year ended July 26, 1998).                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.19  |   | $2,750,000 Subordinated Promissory Note dated  November 1996 by Booth Creek Ski Acquisition Corp., Waterville Valley Ski  Resort, Inc.  and Mount Cranmore Ski  Resort, Inc., to ASC East (incorporated by reference to Exhibit 10.72 to the  Company’s Registration Statement on Form S-1, Registration No. 333-33483).                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.20  |   | Assignment dated May 30, 1997, between Wolf Mountain  Resorts, L.C.  and ASC Utah  (incorporated by reference to Exhibit 10.7 to the Company’s Registration  Statement on Form S-1 Registration No. 333-33483).                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.21  |   | Indenture dated October 24, 1990, between Killington  Ltd.  and The Howard Bank, as trustee  (representative of indentures with respect to similar indebtedness  aggregating approximately $2,995,000 in original principal amount and  maturing at various times from 2015 to 2016) (incorporated by reference to  Exhibit 10.19 to ASC East’s Registration Statement on Form S-4, Registration  No. 333-9763).           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.22  |   | Lease dated October 15, 1980, among H.  Donald Penley, Joseph Penley, Albert  Penley and Sunday River Skiway Corporation (incorporated by reference to  Exhibit 10.40 to ASC East’s Registration Statement on Form S-4, Registration  No. 333-9763).                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.23  |   | Lease/Option dated July 19, 1984, between John Blake  and L.B.O.  Holding, Inc.  (incorporated by reference to Exhibit  10.41 to ASC East’s Registration Statement on Form S-4, Registration No.  333-9763).                                                                                                                                                                                                          |

 

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| 10.24  |   | Lease dated November 10, 1960, between the State of  Vermont and Sherburne Corporation (predecessor to Killington, Ltd.)  (incorporated by reference to Exhibit 10.44 to ASC East’s Registration  Statement on Form S-4, Registration No. 333-9763).                                                                                                 |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.25  |   | Lease Agreement dated as of June 21, 1994, between  the Town of Wilmington, Vermont and Mount Snow, Ltd.  (incorporated by reference to Exhibit  10.46 to ASC East’s Registration Statement on Form S-4, Registration No.  333-9763).                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.26  |   | Lease Agreement dated April 24, 1995, between  Sargent, Inc.  and Mount Snow,  Ltd.  (incorporated by reference to  Exhibit 10.47 to ASC East’s Registration Statement on Form S-4, Registration  No. 333-9763).                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.27  |   | Amended and Restated Lease Agreement between  Sugarloaf Mountain Corporation and the Inhabitants of the Town of  Carrabassett Valley, Maine, concerning the Sugarloaf Golf Course dated  November 16, 2000 (incorporated by reference to Exhibit 10.35 to American  Skiing Company’s Registration Statement on Form S-4, filed on January 9,  2001). |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.28  |   | Ground Lease Agreement dated July 3, 1997, between  ASC Utah and Wolf Mountain Resorts, L.C.   (incorporated by reference to Exhibit 10.64 to the Company’s  Registration Statement on Form S-1, Registration No. 333-33483).                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.29  |   | Ground Lease Guaranty dated July 3, 1997, from the  Company to Wolf Mountain Resorts, L.C.   (incorporated by reference to Exhibit 10.65 to the Company’s  Registration Statement on Form S-1, Registration No. 333-33483).                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.30  |   | Stock Option Plan (incorporated by reference to  Exhibit 10.89 to the Company’s Registration Statement on Form S-1,  Registration No. 333-33483).                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.31  |   | Form of Non-Qualified Stock Option Agreement  (Five-Year Vesting Schedule) (incorporated by reference to Exhibit 10.90 to  the Company’s Registration Statement on Form S-1, Registration No.  333-33483).                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.32  |   | Form of Non-Qualified Stock Option Agreement  (Fully-Vested) (incorporated by reference to Exhibit 10.91 to the Company’s  Registration Statement on Form S-1, Registration No. 333-33483).                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.33  |   | Form of Incentive Stock Option Agreement  (incorporated by reference to Exhibit 10.92 to the Company’s Registration  Statement on Form S-1, Registration No. 333-33483).                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.34  |   | Executive Employment Agreement between the  Registrant and Mark J.  Miller dated  as of January 15, 2002.                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.35  |   | Employment Agreement between the Registrant and  William J.  Fair dated May 17, 2000  (incorporated by reference to Exhibit 10.46 to the Company’s annual report  for Fiscal Year ended July 30, 2000).                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.36  |   | Executive Employment Agreement between the  Registrant and Foster A. Stewart, Jr. dated as of July 31, 2001.                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.37  |   | Executive Employment Agreement between the  Registrant and Helen E. Wallace dated as of November 7, 2002.                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.38  |   | Employment Letter between the Registrant and James  Lacey dated July 24, 2002.                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.39  |   | The Canyons Resort Village Management Agreement  dated as of November 15, 1999 (incorporated by reference to Exhibit 2 to the  Company’s Form 10-Q for the quarter ended October 24, 1999).                                                                                                                                                          |

 

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| 10.40  |   | Amended and Restated Development Agreement for The  Canyons Specially Planned Area Snyderville Basin, Summit County, Utah dated  as of November 15, 1999 (incorporated by reference to Exhibit 3 to the  Company’s Form 10-Q for the quarter ended October 24, 1999). |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                       |
| 10.41  |   | American Skiing Company Phantom Equity Plan dated as  of December 1, 2001.                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                       |
| 10.42  |   | Form of Phantom Equity Plan Grant Agreement (Five  Year Vesting Schedule).                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                       |
| 10.43  |   | Form of Phantom Equity Plan Grant Agreement (Four  Year Vesting Schedule).                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                       |
| 22.1   |   | Subsidiaries of the Company.                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                       |
| 23.2   |   | Consent of KPMG LLP                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                       |
| 99.1   |   | Certification of Chief Executive Officer                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                       |
| 99.2   |   | Certification of Chief Financial Officer                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                       |
| (b)    |   | Reports filed on Form 8-K.                                                                                                                                                                                                                                                 |

 

The Company fileda report on Form 8-K on May 22, 2002, reporting that as of May 20, 2002, theCompany’s real estate development subsidiary, American Skiing Company ResortProperties, Inc., was in default under its Real Estate Term Facility with FleetNational Bank and certain other lenders. The Company further reported that as of May 20, 2002, its hoteldevelopment subsidiary, Grand Summit Resort Properties, Inc.  was in default under its Construction LoanFacility with Textron Financial Corporation and certain other lenders.

 

The Company fileda report on Form 8-K on May 24, 2002, reporting that on May 9, 2002, itcompleted the sale of its Heavenly resort in South Lake Tahoe, California toVail Resorts, Inc.  Total consideration,subject to a final working capital and EBITDA adjustment, was $104.9 million,including all liabilities assumed in the transaction.  Vail Resorts, Inc., through two subsidiaries, acquired all thepartnership interest in Heavenly Valley Limited Partnership, which owns all ofthe assets related to the operations of the resort, including two undevelopedreal estate parcels.

 

The Company fileda report on Form 8-K on July 2, 2002, reporting that it had dismissed itsindependent auditors, Arthur Andersen LLP, and appointed KPMG LLP as its newindependent auditors, effective immediately.

 

The Company fileda report on Form 8-K on October 11, 2002, reporting that it had signed anagreement with Textron Financial Corporation to resolve loan defaults under itsConstruction Loan Facility.

 

The Company fileda report on Form 8-K on November 27, 2002, reporting that it had entered intoan agreement with Fleet National Bank and the other lenders under its RealEstate Term Facility for a 30-day forbearance from the exercise of lenders’remedies.

 

The Companyfiled a report on Form 8-K on February 21, 2003, reporting that it hadrefinanced its existing Resort Senior Credit Facility with a new facility ledby GE Capital, with additional financing provided by CapitalSource.

 

71

----

 

**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, as amended, the registrant has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.

 
|                       | American Skiing Company               |
|----------------------------|---------------------------------------|
| Date:  March  7, 2003 |                                  |
|                       |                                  |
|                       | By:                                   | /s/ William J. Fair |   |
|                       | William J. Fair                       |
|                       | President and Chief Executive Officer |
|                       | (Principal Executive Officer)         |

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of the registrant and in the capacities indicated this 7thday of March, 2003.

 
|   | By:                                   | /s/ William J. Fair |   |
|--------|---------------------------------------|---------------------|--------|
|   | William J. Fair                       |
|   | President and Chief Executive Officer |
|   | (Principal Executive Officer)         |

 

 
|   | By:                                            | /s/ Mark J. Miller    |   |
|--------|------------------------------------------------|-----------------------|--------|
|   | Mark J. Miller                                 |
|   | Senior Vice President, Chief Financial Officer |
|   | (Principal Financial Officer)                  |
|   | (Principal Accounting Officer)                 |
|   |                                           |
|   |                                           |
|   | By:                                            | /s/ Leslie B. Otten   |   |
|   | Leslie B. Otten, Director                      |
|   |                                           |
|   | By:                                            | /s/ Gordon M. Gillies |   |
|   | Gordon M. Gillies, Director                    |
|   |                                           |
|   | By:                                            | /s/ David Hawkes      |   |
|   | David Hawkes, Director                         |
|        |                                                |                       |        |  |  |  |

 

72

----

 
|   | By:                             | /s/ Bradford E. Bernstein |   |
|--------|---------------------------------|---------------------------|--------|
|   | Bradford E. Bernstein, Director |
|   |                            |
|   | By:                             | /s/ Steven Gruber         |   |
|   | Steven Gruber, Director         |
|   |                            |
|   | By:                             | /s/ J. Taylor Crandall    |   |
|   | J. Taylor Crandall, Director    |
|   |                            |
|   | By:                             | /s/ William Janes         |   |
|   | William Janes, Director         |
|   |                            |
|   | By:                             |                      |   |
|   | Paul Wachter, Director          |
|   |                            |
|   | By:                             | /s/ Alexandra Hess        |   |
|   | Alexandra Hess, Director        |
|   |                            |
|   | By:                             | /s/ Robert Branson        |   |
|   | Robert Branson, Director        |
|        |                                 |                           |        |  |  |  |  |  |

 

73

----

 

**CERTIFICATIONS**

 

I, William J. Fair, certify that:

 

1.               I have reviewedthis annual report on Form 10-K of American Skiing Company;

 

2.               Based on myknowledge, this annual report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this annual report; and

 

3.               Based on myknowledge, the financial statements, and other financial information includedin this annual report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this annual report.

 

Date:  March 7, 2003

 
|   | By:                                   | /s/ William J. Fair |   |
|--------|---------------------------------------|---------------------|--------|
|   | William J. Fair                       |
|   | President and Chief Executive Officer |
|   | (Principal Executive Officer)         |

 

 

I, Mark J. Miller, certify that:

 

1.               I have reviewedthis annual report on Form 10-K of American Skiing Company;

 

2.               Based on myknowledge, this annual report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this annual report; and

 

3.               Based on myknowledge, the financial statements, and other financial information includedin this annual report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this annual report.

 

Date:  March 7, 2003

 
|   | By:                                            | /s/ Mark J. Miller |   |
|--------|------------------------------------------------|--------------------|--------|
|   | Mark J. Miller                                 |
|   | Senior Vice President, Chief Financial Officer |
|   | (Principal Financial Officer)                  |

 

74

----

 

**Independent Auditors’ Report**

 

To the Board of Directors and Shareholders of

American Skiing Company:

 

We have audited the accompanying consolidated balancesheets of American Skiing Company and subsidiaries as of July 28, 2002 and July29, 2001 and the related consolidated statements of operations, shareholders’equity (deficit) and cash flows for each of the years in the three-year periodended July 28, 2002.  These consolidatedfinancial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these consolidated financial statements based on our audits.

 

We conducted our audits inaccordance with auditing standards generally accepted in the United States ofAmerica.  Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements.  An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.  We believe that our audits provide areasonable basis for our opinion.

 

In our opinion, the consolidatedfinancial statements referred to above present fairly, in all materialrespects, the consolidated financial position of American Skiing Company andsubsidiaries as of July 28, 2002 and July 29, 2001 and the results of theiroperations and their cash flows for each of the years in the three-year periodended July 28, 2002 in conformity with accounting principles generally acceptedin the United States of America.

 

As discussed in Note 3 to theconsolidated financial statements, the Company adopted Statement of FinancialAccounting Standards No. 142, “Goodwill and Other Intangible Assets”, in thefiscal year ended July 28, 2002 and as a result changed its method ofaccounting for goodwill and intangible assets.

 

**//KPMG LLP//**

 

Salt LakeCity, Utah

January 15,2003, except with respect to the sixth

and seventhparagraphs of Note 1, the fifth paragraph

of Note 8,the second paragraph of Note 9, the twelfth

paragraphof Note 18, and the third and fourth paragraphs

of Note 22,for which the date is February 14, 2003

 

 

F-1

----

 

American Skiing Company

Consolidated Balance Sheets

(in thousands, exceptshare and per share amounts)

 
|                                                                                                                                                                                                                                                                    |   | **July 29, 2001** |    | **July 28, 2002** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|---------|-------------------|--------|
| Assets                                                                                                                                                                                                                                                                  |   |              |    |              |   |
| Current assets                                                                                                                                                                                                                                                          |   |              |    |              |   |
| Cash and cash equivalents                                                                                                                                                                                                                                               |   | $                 | 11,592  |              | $      | 6,924 |   |
| Restricted cash                                                                                                                                                                                                                                                         |   | 1,372             |    | 2,925             |   |
| Accounts receivable, net of allowance for doubtful accounts of  approximately $428 and $1,000, respectively                                                                                                                                                             |   | 14,323            |    | 9,818             |   |
| Inventory                                                                                                                                                                                                                                                               |   | 4,451             |    | 4,057             |   |
| Prepaid expenses                                                                                                                                                                                                                                                        |   | 4,658             |    | 4,264             |   |
| Assets held for sale, net (Note 20)                                                                                                                                                                                                                                     |   | 8,934             |    | —            |   |
| Deferred income taxes                                                                                                                                                                                                                                                   |   | 2,137             |    | 6,167             |   |
| Current assets of discontinued operations (Note 20)                                                                                                                                                                                                                     |   | 4,528             |    | —            |   |
| Total current assets                                                                                                                                                                                                                                                    |   | 51,995            |    | 34,155            |   |
|                                                                                                                                                                                                                                                                    |   |              |    |              |   |
| Property and equipment, net                                                                                                                                                                                                                                             |   | 436,547           |    | 395,566           |   |
| Real estate developed for sale                                                                                                                                                                                                                                          |   | 134,236           |    | 50,878            |   |
| Goodwill, net                                                                                                                                                                                                                                                           |   | 18,658            |    | —            |   |
| Intangible assets, net                                                                                                                                                                                                                                                  |   | 19,679            |    | 9,540             |   |
| Deferred financing costs, net                                                                                                                                                                                                                                           |   | 16,714            |    | 8,561             |   |
| Other assets                                                                                                                                                                                                                                                            |   | 28,360            |    | 23,293            |   |
| Long-term assets of discontinued operations (Note 20)                                                                                                                                                                                                                   |   | 100,849           |    | —            |   |
|                                                                                                                                                                                                                                                                    |   | $                 | 807,038 |              | $      | 521,993 |   |
|                                                                                                                                                                                                                                                                    |   |              |    |              |   |
| Liabilities, Mandatorily Redeemable Preferred Stock and Shareholders’  Equity (Deficit)                                                                                                                                                                            |   |              |    |              |   |
| Current liabilities                                                                                                                                                                                                                                                     |   |              |    |              |   |
| Current portion of long-term debt (Note 5)                                                                                                                                                                                                                              |   | $                 | 74,964  |              | $      | 103,495 |   |
| Current portion of subordinated notes and debentures (Note 8)                                                                                                                                                                                                           |   | 549               |    | 1,074             |   |
| Accounts payable and other current liabilities                                                                                                                                                                                                                          |   | 66,128            |    | 52,182            |   |
| Deposits and deferred revenue                                                                                                                                                                                                                                           |   | 11,588            |    | 8,533             |   |
| Current liabilities of discontinued operations (Note 20)                                                                                                                                                                                                                |   | 5,632             |    | —            |   |
| Total current liabilities                                                                                                                                                                                                                                               |   | 158,861           |    | 165,284           |   |
|                                                                                                                                                                                                                                                                    |   |              |    |              |   |
| Long-term debt, excluding current portion (Note 5)                                                                                                                                                                                                                      |   | 212,175           |    | 76,855            |   |
| Subordinated notes and debentures, excluding current portion (Note 8)                                                                                                                                                                                                   |   | 126,564           |    | 139,617           |   |
| Other long-term liabilities                                                                                                                                                                                                                                             |   | 35,298            |    | 28,320            |   |
| Deferred income taxes                                                                                                                                                                                                                                                   |   | 2,137             |    | 6,167             |   |
| Long-term liabilities of discontinued operations (Note 20)                                                                                                                                                                                                              |   | 2,809             |    | —            |   |
| Total liabilities                                                                                                                                                                                                                                                       |   | 537,844           |    | 416,243           |   |
| Commitments and contingencies (Note 18)                                                                                                                                                                                                                                 |   |              |    |              |   |
|                                                                                                                                                                                                                                                                    |   |              |    |              |   |
| Mandatorily Redeemable Convertible 101⁄2% Series A Preferred Stock par value of $0.01 per share; 40,000 shares  authorized; 36,626 shares issued and outstanding, including cumulative dividends  in arrears (redemption value of $54,102 and $60,032, respectively) |   | 54,102            |    | 60,032            |   |
| Mandatorily Redeemable 81⁄2%  Series B Preferred Stock 150,000 shares authorized, issued and outstanding,  including cumulative dividends in arrears (redemption value of $178,016 and  $0, respectively)                                                            |   | 170,266           |    | —            |   |
| Mandatorily Redeemable Convertible 12% Series C-1 Preferred Stock par value of $0.01 per share; 40,000 shares  authorized, issued and outstanding, including cumulative dividends  (redemption value of $44,532)                                                        |   | —            |    | 43,884            |   |
| Mandatorily Redeemable 15%  nonvoting Series C-2 Preferred Stock par value of $0.01 per share; 139,453  shares authorized, issued and outstanding, including cumulative dividends  (redemption value of $159,404)                                                       |   | —            |    | 157,139           |   |
| Mandatorily Redeemable Series D Preferred Stock (Note 9)                                                                                                                                                                                                                |   | —            |    | —            |   |
|                                                                                                                                                                                                                                                                    |   |              |    |              |   |
| Shareholders’ Equity (Deficit)                                                                                                                                                                                                                                     |   |              |    |              |   |
| Common stock, Class A, par value $.01 per share; 15,000,000 shares  authorized; 14,760,530 issued and outstanding                                                                                                                                                       |   | 148               |    | 148               |   |
| Common stock, par value of $.01 per share; 100,000,000 shares  authorized; 15,957,593 and 16,963,611 issued and outstanding, respectively                                                                                                                               |   | 160               |    | 170               |   |
| Additional paid-in capital                                                                                                                                                                                                                                              |   | 270,853           |    | 277,422           |   |
| Accumulated deficit                                                                                                                                                                                                                                                     |   | (226,335          | )       | (433,045          | )      |
| Total shareholders’ equity (deficit)                                                                                                                                                                                                                               |   | 44,826            |    | (155,305          | )      |
| Total liabilities, mandatorily redeemable preferred stock and  shareholders’ equity (deficit)                                                                                                                                                                      |   | $                 | 807,038 |              | $      | 521,993 |   |

 

The accompanying notesare an integral part of these consolidated financial statements

 

F-2

----

 

American Skiing Company

Consolidated Statementsof Operations

(in thousands, except pershare amounts)

 
|                                                                                                                         |   | **Year Ended**    |    |
|------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|---------|
|                                                                                                                         |   | **July 30, 2000** |    | **July 29, 2001** |   | **July 28, 2002** |   |
| Net revenues:                                                                                                                |   |              |    |   |   |   |   |
| Resort                                                                                                                       |   | $                 | 240,226 |   | $ | 275,686 |   | $ | 243,842 |   |
| Real estate                                                                                                                  |   | 132,063           |    | 96,864 |   | 28,274 |   |
| Total net revenues                                                                                                           |   | 372,289           |    | 372,550 |   | 272,116 |   |
|                                                                                                                         |   |              |    |   |   |   |   |
| Operating expenses:                                                                                                          |   |              |    |   |   |   |   |
| Resort                                                                                                                       |   | 170,156           |    | 187,715 |   | 166,968 |   |
| Real estate                                                                                                                  |   | 123,837           |    | 93,422 |   | 30,091 |   |
| Marketing, general and administrative                                                                                        |   | 46,903            |    | 49,011 |   | 46,699 |   |
| Merger, restructuring and asset impairment charges (Note 13)                                                                 |   | —            |    | 76,015 |   | 111,608 |   |
| Depreciation and amortization                                                                                                |   | 38,533            |    | 38,041 |   | 30,846 |   |
| Write-off of deferred financing costs                                                                                        |   | 1,017             |    | — |   | 3,338 |   |
| Total operating expenses                                                                                                     |   | 380,446           |    | 444,204 |   | 389,550 |   |
|                                                                                                                         |   |              |    |   |   |   |   |
| Loss from operations                                                                                                         |   | (8,157            | )       | (71,654 | ) | (117,434 | ) |
|                                                                                                                         |   |              |    |   |   |   |   |
| Interest expense, net                                                                                                        |   | 35,748            |    | 53,372 |   | 50,144 |   |
|                                                                                                                         |   |              |    |   |   |   |   |
| Loss from continuing operations before benefit from income taxes and  cumulative effects of changes in accounting principles |   | (43,905           | )       | (125,026 | ) | (167,578 | ) |
|                                                                                                                         |   |              |    |   |   |   |   |
| Benefit from income taxes                                                                                                    |   | 10,162            |    | — |   | — |   |
|                                                                                                                         |   |              |    |   |   |   |   |
| Loss from continuing operations before cumulative effects of changes in  accounting principles                               |   | (33,743           | )       | (125,026 | ) | (167,578 | ) |
|                                                                                                                         |   |              |    |   |   |   |   |
| Income from discontinued operations of Heavenly resort, net of income  taxes of $3,961, $0 and $0, respectively              |   | 2,989             |    | 4,302 |   | 12,317 |   |
|                                                                                                                         |   |              |    |   |   |   |   |
| Loss before cumulative effects of changes in accounting principles                                                           |   | (30,754           | )       | (120,724 | ) | (155,261 | ) |
|                                                                                                                         |   |              |    |   |   |   |   |
| Cumulative effects of changes in accounting principles (net income  taxes of ($449), $1,538 and $0, respectively) (Note 15)  |   | (704              | )       | 2,509 |   | (18,658 | ) |
|                                                                                                                         |   |              |    |   |   |   |   |
| Net loss                                                                                                                     |   | (31,458           | )       | (118,215 | ) | (173,919 | ) |
|                                                                                                                         |   |              |    |   |   |   |   |
| Accretion of discount and dividends on mandatorily redeemable preferred  stock                                               |   | (20,994           | )       | (23,357 | ) | (32,791 | ) |
|                                                                                                                         |   |              |    |   |   |   |   |
| Net loss available to common shareholders                                                                                    |   | $                 | (52,452 | ) | $ | (141,572 | ) | $ | (206,710 | ) |
|                                                                                                                         |   |              |    |   |   |   |   |
| **Basic and  diluted net loss per share:  **(Note 3)                                                                    |   |              |    |   |   |   |   |
| Loss from continuing operations before cumulative effects of changes in  accounting principles                               |   | $                 | (1.81   | ) | $ | (4.86 | ) | $ | (6.34 | ) |
| Income from discontinued operations, net of taxes                                                                            |   | 0.10              |    | 0.14 |   | 0.39 |   |
| Cumulative effects of changes in accounting principles, net of taxes                                                         |   | (0.02             | )       | 0.08 |   | (0.59 | ) |
| Net loss available to common shareholders                                                                                    |   | $                 | (1.73   | ) | $ | (4.64 | ) | $ | (6.54 | ) |
| Weighted average common shares outstanding                                                                                   |   | 30,393            |    | 30,525 |   | 31,628 |   |

 

The accompanying notesare an integral part of these consolidated financial statements

 

F-3

----

 

American Skiing Company

Consolidated Statementsof Shareholders’ Equity (Deficit)

(in thousands, exceptshare amounts)

 
|                                                                                              |   | **Class A  Common stock** |   | **Common stock** |   | **Additional Paid-in capital** |       | **Accumulated  Deficit** |   | **Total** |   |
|---------------------------------------------------------------------------------------------------|--------|---------------------------|--------|------------------|--------|--------------------------------|------------|--------------------------|--------|-----------|--------|
|                                                                                              |   | **Shares**                |   | **Amount**       |   | **Shares**                     |       | **Amount**               |   |      |   |   |
|                                                                                              |   |                      |   |             |   |                           |       |                     |   |      |   |   |   |   |   |
| Balance as of July 25, 1999                                                                       |   | 14,760,530                |   | $                | 148    |                           | 15,526,243 |                     | $      | 155       |   | $ | 268,663 |   | $ | (32,311 | ) | $ | 236,655 |   |
| Exercise of Common Stock options                                                                  |   | —                    |   | —           |   | 182,390                        |       | 2                        |   | 363       |   | — |   | 365 |   |
| Amortization of deferred compensation                                                             |   | —                    |   | —           |   | —                         |       | —                   |   | 929       |   | — |   | 929 |   |
| Accretion of discount and issuance costs and dividends on mandatorily  redeemable preferred stock |   | —                    |   | —           |   | —                         |       | —                   |   | —    |   | (20,994 | ) | (20,994 | ) |
| Net loss                                                                                          |   | —                    |   | —           |   | —                         |       | —                   |   | —    |   | (31,458 | ) | (31,458 | ) |
| Balance as of July 30, 2000                                                                       |   | 14,760,530                |   | 148              |   | 15,708,633                     |       | 157                      |   | 269,955   |   | (84,763 | ) | 185,497 |   |
| Exercise of Common Stock options                                                                  |   | —                    |   | —           |   | 248,960                        |       | 3                        |   | 495       |   | — |   | 498 |   |
| Amortization of deferred compensation                                                             |   | —                    |   | —           |   | —                         |       | —                   |   | 387       |   | — |   | 387 |   |
| Other paid-in capital                                                                             |   | —                    |   | —           |   | —                         |       | —                   |   | 16        |   | — |   | 16 |   |
| Accretion of discount and issuance costs and dividends on mandatorily  redeemable preferred stock |   | —                    |   | —           |   | —                         |       | —                   |   | —    |   | (23,357 | ) | (23,357 | ) |
| Net loss                                                                                          |   | —                    |   | —           |   | —                         |       | —                   |   | —    |   | (118,215 | ) | (118,215 | ) |
| Balance as of July 29, 2001                                                                       |   | 14,760,530                |   | 148              |   | 15,957,593                     |       | 160                      |   | 270,853   |   | (226,335 | ) | 44,826 |   |
| Exercise of Common Stock options                                                                  |   | —                    |   | —           |   | 6,018                          |       | —                   |   | 12        |   | — |   | 12 |   |
| Amortization of deferred compensation                                                             |   | —                    |   | —           |   | —                         |       | —                   |   | 69        |   | — |   | 69 |   |
| Issuance of Common Stock                                                                          |   | —                    |   | —           |   | 1,000,000                      |       | 10                       |   | 990       |   | — |   | 1,000 |   |
| Extinguishment of warrants in connection with recapitalization                                    |   | —                    |   | —           |   | —                         |       | —                   |   | 5,501     |   | — |   | 5,501 |   |
| Other paid-in capital                                                                             |   | —                    |   | —           |   | —                         |       | —                   |   | (3        | )      | — |   | (3 | ) |
| Accretion of discount and issuance costs and dividends on mandatorily  redeemable preferred stock |   | —                    |   | —           |   | —                         |       | —                   |   | —    |   | (32,791 | ) | (32,791 | ) |
| Net loss                                                                                          |   | —                    |   | —           |   | —                         |       | —                   |   | —    |   | (173,919 | ) | (173,919 | ) |
| Balance as of July 28, 2002                                                                       |   | 14,760,530                |   | $                | 148    |                           | 16,963,611 |                     | $      | 170       |   | $ | 277,422 |   | $ | (433,045 | ) | $ | (155,305 | ) |

 

The accompanying notesare an integral part of these consolidated financial statements

 

F-4

----

 

American Skiing Company

Consolidated Statements of Cash Flows

(in thousands)

 
|                                                                                              |   | **Year Ended**    |    |
|---------------------------------------------------------------------------------------------------|--------|-------------------|---------|
|                                                                                              |   | **July 30, 2000** |    | **July 29, 2001** |   | **July 28, 2002** |   |
| Cash flows from operating activities                                                              |   |              |    |   |   |   |   |
| Net loss                                                                                          |   | $                 | (31,458 | ) | $ | (118,215 | ) | $ | (173,919 | ) |
| Adjustments to reconcile net loss to net cash (used in) provided by  operating activities:        |   |              |    |   |   |   |   |
| Depreciation and amortization                                                                     |   | 47,028            |    | 46,996 |   | 37,570 |   |
| Discount on convertible debt                                                                      |   | 368               |    | 992 |   | 1,436 |   |
| Non-cash interest on junior subordinated notes                                                    |   | —            |    | — |   | 1,283 |   |
| Deferred income taxes                                                                             |   | (7,155            | )       | 1,366 |   | — |   |
| Stock compensation charge                                                                         |   | 929               |    | 387 |   | 69 |   |
| Write-off of deferred financing costs                                                             |   | 1,017             |    | — |   | 3,338 |   |
| Cumulative effects of changes in accounting principles                                            |   | 1,153             |    | (4,047 | ) | 18,658 |   |
| (Gain) loss from sale / impairment of assets, net                                                 |   | (1,449            | )       | 66,746 |   | 115,264 |   |
| Decrease (increase) in assets:                                                                    |   |              |    |   |   |   |   |
| Restricted cash                                                                                   |   | (796              | )       | 6,052 |   | (1,553 | ) |
| Accounts receivable, net                                                                          |   | (1,702            | )       | (7,539 | ) | 5,897 |   |
| Inventory                                                                                         |   | 427               |    | 621 |   | 2,853 |   |
| Prepaid expenses                                                                                  |   | (3,098            | )       | 2,757 |   | 1,071 |   |
| Real estate developed for sale                                                                    |   | (43,406           | )       | 48,639 |   | 19,901 |   |
| Other assets                                                                                      |   | 2,528             |    | (3,988 | ) | (6,991 | ) |
| Increase (decrease) in liabilities:                                                               |   |              |    |   |   |   |   |
| Accounts payable and other current liabilities                                                    |   | (6,994            | )       | (1,375 | ) | (21,741 | ) |
| Deposits and deferred revenue                                                                     |   | (4,920            | )       | (2,583 | ) | (4,814 | ) |
| Other long-term liabilities                                                                       |   | 3,637             |    | 7,767 |   | 586 |   |
| Net cash (used in) provided by operating activities                                               |   | (43,891           | )       | 44,576 |   | (1,092 | ) |
|                                                                                              |   |              |    |   |   |   |   |
| Cash flows from investing activities                                                              |   |              |    |   |   |   |   |
| Payments for purchases of businesses, net of cash acquired                                        |   | (345              | )       | (171 | ) | — |   |
| Capital expenditures                                                                              |   | (27,229           | )       | (23,842 | ) | (7,531 | ) |
| Proceeds from sale of assets                                                                      |   | 10,175            |    | 623 |   | 102,214 |   |
| Other, net                                                                                        |   | (4                | )       | — |   | — |   |
| Net cash (used in) provided by investing activities                                               |   | (17,403           | )       | (23,390 | ) | 94,683 |   |
|                                                                                              |   |              |    |   |   |   |   |
| Cash flows from financing activities                                                              |   |              |    |   |   |   |   |
| Proceeds from Resort Senior Credit Facility                                                       |   | 136,019           |    | 139,122 |   | 106,913 |   |
| Repayment of Resort Senior Credit Facility                                                        |   | (218,467          | )       | (114,310 | ) | (190,141 | ) |
| Proceeds from long-term debt                                                                      |   | 139               |    | — |   | 26,500 |   |
| Repayment of long-term debt                                                                       |   | (11,105           | )       | (7,149 | ) | (26,660 | ) |
| Proceeds from real estate debt                                                                    |   | 139,026           |    | 29,905 |   | 19,803 |   |
| Repayment of real estate debt                                                                     |   | (113,353          | )       | (60,787 | ) | (35,478 | ) |
| Payment of deferred financing costs                                                               |   | (4,604            | )       | (8,968 | ) | (206 | ) |
| Net proceeds from issuance of mandatorily redeemable securities                                   |   | 136,186           |    | — |   | — |   |
| Payments on demand note                                                                           |   | (1,830            | )       | — |   | — |   |
| Proceeds from issuance of common stock                                                            |   | —            |    | — |   | 1,000 |   |
| Proceeds from issuance of warrants                                                                |   | —            |    | 2,000 |   | — |   |
| Proceeds from exercise of stock options                                                           |   | 365               |    | 498 |   | 12 |   |
| Other, net                                                                                        |   | —            |    | 10 |   | (2 | ) |
| Net cash (used in) provided by financing activities                                               |   | 62,376            |    | (19,679 | ) | (98,259 | ) |
| Net (decrease) increase in cash and cash equivalents                                              |   | 1,082             |    | 1,507 |   | (4,668 | ) |
| Cash and cash equivalents, beginning of year                                                      |   | 9,003             |    | 10,085 |   | 11,592 |   |
| Cash and cash equivalents, end of year                                                            |   | $                 | 10,085  |   | $ | 11,592 |   | $ | 6,924 |   |
|                                                                                              |   |              |    |   |   |   |   |
| **Supplemental  disclosures of cash flow information:**                                           |   |              |    |   |   |   |   |
| Cash paid for interest                                                                            |   | $                 | 48,754  |   | $ | 54,385 |   | $ | 54,499 |   |
| Cash paid (refunded) for income taxes, net                                                        |   | (60               | )       | (37 | ) | 100 |   |
|                                                                                              |   |              |    |   |   |   |   |
| **Supplemental  schedule of noncash investing and financing activities:**                         |   |              |    |   |   |   |   |
| Non-cash transfer of real estate developed for sale to  property and equipment                    |   | $                 | 27,758  |   | $ | 26,904 |   | $ | — |   |
| Accretion of discount and issuance costs and dividends on mandatorily  redeemable preferred stock |   | 20,994            |    | 23,357 |   | 32,791 |   |

 

The accompanying notesare an integral part of these consolidated financial statements

 

F-5

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**American Skiing Company**

**Notes to Consolidated FinancialStatements**

 

**1.****                                      BusinessEnvironment and Management’s Plans**

 

*ExistingSituation*

 

American Skiing Company (ASC), a Delaware corporation,and its subsidiaries (collectively, the Company) have adopted a comprehensivestrategic plan designed to improve financial performance and address the issuesresulting from its significant debt levels and lack of liquidity.  The Company’s real estate developmentsubsidiary (Resort Properties) is in default on its senior credit facility(Real Estate Term Facility) and the lenders have notified Resort Propertiesthat they have accelerated the due date for all principal and interest to bedue and payable immediately (see Note 7). The Company was required to redeemits Series A Preferred Stock on November 12, 2002, to the extent that theCompany had funds legally available for such redemption.  The Series A Preferred Stock was notredeemed on November 12, 2002 (see Note 9).

 

*ComprehensiveStrategic Plan*

 

The Company has undertaken a number of initiatives toimprove its financial condition and ongoing operations.  Theseinitiatives have include the following key components:

 

•                  A comprehensive financial restructuring package,including amendments to its senior credit facilities, new capital infusion toenhance financial flexibility and refinancing of its resort senior creditfacility (Resort Senior Credit Facility) to improve financial flexibility.

•                  Reorganization, staff reduction and performanceenhancement programs designed to achieve operational cost savings and improvefinancial performance.

•                  Sale of Heavenly and Sugarbush resorts to reducethe debt of the Company.

•                  Strategic redeployment of management and capitalresources to emphasize the integration and growth of resort village developmentand operations.

 

Management has completed several components of thisplan, including restructuring certain of the Company’s most significant creditagreements, obtaining an additional capital infusion from Oak Hill CapitalPartners, L.P., sale of the Heavenly and Sugarbush resorts, implementation of astaff reorganization plan to improve operational efficiencies and strategicredeployment of management.  Theultimate success of this comprehensive strategic plan is dependent on theexecution of the remaining plan element, successfully restructuring the RealEstate Term Facility.

 

*Actionsin Progress*

 

On March 30, 2002, American Skiing Company ResortProperties, Inc. (Resort Properties) failed to make a mandatory principalpayment of $3.75 million under its Real Estate Term Facility.  Resort Properties obtained a temporarywaiver of this default on April 2, 2002. Effective May 20, 2002, the temporarywaiver was revoked and Resort Properties was in default on the facility.  On May 31, 2002, the lenders accelerated thedue date of the entire remaining principal and accrued interest under thefacility.  On November 22, 2002, ResortProperties entered into a forbearance agreement with the lenders whereby thelenders have agreed to not pursue additional foreclosure remedies and to ceasepublication of foreclosure notices for a 30-day period. Although this 30-dayperiod has expired, management continues discussions with Fleet and the otherlenders regarding a restructuring of this facility, and Fleet and the otherlenders have not exercised any further foreclosure remedies since theexpiration of the forbearance agreement. Management’s ongoing restructuring efforts with the lenders are aimedtowards a restructuring of the facility which will establish a new entity tohold Resort Properties’ real estate development assets.  The equity in the new entity is expected tobe held by a combination of the lenders under the facility and ResortProperties.  The facility remains indefault pending completion of these negotiations.

 

There is no assurance that negotiations will besuccessfully completed, or that the terms under which the payment defaultspending under the Real Estate Term Facility may be resolved, if at all.  Furthermore, regardless of the outcome ofthis proposed restructuring, the Company may lose control of assets pledged ascollateral under the facility and future access to value creation from thesereal estate assets. A substantial portion of the Company’s

 

F-6

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developable real estate, including substantially all of the developableresidential real estate at The Canyons and Steamboat along with certain corevillage real estate at Killington, and the stock of the Company’s real estatedevelopment subsidiaries (including Grand Summit Resort Properties, Inc. (GrandSummit)) is pledged to Fleet and the lenders under the facility.  The commercial core units at the SundialLodge at The Canyons and the Mount Snow Grand Summit Hotel in Vermont are alsopledged to Fleet and the lenders.  TheGrand Summit unit inventory and the land at the Sunday River resort do notsecure the Real Estate Term Facility, although the pledge of the stock of GrandSummit to secure the Real Estate Term Facility means that the Company may losecontrol of the Grand Summit unit inventory to the lenders under the Real EstateTerm Facility.  Other remedies availableto the lenders include, but are not limited to, setoff of cash collateralamounts in Resort Properties’ name held at Fleet in the amount of approximately$1.1 million, foreclosure of real and personal property owned by ResortProperties and pledged to the lenders (including all of the capital stock ofthe Company’s hotel development subsidiary, Grand Summit), and other customarysecured creditor remedies.  As of July28, 2002, the carrying value of the total assets that collateralized the RealEstate Term Facility was approximately $124.7 million.  This collateral includes $87.7 million ofGrand Summit assets pledged under the Company’s $42.0 million real estateconstruction loan facility.

 

As part of its comprehensive strategic plan torestructure its debt, the Company entered into an agreement dated February 14,2003 with General Electric Capital Corporation (GE Capital) and CapitalSourceFinance LLC (CapitalSource) whereby GE Capital and CapitalSource have provideda new $91.5 million senior secured loan facility (the New Resort CreditFacility).  The New Resort CreditFacility replaces the Company’s existing resort senior credit facility (ResortSenior Credit Facility) (see Note 6) and is secured by substantially all theassets of the Company and the assets of its resort operating subsidiaries.  Resort Properties and its subsidiaries arenot guarantors of the New Resort Credit Facility nor are their assets pledgedas collateral under the New Resort Credit Facility.  The New Resort Credit Facility consists of the following:

 

•                  RevolvingCredit Facility - $40.0 million, including letter of credit (L/C) availabilityof up to $5.0 million of which approximately $4.1 million of L/C’s was outstandingon the funding date of February 18, 2003. The amount of availability under the Revolving Credit Facility will becorrespondingly reduced by the amount of each L/C issued.

 

•                  TrancheA Term Loan -  $25.0 million borrowed onthe funding date of February 18, 2003.

 

•                  SupplementalTerm Loan - $6.5 million borrowed on the funding date of February 18, 2003.

 

•                  TrancheB Term Loan -  $20.0 million borrowed onthe funding date of February 18, 2003.

 

The Revolving, Tranche A Term Loan and SupplementalTerm Loan portions of the New Resort Credit Facility mature on April 15, 2006and bear interest at JPMorgan Chase Bank’s prime rate plus 3.25% (payablemonthly).  The Supplemental Term Loanalso requires a principal payment of approximately $342,000 on July 15, 2003,payments of approximately $1.0 million on January 15 and July 15 of each year,and a final payment of approximately $1.0 million on April 15, 2006.  The Tranche B Term Loan matures on June 15,2006 and bears interest at JPMorgan Chase Bank’s prime rate plus 5.0% (payablemonthly) with an interest rate floor of 12.25%.  The New Resort Credit Facility contains affirmative, negative andfinancial covenants customary for this type of credit facility, which includesmaintaining a minimum level of EBITDA, as defined, places a limit on theCompany’s capital expenditures and contains an asset monetization covenantwhich requires the Company to refinance the facility or sell assets sufficientto retire the facility on or prior to December 31, 2005.  The financial covenants of the New ResortCredit Facility are less restrictive than those of the Resort Senior CreditFacility (see Note 22). The New Resort Credit Facility also restricts theCompany's ability to pay cash dividends on or redeem its common and preferredstock.

 

**2**.             **Basis of Presentation**

 

ASC is organized as a holding company and operatesthrough various subsidiaries. The Company owns and operates resort facilities,real estate development companies, golf courses, ski and golf schools, retailshops and other

 

F-7

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related companies.  The Companyoperates in two business segments, the operation of ski resorts and real estatedevelopment (see Note 16).  ASC ownedand operated the following ski resorts during Fiscal 2002: Sugarloaf/USA andSunday River in Maine, Attitash Bear Peak in New Hampshire, Killington andMount Snow in Vermont, The Canyons in Utah, Steamboat Ski & ResortCorporation (Steamboat) in Colorado, and Heavenly Valley Ski & Resort Corporation(Heavenly) in California/Nevada.  DuringFiscal 2001 and 2000, ASC also owned and operated the Sugarbush resort inWarren, Vermont, which was sold in September 2001.  Heavenly was sold in May 2002. The assets, liabilities andresults of Heavenly’s operations have been reflected as discontinued operationsfor all years presented.  The Companyconducts its real estate development operations through its wholly ownedsubsidiary, American Skiing Company Resort Properties, Inc. (ResortProperties), and Resort Properties’ subsidiaries, including Grand Summit ResortProperties, Inc. (Grand Summit) and Canyons Resort Properties, Inc.

 

ASC was formed on June 17, 1997, when Leslie B. Otten(Mr. Otten) exchanged his 96% ownership interest in ASC East, Inc. (ASC East) for100% of the common stock of ASC. In conjunction with the formation of ASC, theCompany recorded the 4% minority interest in ASC East.  On January 23, 1998, the Company and theholders of the minority interest in ASC East entered into an agreement wherebythe Company issued 615,022 shares of common stock in exchange for all shares ofASC East common stock held by the minority shareholders.

 

On October 10, 1997, the Company approved an increasein authorized shares of common stock, a new issue of Class A common stock, theconversion of 100% of the outstanding common stock to Class A common stock anda 14.76 for 1 stock split of Class A common stock.

 

The Company consummated an initial public offering(the Offering) on November 6, 1997.  TheCompany sold 14.75 million shares of common stock in the Offering at a price of$18.00 per share.  Net proceeds to theCompany after expenses of the Offering totaled $244.3 million.  Of the 14.75 million shares sold in theOffering, 833,333 shares were purchased by Mr. Otten.

 

On August 9, 1999, the Company sold 150,000 shares ofits 8.5% Series B Convertible Participating Preferred Stock (Series B PreferredStock) to Oak Hill Capital Partners, L.P. and certain related entities(collectively, Oak Hill) for $150 million (collectively, the Oak HillTransaction).  As part of the Series BAgreement, the Company also agreed to move its state of incorporation fromMaine to Delaware by merging the Company (ASC East and ASC West) into a whollyowned Delaware subsidiary and amending its articles of incorporation (theDelaware Reincorporation).  Under theDelaware Reincorporation, which took place on October 12, 1999, the Company wasmerged into a newly formed Delaware subsidiary (ASC Delaware) that survived themerger and that has a capital structure identical to the Company’s prior to themerger.

 

**3.             Summary of Significant AccountingPrinciples**

 

**Principles of Consolidation**

The accompanying consolidated financial statementsinclude the accounts of American Skiing Company and its wholly ownedsubsidiaries.  All significantintercompany accounts and transactions have been eliminated in consolidation.

 

**Fiscal Year**

The Company’s fiscal year is a fifty-two week orfifty-three week period ending on the last Sunday of July. The period ended July30, 2000 (Fiscal 2000) consisted of a fifty-three week period.  The periods ended July 29, 2001 and July 28,2002 (Fiscal 2001 and Fiscal 2002, respectively) each consisted of fifty-twoweeks.

 

**Cash and Cash Equivalents**

The Company considers all highly liquid debtinstruments with a remaining maturity of three months or less to be cashequivalents.  Cash equivalents totaledapproximately $2.2 million and $2.1 million as of July 29, 2001 and July 28,2002, respectively.

 

F-8

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**RestrictedCash**

Restricted cash consists of deposits received and heldin escrow related to pre-sales of real estate developed for sale and guestadvance deposits for lodging reservations. The cash becomes available to the Company when the real estate units aresold or the lodging services are provided.

 

**Inventory**

Inventory is stated at the lower of cost (first-in,first-out method) or market, and consists primarily of retail goods, food andbeverage products.

 

**Property and Equipment**

Property and equipment are carried at cost, net ofaccumulated depreciation and impairment charges. Depreciation is calculatedusing the straight-line method over the assets’ estimated useful lives whichrange from 9 to 40 years for buildings, 3 to 12 years for machinery andequipment, 10 to 50 years for leasehold improvements and 5 to 30 years forlifts, lift lines and trails. Assets held under capital lease obligations areamortized over the shorter of their useful lives or their respective leaselives. Due to the seasonality of the Company’s business, the Company records afull year of depreciation relating to its operating assets during the secondand third quarters of the Company’s fiscal year.

 

**Real Estate Developed for Sale**

The Company capitalizes as real estate developed forsale the original acquisition cost of land, direct construction and developmentcosts, property taxes, interest incurred on costs related to real estate underdevelopment, and other related costs (engineering, surveying, landscaping,etc.) until the property has been developed to the point it is ready forsale.  The cost of sales for individualparcels of real estate or quartershare units within a project is determinedusing the relative sales value method. Selling costs are charged to expense inthe period in which the related revenue is recognized.

 

**Goodwill and Other Intangible Assets**

During the first quarter of Fiscal 2002, the Companyadopted Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwilland Other Intangible Assets” and was required to evaluate its existingintangible assets and goodwill in a transitional impairment analysis.  As a result of the transitional impairmentanalysis, the Company recorded an impairment loss of $18.7 million representing100% of its goodwill.  This loss wasrecorded as a cumulative effect of a change in accounting principle in theaccompanying consolidated statement of operations for Fiscal 2002.  Furthermore, as prescribed in SFAS No. 142,certain indefinite-lived intangible assets, including trademarks, are no longeramortized but are subject to annual impairment assessments.  An impairment loss is recognized to theextent that the carrying amount exceeds the asset’s fair value.  Definite-lived intangible assets continue tobe amortized on a straight-line basis over their estimated useful lives of 16to 20 years, and assessed for impairment utilizing guidance provided by SFASNo. 144.

 

Prior to the adoption of SFAS No. 142, goodwill, whichrepresents the excess of the purchase price over the fair value of the netassets (including tax attributes and minority interest) acquired in purchasetransactions, and other indefinite-lived intangibles were amortized on astraight-line basis over the expected periods to be benefited, up to 40 years.Goodwill and other indefinite-lived intangibles were assessed forrecoverability by determining whether the amortization of the carrying amountsover their remaining useful lives could be recovered through undiscountedfuture cash flows of the acquired operation or assets.

 

F-9

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As of July 29, 2001 andJuly 28, 2002, acquired intangible assets (other than goodwill) relate entirelyto the resort segment and consist of the following (in thousands):

 

|                                     |   | **July 29, 2001** |       | **July 28, 2002** |   |
|------------------------------------------|--------|-------------------|------------|-------------------|--------|
| **Definite-lived  Intangible Assets:**   |   |              |       |              |   |
| Lease agreements                         |   | $                 | 1,853      |              | $      | 1,853 |   |
| Less accumulated amortization            |   | (173              | )          | (231              | )      |
|                                     |   | 1,680             |       | 1,622             |   |
|                                     |   |              |       |              |   |
| **Indefinite-lived  Intangible Assets:** |   |              |       |              |   |
| Trade names                              |   | 10,251            |       | 170               |   |
| Water rights                             |   | 7,748             |       | 7,748             |   |
| **Intangible  Assets, net**              |   | **$**             | **19,679** | ** **        | **$**  | **9,540** | ** ** |

 

Amortization expenserelated to goodwill and other intangible assets was approximately $2.4 million,$2.4 million, and $58,000 for Fiscal 2000, Fiscal 2001, and Fiscal 2002, respectively.  Future amortization expense related todefinite-lived intangible assets is estimated to be approximately $58,000 foreach of the next five fiscal years. During Fiscal 2002, impairment losses totaling approximately $10.1million for trade names existing at the Steamboat resort were recorded.

 

Had SFAS No. 142 been adopted prior to Fiscal 2000,loss before cumulative effects of changes in accounting principles and net lossavailable to common shareholders for Fiscal 2000 and Fiscal 2001 would havebeen changed to the pro forma amounts indicated below (dollar amounts inthousands):

 
| **Fiscal Years Ended**                                                  |   | **2000** |       | **2001** |       |
|-------------------------------------------------------------------------|--------|----------|------------|----------|------------|
| **Loss before  cumulative effects of changes in accounting principles** |   |     | ** ** |     | ** ** |
| **As reported**                                                         |   | $        | (30,754    | )        | $          | (120,724 | ) |
| **Pro forma**                                                           |   | (28,343  | )          | (118,256 | )          |
|                                                                    |   |     |       |     |       |
| **Net loss  available to common shareholders**                          |   |     |       |     |       |
| **As reported**                                                         |   | $        | (52,452    | )        | $          | (141,572 | ) |
| **Pro forma**                                                           |   | (50,041  | )          | (139,104 | )          |
|                                                                    |   |     |       |     |       |
| **Net loss per  share available to**                                    |   |     |       |     |       |
| **common  shareholders**                                                |   |     |       |     |       |
| **As reported**                                                         |   | $        | (1.73      | )        | $          | (4.64 | ) |
| **Pro forma**                                                           |   | (1.65    | )          | (4.56    | )          |

 

**Deferred Financing Costs**

Costs incurred inconnection with the issuance of debt are included in deferred financing costs,net of accumulated amortization. Amortization is calculated on a straight-line basis over the respective originallives of the applicable issues. Amortization calculated on a straight-linebasis is not materially different from amortization that would have resultedfrom using the effective interest method. As of July 29, 2001 and July 28, 2002, deferred financing costs were$16.7 million and $8.6 million, respectively, net of accumulatedamortization.  Amortization expenserelated to deferred financing costs was $3.0 million, $3.1 million and $4.6million for Fiscal 2000, Fiscal 2001, and Fiscal 2002, respectively.  In connection with the early extinguishmentof debt in Fiscal 2000 and Fiscal 2002, the Company recorded a write-off ofdeferred financing costs of approximately $1.0 million and $3.3 million,respectively, in the accompanying consolidated statements of operations.

 

In April 2002, the FASBissued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64,Amendment of FASB Statement No. 13, and Technical Corrections”.  This statement, among other things, rescindsSFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt” and SFASNo. 64, “Extinguishments of Debt Made to Satisfy Sinking-fund Requirements”which required that gains and losses from extinguishments of debt that wereincluded in the determination of net income be aggregated and, if material,classified as an extraordinary

 

F-10

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item.  UnderSFAS No. 145, such items would be classified as an extraordinary item only ifthey meet the criteria in APB Opinion No. 30. The provisions of SFAS No. 145 related to the rescission of SFAS No. 4are effective for financial statements issued for fiscal years beginning afterMay 15, 2002, but may be early adopted as of the beginning of the fiscalyear.  The Company adopted SFAS No. 145effective July 30, 2001 (Fiscal 2002). The adoption of this pronouncement resulted in the classification of$1.0 million and $3.3 million in losses related to the extinguishment of debtas write-off of deferred financing costs during Fiscal 2000 and Fiscal 2002,respectively.

 

**Long-Lived Assets**

On July 30, 2001, the Company adopted SFAS No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets to Be DisposedOf”.  Long-lived assets, such asproperty, plant and equipment, and definite-lived intangibles are reviewed forimpairment whenever events or changes in circumstances indicate that thecarrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparisonof the carrying amount of an asset to the estimated undiscounted future cashflows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cashflows, an impairment charge is recognized in the amount by which the carryingamount of the asset exceeds the fair value of the asset.  Assets to be disposed of are reported at thelower of the carrying amount or fair value less costs to sell, and depreciationceases.  Prior to the adoption of SFASNo. 144, the Company accounted for impairment of long-lived assets andlong-lived assets to be disposed of in accordance with SFAS No. 121,“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assetsto Be Disposed Of”.  During Fiscal 2002,the Company completed the sale of its Sugarbush resort (see Note 20) andaccounted for this sale under SFAS No. 121 and Accounting Principles BoardOpinion No. 30 because the disposal activities relating to the sale ofSugarbush were initiated prior to the Company’s adoption of SFAS No. 144.

 

During May 2001, the Company initiated a significantrestructuring plan.  As part of thatplan, the Company entered into amendments to its key credit facilities whichpermitted the Company to pursue a comprehensive strategic plan for both itsresort and real estate businesses. Based on the terms of the restructuring plan and the amended creditfacilities, management determined at the end of Fiscal 2001 that no impairmenthad occurred to any of the Company’s major assets.

 

Although many elements of the restructuring plan andthe comprehensive strategic plan have been successfully executed, keysubsequent events have caused management to re-assess the realizability ofcertain of the Company’s assets.  Thosekey events are as follows:

 

•                  Inthe second quarter of Fiscal 2002, the Company entered into a purchase and saleagreement for the sale of its Steamboat resort.  The sale of the Steamboat ski resort was a key element underlyingthe May 2001 restructuring plan and the amendments to both the resort and realestate senior credit facilities.  As aresult of the lower than expected potential sales price for the Steamboatresort, which was a result of declining economic conditions in the leisure andresort sector, the Company determined that a write-down of approximately $52.0million was required on the Steamboat assets and recorded that impairmentcharge in the fourth quarter of Fiscal 2001.

 

•                  Theevents of the September 11th terrorist attacks negatively impactedthe resort sector economic strength and were especially damaging to valuationsof destination resorts such as Steamboat. As a result, the potential buyer of Steamboat experienced difficulty incompleting its financing package and re-opened negotiations with the Company onthe terms of its original offer.  Basedon these renegotiations and a revised purchase and sale agreement, the Companyrecorded an additional $25.4 million impairment charge during the secondquarter of Fiscal 2002.

 

•                  OnMay 9, 2002, the Company completed the sale of Heavenly to Vail Resorts, Inc.  (Vail). The Company determined that the sale of Heavenly more closely achievedits restructuring objectives and resulted in a significantly higher assetvaluation than the previously announced Steamboat sale transaction.  As a result, the Company concluded that itwould not proceed with the sale of its Steamboat resort.

 

•                  TheSteamboat transaction was to provide approximately $7.5 million to ResortProperties because the transaction included the sale of certain large realestate parcels. The assumption that these parcels would be sold in conjunctionwith the sale of Steamboat was key to management's earlier impairment analysisperformed in the second quarter of Fiscal 2002.

 

F-11

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•                  Coupledwith this was the dramatic downturn in the resort sector economic strength thatfollowed the events of September 11th and a rapidly declining stockmarket.  These developments severelyaffected real estate sales of quartershare inventory in Utah and Colorado whichfurther weakened Resort Properties’ financial health.  In March 2002, Resort Properties defaulted on its Real EstateTerm Facility and opened re-negotiations with both its construction loanfacility lender, Textron Financial Corporation (Textron), and its Real EstateTerm Facility lender, Fleet National Bank (Fleet).

 

•                  Asof May 20, 2002, Resort Properties was in default under its Real Estate TermFacility with Fleet National Bank and certain other lenders due to its failureto make a mandatory payment of principal. On May 31, 2002, the lenders accelerated the due date of the entireremaining principal and accrued interest under the facility. The Company hassuccessfully completed negotiations with Textron to restructure theConstruction Loan Facility and has eliminated the defaults in thatfacility.  However, while negotiationscontinue with Fleet and the other lenders on a restructuring plan, thosenegotiations are not yet complete and may result in a significant change inownership, control and future access to value creation from the assets held byResort Properties.

 

Until May 20, 2002, Resort Properties had been able toobtain waivers or amendments to the Real Estate Term Facility whenever therewere defaults.  However, given thecombination of (1) extreme slow down in the resort sector economy andespecially the slowdown in the real estate market, (2) the conservative lendingenvironment, and (3) the negative terms of the Textron restructuring and thepossible negative terms of the Fleet restructuring, management determined thata significant adverse change in the economic environment and in the businessplans of the Company occurred in the fourth quarter of Fiscal 2002.  This adverse change affected the realizabilityof the Company’s long-lived assets and the Company recorded appropriateimpairments as discussed in Note 13.

 

**Revenue Recognition**

Resort revenues include sales of lift tickets, tuitionfrom ski schools, golf course and other recreational activities fees, salesfrom restaurants, bars and retail shops, and real estate rentals. Daily liftticket revenue is recognized on the day of purchase.  Lift ticket season pass revenue is recognized on a straight-linebasis over the ski season, which is the Company’s second and third quarters ofits fiscal year.  The Company’sremaining resort revenues are generally recognized as the services areperformed.  Real estate revenues arerecognized under the full accrual method when title has been transferred,adequate initial and continuing investment has been received and no continuinginvolvement exists. Amounts received from pre-sales of real estate are recordedas restricted cash and deposits and deferred revenue in the accompanyingconsolidated balance sheets until the earnings process is complete.

 

**Interest**

Interest is expensed as incurred except when it iscapitalized in connection with significant capital additions and real estatedeveloped for sale. The amounts of interest capitalized are determined byapplying actual interest rates to the borrowings required to finance theconstruction.  During Fiscal 2000, 2001,and 2002, the Company incurred total interest costs of $51.1 million, $55.5million, and $50.1 million, respectively, of which $15.4 million, $2.1 million,and $0, respectively, have been capitalized to property and equipment and realestate developed for sale.

 

**Employee Savings Plan**

The Company has a 401(k) plan that allows employees todefer up to 15% of their income and provides for the matching of participantcontributions at the Company’s discretion. The Company’s matching contributions to the 401(k) plan for Fiscal 2000,2001, and 2002 were approximately $381,000, $387,000, and $307,000,respectively.

 

F-12

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**Advertising Costs**

Advertising costs are expensed the first time theadvertising takes place.  As of July 29,2001 and July 28, 2002, advertising costs of approximately $174,000 and$169,000, respectively, were recorded in prepaid expenses in the accompanyingconsolidated balance sheets.  Advertisingexpense for Fiscal 2000, 2001, and 2002 was approximately $6.3 million, $7.9million, and $6.8 million, respectively.

 

**Seasonality**

The Company’s revenuesare highly seasonal in nature.  Over thelast five fiscal years, the Company has realized an average of approximately86% of resort revenues and over 100% of resort EBITDA and net income during theperiod from November through April, and a significant portion of resort revenueand approximately 18% of annual skier visits were generated during the Christmasand Presidents’ Day vacation weeks.  Inaddition, the Company’s resorts typically experience operating losses andnegative cash flows for the period from May through November.

 

A high degree of seasonality in the Company’s revenuesincreases the impact of certain events on its operating results.  Adverse weather conditions, access routeclosures, equipment failures, and other developments of even moderate orlimited duration occurring during peak business periods could reducerevenues.  Adverse weather conditionscan also increase power and other operating costs associated with snowmaking orcould render snowmaking wholly or partially ineffective in maintaining qualityskiing conditions.  Furthermore,unfavorable weather conditions, regardless of actual skiing conditions, canresult in decreased skier visits.

 

**Earnings Per Share**

Basic net income (loss) per common share (Basic EPS)excludes dilution and is computed by dividing net income (loss) by the weightedaverage number of common shares outstanding during the year. Diluted net income(loss) per common share (Diluted EPS) reflects the potential dilution thatcould occur if stock options or other contracts to issue common stock (such asMandatorily Redeemable Preferred Stock) were exercised or converted into commonstock.  In periods where losses arerecorded, potentially dilutive securities would decrease the loss per share andtherefore are not added to the weighted average shares outstanding.  For Fiscal 2000, 2001, and 2002, basic anddiluted net loss per share are as follows:

 
|                                                                                                 |   | **Fiscal 2000**                               |       | **Fiscal 2001** |   | **Fiscal 2002** |   |
|------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|------------|-----------------|--------|-----------------|--------|
|                                                                                                 |   | **(in  thousands, except per share amounts)** | ** ** |
| ***Loss***                                                                                           |   |                                          |       |
| **Loss from  continuing operations before cumulative effect of****changes in accounting principles** |   | $                                             | (33,743    | )               | $      | (125,026        | )      | $ | (167,578 | ) |
| **Income from  discontinued operations, net of tax**                                                 |   | 2,989                                         |       | 4,302           |   | 12,317          |   |
| **Accretion of  discount and dividends on mandatorily****redeemable  preferred stock**               |   | (20,994                                       | )          | (23,357         | )      | (32,791         | )      |
| **Loss before  cumulative effect of changes in accounting****principles****accounting change**       |   | (51,748                                       | )          | (144,081        | )      | (188,052        | )      |
| **Cumulative  effect of changes in accounting principles,****net of  tax**                      |   | (704                                          | )          | 2,509           |   | (18,658         | )      |
| **Net loss  available to common shareholders**                                                       |   | $                                             | (52,452    | )               | $      | (141,572        | )      | $ | (206,710 | ) |
|                                                                                                 |   |                                          |       |            |   |            |   |
| ***Shares***                                                                                         |   |                                          |       |            |   |            |   |
| **Total  weighted average common shares outstanding (basic****and diluted)**                         |   | 30,393                                        |       | 30,525          |   | 31,628          |   |
|                                                                                                 |   |                                          |       |            |   |            |   |
| ***Basic and diluted loss per common  share***                                                       |   |                                          |       |            |   |            |   |
| **Loss from  continuing operations before cumulative effect of****changes in accounting principles** |   | $                                             | (1.81      | )               | $      | (4.86           | )      | $ | (6.34 | ) |
| **Income from  discontinued operations, net of taxes**                                               |   | 0.10                                          |       | 0.14            |   | 0.39            |   |
| **Cumulative  effect of changes in accounting principles,****net of taxes**                          |   | (0.02                                         | )          | 0.08            |   | (0.59           | )      |
| **Net loss  available to common shareholders**                                                       |   | **$**                                         | **(1.73**  | **)**           | **$**  | **(4.64**       | **)**  | **$** | **(6.54** | **)** |

 

The Company had outstanding 186,626, 186,626 and76,626 shares of convertible preferred stock as of July 30, 2000, July 29,2001, and July 28, 2002, respectively. These shares are convertible into shares of the Company’s

 

F-13

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common stock (see Note 9).  Ifconverted at their liquidation preferences as of July 30, 2000, July 29, 2001,and July 28, 2002, these convertible preferred shares would convert into33,870,209, 37,701,670 and 39,136,243 shares of common stock,respectively.  However, the common stockshares into which these securities are convertible have not been included inthe Diluted EPS calculation as the impact of their inclusion would beanti-dilutive.  The Company also has 4,043,319,4,590,297 and 4,226,579 options outstanding to purchase shares of its commonstock under the Company’s stock option plan as of July 30, 2000, July 29, 2001,and July 28, 2002, respectively.  Theseshares are also excluded from the Diluted EPS calculation as the impact oftheir inclusion would be anti-dilutive.

 

**Stock Compensation**

The Company’s stock option plan is accounted for inaccordance with Accounting Principles Board Opinion No. 25, “Accounting forStock Issued to Employees”. The Company has adopted the disclosure requirementsof SFAS No. 123, “Accounting for Stock-Based Compensation” (see Note 19).

 

**Fair Value of Financial Instruments**

The recorded amounts for cash and cash equivalents,restricted cash, accounts receivable and accounts payable and other currentliabilities approximate fair value due to the short-term nature of thesefinancial instruments. The fair value of amounts outstanding under theCompany’s resort and real estate senior credit facilities and certain otherdebt instruments approximate their recorded values in all material respects, asdetermined by discounting future cash flows at current market interest rates asof July 28, 2002.  The fair value of theCompany’s subordinated notes and interest rate swap agreements have beenestimated using quoted market values. The fair value of the Company’s othersubordinated debentures have been estimated using discounted cash flow analysesbased on current borrowing rates for debt with similar maturities and ratings.

 

The estimated fair values of the Senior SubordinatedNotes, Convertible Subordinated Notes, other subordinated debentures andinterest rate swap agreements as of July 29, 2001 and July 28, 2002 arepresented below (in thousands):

 

|                                           |   | **July 29, 2001**    |    | **July 28, 2002** |   |
|------------------------------------------------|--------|----------------------|---------|-------------------|--------|
|                                           |   | **Carrying  amount** |    | **Fair  value**   |   | **Carrying  amount** |   | **Fair  Value** |   |
| **12% Senior  Subordinated Notes**             |   | $                    | 117,816 |              | $      | 81,000 |   | $ | 118,160 |   | $ | 84,000 |   |
| **11.3025%  Convertible Subordinated Notes**   |   | —               |    | —            |   | 13,783 |   | 14,715 |   |
| **Other  subordinated debentures**             |   | 9,297                |    | 7,526             |   | 8,748 |   | 8,118 |   |
| **Interest rate  swap agreements (asset)**     |   | 11,216               |    | 11,216            |   | 17,631 |   | 17,631 |   |
| **Interest rate  swap agreements (liability)** |   | 20,234               |    | 20,234            |   | 25,314 |   | 25,314 |   |
|                                                |        |                      |         |                   |        |  |  |  |  |  |  |  |  |

 

**Derivative Financial Instruments**

All derivatives are recognized on the balance sheet attheir fair values.  On the date thederivative contract is entered into, the Company designates the derivative aseither a hedge of the fair value of a recognized asset or liability (“fairvalue” hedge), or the variability of cash flows to be received or paid relatedto a recognized asset or liability (“cash flow” hedge).  As of July 28, 2002, the Company only holdsinterest rate swap agreements, which are classified as cash flow hedges andcarries the derivatives at their fair value on the balance sheet, and recognizesany changes in their fair value in current period operations.

 

**Income Taxes**

The Company utilizes the asset and liability method ofaccounting for income taxes, as set forth in SFAS No. 109, “Accounting forIncome Taxes”.  SFAS No. 109 requiresthe recognition of deferred tax assets and liabilities for the expected futuretax consequences of temporary differences between the financial statement andtax bases of assets and liabilities, utilizing currently enacted tax rates.  The effect of any future change in tax ratesis recognized in the period in which the change occurs.

 

**Use of Estimates**

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect amounts and

 

F-14

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disclosures reported in the accompanying consolidated financialstatements.  Actual results could differfrom those estimates.

 

**Reclassifications**

Certain amounts in the prior years’ financialstatements and related notes have been reclassified to reflect theclassification of the assets, liabilities and results of operations of Heavenlyas discontinued operations, the termination of the plan to sell the Steamboatresort (see Note 20) and the adoption of SFAS No. 145, “Rescission of FASBStatements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and TechnicalCorrections”.  Also, certain otheramounts in the prior years’ financial statements and related notes have beenreclassified to conform to the Fiscal 2002 presentation.

 

**RecentlyIssued Accounting Standards**

 In July 2001,the FASB issued SFAS No. 143, “Accounting for Asset RetirementObligations”.  This statement addressesfinancial accounting and reporting for obligations associated with theretirement of tangible long-lived assets and the associated asset retirementcosts.  SFAS No. 143 is effective forfinancial statements issued for fiscal years beginning after June 15,2002.  The Company adopted SFAS No. 143on July 29, 2002 (Fiscal 2003), as required. The Company believes the adoption of SFAS No. 143 will not have amaterial impact on its results of operations, financial position, or liquidity.

 

In June 2002, the FASB issued SFAS No. 146, “Accountingfor Costs Associated with Exit or Disposal Activities”.  This statement addresses the accounting andreporting for costs associated with exit or disposal activities and nullifiesEmerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition forCertain Employee Termination Benefits and Other Costs to Exit an Activity(including Certain Costs Incurred in a Restructuring”.  SFAS No. 146 is effective for exit ordisposal activities initiated after December 31, 2002.  The Company believes the adoption of SFASNo. 146 will not have a material effect on its results of operations, financialposition, or liquidity.

 

**4.             Property and Equipment**

 

Property and equipment consists of the following (inthousands):

 

|                                |   | **July 29, 2001** |        | **July 28, 2002** |   |
|-------------------------------------|--------|-------------------|-------------|-------------------|--------|
| **Buildings and  grounds**          |   | $                 | 193,077     |              | $      | 188,968 |   |
| **Machinery and  equipment**        |   | 135,037           |        | 135,130           |   |
| **Lifts and  lift lines**           |   | 126,792           |        | 125,922           |   |
| **Trails**                          |   | 27,271            |        | 23,315            |   |
| **Land  improvements**              |   | 18,261            |        | 9,294             |   |
|                                |   | 500,438           |        | 482,629           |   |
| **Less:  accumulated depreciation** |   | 144,077           |        | 167,626           |   |
|                                |   | 356,361           |        | 315,003           |   |
|                                |   |              |        |              |   |
| **Land**                            |   | 77,621            |        | 78,060            |   |
| **Construction-in-process**         |   | 2,565             |        | 2,503             |   |
| **Property and  equipment, net**    |   | **$**             | **436,547** | ** **        | **$**  | **395,566** | ** ** |

 

Property and equipment includes approximately $38.5million and $31.6 million of machinery and equipment and lifts held undercapital lease obligations as of July 29, 2001 and July 28, 2002,respectively.  As of July 29, 2001 andJuly 28, 2002, related accumulated amortization on property and equipment heldunder capital lease obligations was approximately $12.1 million and $9.2million, respectively.  Totaldepreciation and amortization expense relating to all property and equipmentwas $34.1 million, $32.3 million, and $26.7 million for Fiscal 2000, 2001, and2002, respectively.

 

F-15

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**5.             Long-TermDebt**

 

Long-term debt consistsof (dollar amounts in thousands):

 
|                                                                                                                                                                                                                                                                                                                                                                                                                          |   | **July 29,  2001** |        | **July 28,  2001** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|-------------|--------------------|--------|
| **Resort Senior Credit Facility (see Notes 1, 6 and 22)**                                                                                                                                                                                                                                                                                                                                                                     |   | $                  | 142,848     |               | $      | 58,657 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                          |   |               |        |               |   |
| **Real Estate Term Facility (see Notes 1, 7 and 22)**                                                                                                                                                                                                                                                                                                                                                                         |   | 62,093             |        | 58,191             |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                          |   |               |        |               |   |
| **Real estate construction loan facility with a face value of  $110,000 (see Notes 1, 7 and 22)**                                                                                                                                                                                                                                                                                                                             |   | 49,424             |        | 36,555             |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                          |   |               |        |               |   |
| **Real estate construction loan facility with a face value of  $10,000 to provide additional funds for the completion of the Steamboat Grand  Hotel (see Note 7 and Note 22)**                                                                                                                                                                                                                                                |   | 5,180              |        | 5,474              |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                          |   |               |        |               |   |
| **Real estate mortgage note payable with a face value of  $2,427 secured by an employee housing complex at the Company’s Steamboat  resort. The note is on a 15-year amortization schedule, maturing in July 2020  and principal and interest are payable monthly.  The interest rate is reset on January 1 of each year to the  prime rate of the lending institution.**                                           |   | 2,330              |        | 2,231              |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                          |   |               |        |               |   |
| **Note payable with a face value of $2,250. The note bears  interest at 9% per annum, which is payable monthly beginning January 1998 for  a 15-year term. The principal is due in full in December 2012.**                                                                                                                                                                                                                   |   | 2,250              |        | 2,250              |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                          |   |               |        |               |   |
| **Real estate note payable to general contractor with a face  value of $3,878 secured by quartershare inventory at the Company’s Steamboat  resort.  The note was payable from  time to time upon the sale of quartershare units with the entire unpaid principal  and any interest accrued due on March 31, 2002.  The note is currently in default and bears interest at a  default rate of 18% per annum.** |   | —             |        | 2,055              |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                          |   |               |        |               |   |
| **Subordinated debentures issued with an original face value  of $2,101. The initial coupon rate is 6% per annum and is adjusted annually  in accordance with the agreement. Interest is payable annually in May  beginning in 1995. The debentures matured and were repaid in April 2002.**                                                                                                                                  |   | 1,867              |        | —             |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                          |   |               |        |               |   |
| **Note payable with a face value of $1,600. Interest is  payable monthly beginning January 1998 for a 30-year term. The interest rate  is 7% per annum for the first 10 years, 8.44% per annum for the second 10  years and 10.55% per annum for the final 10 years. The principal is due in  full in December 2027.**                                                                                                        |   | 1,600              |        | 1,600              |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                          |   |               |        |               |   |
| **Obligations under capital leases**                                                                                                                                                                                                                                                                                                                                                                                          |   | 18,698             |        | 13,063             |   |
| **Other notes payable**                                                                                                                                                                                                                                                                                                                                                                                                       |   | 849                |        | 274                |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 287,139            |        | 180,350            |   |
| **Less: current portion**                                                                                                                                                                                                                                                                                                                                                                                                     |   | 74,964             |        | 103,495            |   |
| **Long-term debt, excluding current portion**                                                                                                                                                                                                                                                                                                                                                                                 |   | **$**              | **212,175** | ** **         | **$**  | **76,855** | ** ** |

 

The carrying values ofthe above debt instruments approximate their fair values in all materialrespects, determined by discounting future cash flows at current marketinterest rates as of July 28, 2002.  Asof July 28, 2002, the Company had letters of credit outstanding totalingapproximately $4.5 million

 

F-16

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Long-termdebt and subordinated notes and debentures (see Note 8) mature as follows (inthousands):

 
|                                                                                  |   | **Long-term  debt** |       | **Subordinated  notes and  debentures** |   | **Total  Debt** |       |
|---------------------------------------------------------------------------------------|--------|---------------------|------------|-----------------------------------------|--------|-----------------|------------|
| **2003**                                                                              |   | $                   | 104,633    |                                    | $      | 1,074           |       | $ | 105,707 |   |
| **2004**                                                                              |   | 34,811              |       | 1,466                                   |   | 36,277          |       |
| **2005**                                                                              |   | 6,813               |       | —                                  |   | 6,813           |       |
| **2006**                                                                              |   | 30,543              |       | —                                  |   | 30,543          |       |
| **2007**                                                                              |   | 145                 |       | 133,783                                 |   | 133,928         |       |
| **2008 and thereafter**                                                               |   | 5,387               |       | 6,208                                   |   | 11,595          |       |
| **Interest related to capital lease obligations (rates  ranging from 5.0% to 12.2%**) |   | (1,982              | )          | —                                  |   | (1,982          | )          |
| **Debt discount**                                                                     |   | —              |       | (1,840                                  | )      | (1,840          | )          |
|                                                                                  |   | 180,350             |       | 140,691                                 |   | 321,041         |       |
| **Less current portion**                                                              |   | 103,495             |       | 1,074                                   |   | 104,569         |       |
| **Non-current portion of long-term debt**                                             |   | **$**               | **76,855** | ** **                              | **$**  | **139,617**     | ** ** | **$** | **216,472** | ** ** |

 

**6.             ResortSenior Credit Facility**

 

The Company established asenior credit facility on November 12, 1997 and repaid the indebtedness underthe Company’s then existing credit facility. On October 12, 1999, this senior credit facility was amended, restatedand consolidated from two sub-facilities to a single facility (Resort SeniorCredit Facility). The Resort Senior Credit Facility consists of a revolvingcredit facility in the amount of $52.1 million and a term facility in theamount of $32.2 million.  The revolvingportion of the Resort Senior Credit Facility matures on May 31, 2004, and theterm portion matures on May 31, 2006. The Resort Senior Credit Facility is secured by substantially all of theassets of ASC and its subsidiaries, except the real estate developmentsubsidiaries, which are not borrowers under the Resort Senior Credit Facility(collectively, the borrowing subsidiaries are referred to as the RestrictedSubsidiaries).  In conjunction with therestructuring of the Resort Senior Credit Facility, the Company expensed a pro-rataportion of its existing deferred financing costs in the amount of $1.0 millionduring Fiscal 2000 and $3.3 million during Fiscal 2002 which are reflected inthe accompanying consolidated statements of operations as a write-off ofdeferred financing costs.

 

The maximum availabilityunder the revolving portion of the Resort Senior Credit Facility reduces overits term by certain prescribed amounts. As of July 29, 2001 and July 28, 2002, the outstanding balance of the revolverportion was $73.9 million and $26.4 million, respectively.  Total availability under the revolver, asdefined by the Resort Senior Credit Facility, is limited to the amounts below:

 

| Closing Date – July 28, 2002         |   | $ | 38,000,000 |   |
|-------------------------------------------|--------|---|------------|--------|
| July 29, 2002 – October 27, 2002     |   | $ | 48,000,000 |   |
| October 28, 2002 – December 31, 2002 |   | $ | 52,100,000 |   |
| January 1, 2003 – January 26, 2003   |   | $ | 45,000,000 |   |
| January 27, 2003 – March 15, 2003    |   | $ | 23,000,000 |   |
| March 16, 2003 – April 27, 2003      |   | $ | 10,000,000 |   |
| April 28, 2003 – July 28, 2003       |   | $ | 40,000,000 |   |
| July 29, 2003 – October 27, 2003     |   | $ | 50,000,000 |   |
| October 28, 2003 – December 31, 2003 |   | $ | 52,100,000 |   |
| January 1, 2004 – January 26, 2004   |   | $ | 45,000,000 |   |
| January 27, 2004 – March 15, 2004    |   | $ | 25,000,000 |   |
| March 16, 2004 – April 27, 2004      |   | $ | 10,000,000 |   |
| April 28, 2004 – May 31, 2004        |   | $ | 40,000,000 |   |

 

The term portion of theResort Senior Credit Facility amortizes in five annual installments of $650,000payable on May 31 of each year, with the remaining portion of the principal duein two substantially equal installments on May 31, 2005 and May 31, 2006.  As of July 29, 2001 and July 28, 2002, theoutstanding balance of

 

F-17

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the term portion totaled$63.7 million and $32.2 million, respectively. In addition, the Resort Senior Credit Facility requires mandatoryprepayment of the term portion and a reduction in the availability under therevolving portion of an amount equal to 50% of the consolidated excess cashflows (as defined in accordance with the Resort Senior Credit Facility) duringany period in which the excess cash flow leverage ratio exceeds 3.50 to 1. Thisdid not occur in any of the years presented.

 

The interest rate on alloutstanding term and revolving credit amounts under the Resort Senior Credit Facilityis equal to the Fleet National Bank Base Rate plus 4.25%, but in no event willbe less than 9.75% (9.75% as of July 28, 2002).  The Resort Senior Credit Facility included a provision for adeferred interest spread, pursuant to which interest accrued (effective on May1, 2001) at a rate of 2% per annum on all amounts outstanding under thefacility.  The Company failed to make anoptional prepayment on December 24, 2001 and as a result, the deferred interestspread continued to accrue until May 9, 2002, when the Company completed thesale of its Heavenly resort and made the required payments.

 

The Resort Senior CreditFacility contains affirmative, negative and financial covenants customary forthis type of credit facility, which includes maintaining certain financialratios.  The Resort Senior CreditFacility also places an annual maximum level of non-real estate capitalexpenditures.  For Fiscal 2002, theCompany did not exceed the maximum capital expenditure requirement.  The Resort Senior Credit Facility restrictsthe Company’s ability to pay dividends on its common stock (see Note 11).  The Company was in compliance with allcovenants related to the Resort Senior Credit Facility through July 28, 2002.

 

Asdiscussed in Notes 1 and 22, subsequent to July 28, 2002, the Company completedthe refinancing of its Resort Senior Credit Facility on February 14, 2003 andthe New Resort Credit Facility was funded on February 18, 2003.

 

**7.             RealEstate Term Facility and Construction Loan Facility**

 

**Real Estate Term Facility**

On July 31, 2000,the Company entered into a Second Amended and Restated Credit Agreement betweenResort Properties, Fleet National Bank and the lenders party thereto (the RealEstate Term Facility).  This fully syndicated$73 million facility replaced Resort Properties’ previous un-syndicated $58million Real Estate development term loan facility. The Real Estate TermFacility is collateralized by security interests in, and mortgages on,substantially all of Resort Properties’ assets, which primarily consist ofundeveloped real property and the stock of its real estate developmentsubsidiaries (including Grand Summit). Effective May 20, 2002, Resort Properties defaulted on the Real EstateTerm Facility due to its failure to make a mandatory principal payment of $3.75million.  As a result, all indebtednessunder this facility is currently due and payable.  The Real Estate Term Facility is comprised of three tranches, eachwith separate interest rates and maturity dates as follows:

 

•                  Tranche A is arevolving facility with a current maximum principal amount of $22 million andbears interest at a variable rate equal to the Fleet National Bank Base Rateplus 2.0%, payable monthly in arrears. As a result of the default, the default interest rate on Tranche A isthe Fleet National Bank Base Rate plus 6.0% (6.75% as of July 28, 2002).  Prior to the default, mandatory principalreductions were required in certain prescribed percentages ranging from 50% to75% of net proceeds from any future sales of undeveloped parcels.  Prior to the default, the remainingprincipal was scheduled to be paid on June 30, 2003.

 

•                  Tranche B is aterm loan facility that has a maximum principal amount of $25 million, bearsinterest at a fixed rate of 18% per annum, of which 10% per annum is payablemonthly in arrears.  The remaining 8%per annum accrues, is added to the principal balance of Tranche B and bearsinterest at 18%.  As a result of the default,the default interest rate on Tranche B is 29%. Prior to the default, mandatory principal payments on Tranche B of $10million were due on each of December 31, 2003 and June 30, 2004.  Prior to the default, the remaining $5million principal and all accrued and unpaid interest on Tranche B was tomature on December 31, 2004.

 

•                  Tranche C is aterm loan facility that has a maximum principal amount of $12 million, bearsinterest at an effective rate of 25% per annum and, prior to the default, wasto mature on December 31, 2005.  As a

 

F-18

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result of thedefault, the default interest rate on Tranche C is 29%.  Interest accrues and is added to theprincipal balance of Tranche C and is compounded semiannually.

 

On March 30, 2002,American Skiing Company Resort Properties, Inc. (Resort Properties) failed tomake a mandatory principal payment of $3.75 million under its Real Estate TermFacility.  Resort Properties obtained atemporary waiver of this default on April 2, 2002. Effective May 20, 2002, thetemporary waiver was revoked and Resort Properties was in default on thefacility.  On May 31, 2002, the lendersaccelerated the due date of the entire remaining principal and accrued interestunder the facility.  On November 22,2002, Resort Properties entered into a forbearance agreement with the lenderswhereby the lenders have agreed to not pursue additional foreclosure remediesand to cease publication of foreclosure notices for a 30-day period. Althoughthis 30-day period has expired, management continues discussions with Fleet andthe other lenders regarding a restructuring of this facility, and Fleet and theother lenders have not exercised any further foreclosure remedies since theexpiration of the forbearance agreement. Management’s ongoing restructuring efforts with the lenders are aimedtowards a restructuring of the facility which will establish a new entity tohold Resort Properties’ real estate development assets.  The equity in the new entity is expected tobe held by a combination of the lenders under the facility and Resort Properties.  The facility remains in default pendingcompletion of these negotiations.

 

There is no assurancethat negotiations will be successfully completed, or that the terms under whichthe payment defaults pending under the Real Estate Term Facility may beresolved, if at all.  Furthermore,regardless of the outcome of this proposed restructuring, the Company may losecontrol of assets pledged as collateral under the facility and future access tovalue creation from these real estate assets. A substantial portion of theCompany’s developable real estate, including substantially all of thedevelopable residential real estate at The Canyons and Steamboat along withcertain core village real estate at Killington, and the stock of the Company’sreal estate development subsidiaries (including Grand Summit Resort Properties,Inc. (Grand Summit)) is pledged to Fleet and the lenders under thefacility.  The commercial core units atthe Sundial Lodge at The Canyons and the Mount Snow Grand Summit Hotel inVermont are also pledged to Fleet and the lenders.  The Grand Summit unit inventory and the land at the Sunday Riverresort do not secure the Real Estate Term Facility, although the pledge of thestock of Grand Summit to secure the Real Estate Term Facility means that theCompany may lose control of the Grand Summit unit inventory to the lendersunder the Real Estate Term Facility. Other remedies available to the lenders include, but are not limited to,setoff of cash collateral amounts in Resort Properties’ name held at Fleet inthe amount of approximately $1.1 million, foreclosure of real and personalproperty owned by Resort Properties and pledged to the lenders (including allof the capital stock of the Company’s hotel development subsidiary, GrandSummit), and other customary secured creditor remedies.  As of July 28, 2002, the carrying value ofthe total assets that collateralized the Real Estate Term Facility wasapproximately $124.7 million.  Thiscollateral includes $87.7 million of Grand Summit assets pledged under theCompany’s $42.0 million real estate construction loan facility.

 

As of July 28,2002, the principal balances outstanding, including accrued and unpaidinterest, under Tranches A, B and C of the Real Estate Term Facility were $17.7million, $30.8 million, and $16.3 million, respectively.

 

Tranche C of theReal Estate Term Facility was purchased by Oak Hill Capital Partners (Oak Hill)and its associates.  In connection withthis investment, the Company entered into a Securities Purchase Agreement withOak Hill, dated July 31, 2000, pursuant to which the Company agreed to either(i) issue warrants to Oak Hill for 6,000,000 shares of ASC common stock with anexercise price of $2.50 per share or if certain conditions could not be met byASC; (ii) issue to Oak Hill common stock in Resort Properties representingapproximately 15% of the voting interest in Resort Properties.  The purchase price of the warrants (or theResort Properties common stock) was $2 million.  Under the terms of the agreement, net share settlement wasrequired.  The transaction was accountedfor as debt issued with detachable warrants under Accounting Principles BoardOpinion (APB) No. 14.  APB No. 14 requiresthat the portion of the proceeds allocable to the warrants should be accountedfor as paid-in capital.  The allocationwas based on the relative fair values of the two securities at the time ofissuance.  Upon execution of thetransaction, ASC recorded a $7.7 million long-term liability which representedthe fair value of ASC’s obligation to issue the warrants (or the ResortProperties common stock).  As part ofthe July 15, 2001 securities purchase agreement (see Note 12), which closed onAugust 31, 2001, Oak Hill agreed to cancel its right to receive these warrants,which had an exercise price of $2.50 per share and ASC’s common stock was thentrading at approximately $1 per share. The warrants on that date had a fair value of

 

F-19

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approximately $2.2million.  The $7.7 million long-termliability was removed from the books in connection with the recording of thenew Series C-1 and C-2 preferred stock issuance.

 

**Construction Loan Facility**

The Company conductssubstantially all of its real estate development through subsidiaries, each ofwhich is a wholly owned subsidiary of Resort Properties.  Grand Summit owns the existing Grand SummitHotel projects, which are primarily financed through a $110 millionconstruction loan facility (Senior Construction Loan) among Grand Summit andvarious lenders, including Textron, the syndication and administrative agent.Due to construction delays and cost increases at the Steamboat Grand Hotelproject, Grand Summit entered into a $10 million subordinated loan tranche withTextron (Subordinated Construction Loan) on July 25, 2000.  The Company has used this facility solelyfor the purpose of funding the completion of the Steamboat Grand Hotel.

 

The Senior ConstructionLoan principal is payable incrementally as quartershare sales are closed based ona predetermined per unit amount, which approximates between 40% and 80% of thenet proceeds of each closing. Mortgages against the project sites (includingthe completed Grand Summit Hotels at Killington, Mount Snow, Sunday River,Attitash Bear Peak, The Canyons, and Steamboat) collateralize the SeniorConstruction Loan, which is subject to covenants, representations andwarranties customary for this type of construction facility. The SeniorConstruction Loan is non-recourse to the Company and its resort operatingsubsidiaries (although it is collateralized by substantial assets of GrandSummit, having a total book value of $87.7 million as of July 28, 2002, whichin turn comprise substantial assets of the Company’s business).  The maturity date for funds advanced underthe Steamboat portion of the Senior Construction Loan, as amended, is May 31,2004 and the maturity date for funds advanced under The Canyons portion of theSenior Construction Loan, as amended, is March 31, 2003.  The principal balance outstanding under theSteamboat portion of the Senior Construction Loan was approximately $32.9million as of July 28, 2002 and had an interest rate on funds advanced of primeplus 3.5%, with a floor of 9.0% (9.0% as of July 28, 2002).  The principal balance outstanding under TheCanyons portion of the Senior Construction Loan was approximately $3.6 millionand had an interest rate on funds advanced of prime plus 2.5%, with a floor of9.5% (9.5% as of July 28, 2002).  Thematurity date for funds advanced under the Subordinated Construction Loan, asamended, is September 30, 2004 and the interest rate on funds advanced is 20%.

 

As of July 28,2002, the Company’s hotel development subsidiary was in default under itsSenior Construction Loan and Subordinated Construction Loan (collectively,Construction Loan Facility), resulting from a cross-default on Real Estate TermFacility and from the non-payment of a $3.8 million note to the generalcontractor of the Steamboat Grand Hotel project.

 

Effective August 29,2002, the Company and Textron entered into amendments to the SeniorConstruction Loan and the Subordinated Construction Loan.  The terms of the revised agreements waivethe above referenced defaults, relax mandatory principal amortizationrequirements and provide additional liquidity to support ongoing sales andmarketing activities of the remaining quartershare units at The Canyons GrandSummit and Steamboat Grand hotels.  As aresult of the amendment to the Senior Construction Loan, the maturity dateswere extended from March 31, 2003 to May 31, 2004 for the Steamboat portion ofthe Senior Construction Loan and from September 28, 2002 to March 31, 2003 forThe Canyons portion of the Senior Construction Loan.  The release prices, as defined, on Steamboat have also beenadjusted and the amendment allows for future adjustments depending upon certaincircumstances.  Upon the repayment ofall indebtedness under the Senior Construction Loan, the SubordinatedConstruction Loan and all other fees, Textron will receive a fee equal to 25%of all gross proceeds of sales of quartershare units and commercial unitsoccurring subsequent to repayment. Grand Summit and the lenders have also agreed to use their best effortsto enter into an escrow agreement pursuant to which the appropriatedeed-in-lieu documentation in respect to the Senior Construction Loan and theSubordinated Construction Loan shall be placed in escrow.  Finally, the amendment to the SeniorConstruction Loan outlines the following maximum outstanding principal balancesunder the Senior Construction Loan as of the following dates:

 

| September  30, 2002 |   | $ | 39,000,000 |   |
|---------------------|--------|---|------------|--------|
| December  31, 2002  |   | $ | 35,000,000 |   |
| March  31, 2003     |   | $ | 30,000,000 |   |
| June  30, 2003      |   | $ | 25,000,000 |   |
| September  30, 2003 |   | $ | 20,000,000 |   |

 

F-20

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| December  31, 2003 |   | $ | 10,000,000 |   |
|--------------------|--------|---|------------|--------|
| March  31, 2004    |   | $ | 5,000,000  |   |
| May  31, 2004      |   | $ | —     |   |

 

As a result of theamendment to the Subordinated Construction Loan, the maturity date was extendedfrom August 1, 2003, to September 30, 2004. In addition, the Subordinated Construction Loan was reopened to provideadditional borrowing availability of approximately $4.5 million throughFebruary 28, 2003.  The SubordinatedConstruction Loan will continue to bear interest at 20%, payable monthly inarrears, provided that 50% of the interest shall be due and payable in cash andthe other 50% of such interest shall, if no events of default exist under theSubordinated Construction Loan or the Senior Construction Loan, automatically bedeferred until the final payment date of September 30, 2004.

 

**8.             SubordinatedNotes and Debentures**

 

**12% Senior Subordinated Notes**

On June 25, 1996, ASCEast issued $120.0 million of 12% Senior Subordinated Notes (SeniorSubordinated Notes).  In order to complywith the conditions to closing the Series B Preferred Stock sale (see Note 9),certain amendments were made to the Senior Subordinated Notes. One of theamendments permitted the consummation of a merger of two of the Company’swholly owned subsidiaries, ASC East and ASC West, with and into ASC.  This merger was approved by the noteholderson August 1, 1999 and a payment of approximately $1.5 million was paid to theholders of the Senior Subordinated Notes. ASC, ASC East and ASC West were merged on October 6, 1999.  In connection with the merger, ASC assumedall liabilities of ASC East and ASC West and became the primary obligor underthe Senior Subordinated Notes. In addition, the then current subsidiaries ofASC and ASC West, as well as ASC Utah, also became additional guarantors underthe Indenture.  As a result of theadditional guaranty given by certain subsidiaries of the Company, thenoteholders under the Indenture will have priority over the equity holders ofthe Company with respect to any claims made on the assets of those subsidiariesuntil the obligations under the Indenture have been satisfied.

 

On April 19, 2002, theCompany completed an amendment to the indenture governing the SeniorSubordinated Notes.  Pursuant to thatamendment, the indenture and Senior Subordinated Notes are no longer subject toa cross-default resulting from a default by the Company’s real estatesubsidiaries under certain debt which is non-recourse to the remainder of theCompany, including the Real Estate Term Facility and the Construction LoanFacility.  The amendment also providesthat neither a bankruptcy nor a judgment against any of the Company’s realestate development subsidiaries will constitute a default under the indenture.

 

The Senior SubordinatedNotes are general unsecured obligations of the Company, subordinated in rightof payment to all existing and future senior debt of the Company, including allborrowings of the Company under its Resort Senior Credit Facility and the NewResort Credit Facility (see Notes 1 and 22). The Senior Subordinated Notes arefully and unconditionally guaranteed by ASC and all of its subsidiaries, withthe exception of Ski Insurance, Killington West, Ltd., Uplands Water Companyand Walton Pond Apartments, Inc.  Theabove listed subsidiaries that are not guarantors are individually andcollectively immaterial to the Company’s balance sheet and results ofoperations.  The guarantor subsidiariesare wholly owned subsidiaries of ASC and the guarantees are full,unconditional, and joint and several. ASC is a holding company with no significant independent assets oroperations other than its interests in the subsidiaries.  Some of the guarantor subsidiaries arerestricted in their ability to declare dividends or advance funds to ASC.  The Senior Subordinated Notes mature July15, 2006, and will be redeemable at the option of ASC, in whole or in part, atany time after July 15, 2001.  TheSenior Subordinated Notes were issued with an original issue discount of $3.4million.  As of July 28, 2002, theunamortized original issue discount was approximately $1.8 million.  Interest on the Senior Subordinated Notes ispayable semi-annually on January 15 and July 15 of each year. Interest expenseon the Senior Subordinated Notes amounted to $14.6 million in each of Fiscal2000, 2001, and 2002.  The Company hasthe option to redeem the Senior Subordinated Notes at the following prices onthe dates noted (expressed as a percentage of face value):

 

| Through  July 14, 2003              |   | 104.688 | % |
|-------------------------------------|--------|---------|---|
| July  15, 2003 – July 14, 2004 |   | 103.125 | % |
| July  15, 2004 – July 14, 2005 |   | 101.563 | % |
| Thereafter                          |   | 100.000 | % |

 

F-21

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The Company has enteredinto a series of non-cancelable interest rate swap agreements in connectionwith its Notes.  The following tableillustrates the key factors of each of these agreements:

 
|            |   | **February 9, 1998 – July 15, 2001** |   | **July 16, 2001 – July 15, 2006** |   |
|-----------------|--------|-------------------------------------------|--------|----------------------------------------|--------|
|            |   | **Notional  Amount**                      |   | **Company  Pays**                      |   | **Company  Receives** |   | **Notional  Amount** |   | **Company  Pays** |   | **Company  Receives** |   |
|            |   |                                      |   |                                   |   |   |   |   |   |   |   |   |   |
| **Agreement 1** |   | $120,000,000                              |   | 9.01                                   | %      | 6-month LIBOR |   | $127,500,000 |   | 9.01 | % | 6-month LIBOR |   |
|            |   |                                      |   |                                   |   |   |   |   |   |   |   |   |   |
| **Agreement 2** |   | $120,000,000                              |   | 6-month LIBOR                          |   | 12.00 | % | $127,500,000 |   | 6-month LIBOR |   | 7.40 | % |

 

As a result of entering into these interest rate swaparrangements, the Company has fixed the cash-pay rate on the SeniorSubordinated Notes until their maturity in July 2006.  These agreements are non-hedging swaps which are carried at theirfair market value, with fluctuations recorded through interest expense, inaccordance with SFAS No. 133.  Inconnection with the refinancing of the Company’s Resort Senior Credit Facilityon February 18, 2003, the interest rate swap agreements were terminated with nosignificant gain or loss being incurred.

 

**11.3025% Junior Subordinated Notes**

On July 15, 2001, the Company entered into asecurities purchase agreement with Oak Hill Capital Partners to assist theCompany in meeting its current financing needs (see Note 12).  Pursuant to the terms of the securitiespurchase agreement, which closed on August 31, 2001, the Company issued, andOak Hill purchased, $12.5 million aggregate principal amount of JuniorSubordinated Notes, which are convertible into shares of the Company’s Series DParticipating Preferred Stock (Series D Preferred Stock).  These Junior Subordinated Notes areunsecured and bear interest at a rate of 11.3025%, which compounds annually andis due and payable at the maturity of the Junior Subordinated Notes in August2007.  The proceeds of the JuniorSubordinated Notes were used to fund short-term liquidity needs of ResortProperties by way of the purchase of certain real estate assets by ASC fromResort Properties.  As of July 28, 2002,the outstanding balance on the Junior Subordinated Notes was approximately$13.8 million.

 

**Other Subordinated Debentures**

Other subordinateddebentures owed by the Company as of July 28, 2002 are unsecured and are due asfollows (in thousands):

 

| **Year** |   | **Interest  Rate** |       | **Principal  Amount** |   |
|----------|--------|--------------------|------------|-----------------------|--------|
| **2003** |   | 8                  | %          | **$**                 | 1,074  | ** ** |
| **2004** |   | 8                  | %          | 1,466                 |   |
| **2010** |   | 8                  | %          | 1,292                 |   |
| **2012** |   | 6                  | %          | 1,155                 |   |
| **2013** |   | 6                  | %          | 1,065                 |   |
| **2015** |   | 6                  | %          | 1,500                 |   |
| **2016** |   | 6                  | %          | 1,196                 |   |
|     |   |               | ** ** | $                     | 8,748  | ** ** |

 

**9.         MandatorilyRedeemable Securities**

 

**Series A Preferred Stock**

Pursuant to a SecuritiesPurchase Agreement (the Series A Agreement) dated July 2, 1997 (as amended July16, 1997), the Company issued 17,500 shares of its Series A 14% ExchangeablePreferred Stock (the Series A Preferred Stock) in a private offering to aninstitutional investor.  Pursuant to theSeries A Agreement, the Company issued $17.5 million aggregate principal amountof its 14% Senior Exchangeable Notes Due 2002 (the Exchangeable Notes) on July28, 1997 in a private offering to an institutional investor.  On November 15, 1997, subsequent to the

 

F-22

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completion of theOffering, each share of Series A Preferred Stock and the Exchangeable Noteswere converted into shares of Mandatorily Redeemable 101⁄2% Preferred Stock. Thetotal number of Mandatorily Redeemable 101⁄2% Preferred Stock shares issued inassociation with the exchange were 36,626 and have a face value of $1,000 pershare.  As of July 28, 2002, cumulativedividends in arrears totaled approximately $23.4 million.

 

Under the Series AAgreement, the Mandatorily Redeemable 101⁄2% Preferred Stock shares areexchangeable at the option of the holder into shares of the Company’s commonstock at a conversion price of $17.10 for each common share.  The Series A Preferred Stock was redeemableon November 12, 2002 at an aggregate redemption price of $61.9 million, whichincludes the face value of $36.6 million plus approximately $25.3 million ofcumulative dividends in arrears, to the extent that the Company had fundslegally available for such redemption. If the Series A Preferred Stock is not permitted to be redeemed becausethere are not legally available funds, the Company must redeem that number ofshares of Series A Preferred Stock which it can lawfully redeem, and from timeto time thereafter, as soon as funds are legally available, the Company mustredeem shares of the Series A Preferred Stock until it has done so infull.  Prior to the November 12, 2002redemption date, based upon all relevant factors, the Company's Board of Directorsdetermined not to redeem any such shares of stock on such redemption date.  On January 27, 2003, the holders of theSeries A Preferred Stock demanded that the Company redeem all of the Series APreferred Stock immediately.  TheCompany is not permitted to redeem the Series A Preferred Stock under the termsof the New Resort Credit Facility and the indenture governing the SeniorSubordinated Notes.  Also, managementcan give no assurance that the necessary liquidity will be available to effectsuch redemption.  The Company willcontinue to assess its obligations with respect to the requirements of theredemption provisions of the Series A Preferred Stock.  Because the Series A Preferred Stock was notredeemed on November 12, 2002, the certificate of designation for the Series APreferred Stock provides that the holders are entitled to elect two additionalmembers of the Company’s board of directors. The Company has not yet been advised by the holders of the Series APreferred Stock whether they intend to exercise their right to elect two directorsat or prior to the next annual shareholders meeting or whether they intend totake any other action, including legal action. If the holders of the Series A Preferred Stock were to commence anylitigation to compel the Company to redeem the Series A Preferred Stock, basedupon present facts and circumstances, the Company would vigorously contest anysuch litigation.  If the Company isrequired to redeem all or any portion of the Series A Preferred Stock, it couldhave a material adverse effect on its business, results of operations andfinancial condition.

 

The MandatorilyRedeemable 101⁄2% Preferred Stock ranks senior in liquidation preference to allcommon stock and Class A common stock outstanding as of July 28, 2002 as wellas any common stock and Class A common stock issued in the future.

 

**Series B Preferred Stock**

Pursuant to aPreferred Stock Subscription Agreement (the Series B Agreement) dated July 9,1999, the Company sold 150,000 shares of its 8.5% Series B ConvertibleParticipating Preferred Stock (Series B Preferred Stock) on August 9, 1999 toOak Hill Capital Partners, L.P. and certain related entities (collectively, OakHill) for $150 million.

 

On August 31,2001, in connection with a recapitalization transaction, the Series B PreferredStock was stripped of all of its economic and governance rights andpreferences, with the exception of its right to elect up to six directors.  The Company issued mandatorily redeemableSeries C-1 and Series C-2 Preferred Stock with an aggregate initial face valueof $179.5 million which was equal to the accrued liquidation preference of theSeries B Preferred Stock immediately before being stripped of its right to suchaccrued liquidation preference (see Note 12). The Series B Preferred Stock will lose its remaining rights uponredemption of the Series C-1 and C-2 Preferred Stock in July 2007.

 

**Series C-1 and C-2 Preferred Stock**

On July 15, 2001, the Company entered into asecurities purchase agreement with Oak Hill to assist the Company in meetingits current financing needs.  Pursuantto the terms of the securities purchase agreement, which closed on August 31,2001, the Company issued to Oak Hill two new series of Preferred Stock: (i) $40million face value of Series C-1 Preferred Stock; and (ii) $139.5 million facevalue of Series C-2 Preferred Stock. The initial face values of the Series C-1 Preferred Stock and Series C-2Preferred Stock correspond to the accrued liquidation preference of the SeriesB Preferred Stock immediately before being stripped of its right to suchaccrued liquidation preference (see Note 12). The Series C-1 Preferred Stock and Series C-2 Preferred Stock areentitled to annual

 

F-23

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preferred dividends of 12% and 15%, respectively.  At the Company’s option, dividends can eitherbe paid in cash or in additional shares of preferred stock.  The Series C-1 Preferred Stock isconvertible into common stock at a price of $1.25 per share, subject toadjustments.  The Series C-2 PreferredStock is not convertible.  Both of theSeries C-1 Preferred Stock and Series C-2 Preferred Stock are mandatorilyredeemable and mature in July 2007.  Asof July 28, 2002, cumulative dividends in arrears totaled approximately $4.5million and $19.9 million for the Series C-1 Preferred Stock and Series C-2Preferred Stock, respectively.

 

**Series D Preferred Stock**

The Company has authorized the issuance of 5,000shares of $0.01 par value, non-voting Series D Participating Preferred Stock(Series D Preferred Stock).  As of July28, 2002, no shares of Series D Preferred Stock have been issued.  The Series D Preferred Stock is junior inright of preference to the Series A, Series C-1 and Series C-2 Preferred Stock,is not entitled to preferred dividends and is redeemable at the option of theshareholder.

** **

**10.          Capital Stock**

 

The Company has two classes of Common Stockoutstanding, Class A common stock and common stock. The rights and preferencesof holders of Class A common stock and common stock are substantially identical,except that, while any Class A common stock is outstanding, holders of Class Acommon stock will elect a class of directors that constitutes two-thirds of theBoard of Directors and holders of common stock will elect a class of directorsthat constitutes one-third of the Board of Directors.  Each share of Class A common stock will be convertible into oneshare of common stock (i) at the option of the holder at any time, (ii)automatically upon transfer to any person that is not an affiliate of Mr. Ottenand (iii) automatically if, at any time, the number of shares of Class A commonstock outstanding represents less than 20% of outstanding shares of commonstock and Class A common stock.  Mr.Otten holds 100% of the Class A common stock.

 

**11.          Dividend Restrictionsand Stockholders Agreement**

 

**Dividend Restrictions**

Borrowers underthe Resort Senior Credit Facility and the New Resort Credit Facility, whichinclude ASC, are restricted from paying cash dividends on any of theirpreferred or common stock.

 

Borrowers underthe Real Estate Term Facility, which include Resort Properties and ResortProperties’ subsidiaries, including Grand Summit, are restricted from declaringdividends or advancing funds to ASC by any other method, unless specificallyapproved by these lenders.

 

Under the indenture governing the Senior SubordinatedNotes, ASC is prohibited from paying cash dividends or making otherdistributions to its shareholders.

 

**Stockholders Agreement**

The Company, Oak Hill and Mr. Otten entered into aStockholders Agreement, dated as of August 6, 1999, amended on July 31, 2000(as amended, the “Stockholders Agreement”), pursuant to which each of Mr. Ottenand Oak Hill agreed to vote their capital stock of the Company so as to causethere to be:

 

•                  Six directors ofthe Company nominated by Oak Hill, so long as Oak Hill owns 80% of the sharesof common stock it owned as of July 30, 2000 on a fully diluted basis, suchnumber of directors decreasing ratably with the percentage of Oak Hill’sownership of the common stock on a fully diluted basis compared to suchownership as of July 30, 2000; and

 

•                  Two directors ofthe Company nominated by Mr. Otten, so long as Mr. Otten owns 15% of the sharesof common stock outstanding on a fully diluted basis, and one director so nominated,so long as Mr. Otten owns at least 5% of the shares of Common Stock outstandingon a fully diluted basis.

 

Oak Hill owns 80% of the shares of common stock itowned as of July 30, 2000, on a fully diluted basis, therefore, two of the fourmembers of the Board of Directors to be elected by Mr. Otten, as sole owner ofthe Class A

 

F-24

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Common Stock pursuant to the terms of the Company’s certificate ofincorporation will be chosen by Oak Hill and elected by Mr. Otten.

 

The Stockholders Agreement provides that, so long asOak Hill owns at least 20% of the outstanding shares of common stock on a fullydiluted basis, the affirmative vote of at least one Oak Hill director isrequired prior to the approval of (i) the Company’s annual budget, (ii)significant executive personnel decisions, (iii) material actions likely tohave an impact of 5% or more on the Company’s consolidated revenues orearnings, amendments to the Company’s articles of incorporation or bylaws, (iv)any liquidation, reorganization or business combination of the Company, (v) theinitiation of certain material litigation, and (vi) any material financing ofthe Company.

 

Under the Stockholders Agreement, Oak Hill and Mr.Otten have agreed not to dispose of their securities of the Company if, (i) asa result of such transfer, the transferee would own more than 10% of theoutstanding shares of common stock of the Company (on a fully diluted basis),unless such transfer is approved by the Board of Directors (x) including amajority of the Common Directors, as defined, or (y) the public stockholders ofthe Company are given the opportunity to participate in such transfer onequivalent terms, (ii) the transferee is a competitor of the Company or any ofits subsidiaries, unless such transfer is approved by the Board of Directors,or (iii) such transfer would materially disadvantage the business of theCompany or any of its subsidiaries.  TheStockholders Agreement provides for additional customary transfer restrictionsapplicable to each of Mr. Otten and Oak Hill as well as standstill provisionsapplicable to Oak Hill.

 

The Stockholders Agreement provides that, upon theCompany’s issuance of shares of common stock or securities convertible into commonstock, Mr. Otten and Oak Hill will have the right to purchase at the same priceand on the same terms, the number of shares of Common Stock or securitiesconvertible into common stock necessary for each of them to maintainindividually the same level of beneficial ownership of common stock of theCompany on a fully diluted basis as it owned immediately prior to theissuance.  This anti-dilution provisionis subject to customary exceptions.

 

**12.          Recapitalization**

 

**Recapitalization**

On July 15, 2001, the Company entered into asecurities purchase agreement with Oak Hill to assist the Company in meetingits current financing needs.  Theagreement closed on August 31, 2001 and included the following key terms:

 

•                  The Companyissued, and Oak Hill purchased, $12.5 million aggregate principal amount ofJunior Subordinated Notes, which are convertible into shares of the Company’sSeries D Preferred Stock;

 

•                  Oak Hill funded$2.5 million of the $3.5 million of availability remaining under Tranche C ofthe Real Estate Term Facility to facilitate amendments to that creditfacility.  This was the final advanceunder Tranche C, as the maximum availability under this facility was reducedfrom $13 million to $12 million;

 

•                  Oak Hill agreedto provide a guaranty for a $14 million equipment lease for the Heavenlygondola, which guaranty was released upon the sale of Heavenly.  The fair value of the lease guaranty wasapproximately $1.7 million;

 

•                  Oak Hillpurchased 1 million shares of the Company’s common stock for an aggregatepurchase price of $1 million;

 

•                  Oak Hill agreedto cancel an agreement to provide it with warrants for 6 million shares of theCompany’s common stock or 15% of the common stock of Resort Properties, thefair value of which was $2.2 million on the date of the transaction (see Note7);

 

•                  The outstandingSeries B Preferred Stock that was held by Oak Hill was stripped of all of itseconomic and governance rights and preferences, with the exception of the rightto elect up to six directors in exchange for

 

F-25

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the items mentioned above and the Company issuing toOak Hill two new series of Preferred Stock: (i) $40 million face value ofSeries C-1 Preferred Stock; and (ii) $139.5 million face value of Series C-2Preferred Stock;

 

•                  At Oak Hill’soption, and subject to the consent of the other lenders under the Real EstateTerm Facility, Tranche C of the Real Estate Term Facility is exchangeable inwhole or in part into indebtedness of the Company when permitted under theexisting debt agreements.

** **

The termination of the liquidation preference andother rights of the Series B Preferred Stock in exchange for the issuance ofthe Series C-1 and Series C-2 Preferred Stock was accounted for as amodification and recapitalization transaction in conjunction with the termsdescribed above.  Accordingly, thecarrying value of the Series B Preferred Stock of $172.1 million (net of $7.4million unamortized discount) as of August 31, 2001 was removed and acorresponding amount recorded as Series C-1 Preferred Stock and Series C-2Preferred Stock.  In addition, the fairvalues of the gondola lease guaranty of $1.7 million and the warrant rights returned to the Company by Oak Hillof $2.2 million were added to the recorded value of the Series C-1 and SeriesC-2 Preferred Stock.  The gondola leaseguaranty was accounted for as a prepaid lease cost that was amortized to leaseexpense based on the life of the gondola lease until the Heavenly resort wassold at which time the unamortized portion was written off.  The long-term liability related to thewarrant rights was removed and the difference between its carrying value of$7.7 million and its fair value of $2.2 million was recorded as additionalpaid-in capital.  No gain or loss wasrecognized related to this recapitalization transaction.

** **

**13.          Merger, Restructuring and AssetImpairment Charges**

 

During Fiscal 2001 and 2002, the Company recognizedcertain merger, restructuring and asset impairment charges as follows (inthousands):

 

|                                                                                           |   | **Fiscal 2001** |       | **Fiscal 2002** |   |
|------------------------------------------------------------------------------------------------|--------|-----------------|------------|-----------------|--------|
| **Impairment of  Steamboat assets**                                                            |   | $               | 52,000     |            | $      | 25,444 |   |
| **Impairment of  Steamboat Grand Hotel and The Canyons Grand Summit Hotel quartershare units** |   | —          |       | 38,700          |   |
| **Impairment of  The Canyons land and land****options**                                        |   | —          |       | 18,921          |   |
| **Impairment of  real estate master planning and infrastructure costs**                        |   | —          |       | 24,756          |   |
| **Impairment of  resort land option at Sunday River and certain resort fixed assets**          |   | —          |       | 1,369           |   |
| **Impairment of  Sugarbush assets**                                                            |   | 15,111          |       | (272            | )      |
| **Costs  associated with failed merger**                                                       |   | 3,593           |       | —          |   |
| **Restructuring  charges**                                                                     |   | 3,981           |       | 2,690           |   |
| **Impairment of  Attitash Bear Peak Grand Summit Hotel quartershare units**                    |   | 1,330           |       | —          |   |
| **Total charges**                                                                              |   | **$**           | **76,015** | ** **      | **$**  | **111,608** | ** ** |

 

**Merger and Asset Impairment Charges**

Effective May 20,2002, Resort Properties defaulted on the Real Estate Term Facility due to itsfailure to make a mandatory principal payment of $3.75 million.  Until May 20, 2002, Resort Properties hadbeen able to obtain waivers or amendments to the Real Estate Term Facilitywhenever there were defaults.  However,given the combination of (1) extreme slow down in the resort sector economy andespecially the slowdown in the real estate market, (2) the conservative lendingenvironment, and (3) the negative terms of the Textron restructuring and thepossible negative terms of the Fleet restructuring, management determined thata significant adverse change in the economic environment and in the businessplans of the Company occurred in the fourth quarter of Fiscal 2002.  This adverse change affected therealizability of the Company’s long-lived assets and the Company recordedappropriate impairments.  In accordancewith SFAS No. 144, the Company evaluated the carrying values of long-livedassets as of July 28, 2002.  In additionto the $25.4 million of asset impairments recorded on Steamboat fixed assetsduring

 

F-26

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the second quarter ofFiscal 2002, approximately $83.5 million of asset impairments were recordedduring the fourth quarter of Fiscal 2002 and are summarized as follows:

 

*Real Estate Business Segment*

•                  $38.7million for quartershare inventory at the Steamboat Grand Hotel and The CanyonsGrand Summit Hotel based on expected future cash flows,

•                  Approximately$24.8 million for master planning and real estate costs at The Canyons,Killington, Mount Snow, Sugarloaf, Sunday River and Steamboat based on expectedfuture cash flows.

 

*Resort Business Segment*

•                  Approximately$18.9 million for land and land options at The Canyons based on appraisals andexpected future cash flows,

•                  Approximately$1.4 million for certain resort fixed assets and a land option at Sunday Riverbased on expected realizability,

•                  Approximately($0.3) million gain to finalize the sale of Sugarbush.

 

During the first quarter ofFiscal 2002, the Company entered into a non-binding letter of intent to sellits Steamboat resort in Steamboat Springs, Colorado.  In accordance with SFAS No. 121, the Company recognized a $52.0million impairment loss on the net assets held for sale as of July 29,2001.  An additional $25.4 millionimpairment charge was recorded in the second quarter of Fiscal 2002 based onmodifications from preliminary estimates to the final proposed purchase andsale agreement.  The Company withdrewfrom the sale of Steamboat on March 26, 2002.

 

In the first quarter of Fiscal 2002, the Companyfinalized its sale of its Sugarbush resort in Warren, Vermont.  In accordance with SFAS No. 121, the Companyrecognized a $15.1 impairment loss on these assets as of July 29, 2001.  Upon completion of the sale of Sugarbush onSeptember 28, 2001, the Company recorded a gain of approximately $272,000 whichwas reflected as an offset to the previously recorded impairment charges.

 

On December 8, 2000, the Companyand MeriStar Hotels & Resorts, Inc. (‘‘MeriStar’’) entered into a mergeragreement (the ‘‘Merger Agreement’’) whereby a wholly owned subsidiary of theCompany, ASC Merger Sub, Inc., would have merged with and into MeriStar (the‘‘MeriStar Merger’’). The Boards of each of the Company and MeriStar metseparately on March 22, 2001 and voted to terminate the proposed merger due tochanges in economic conditions and the combined companies’ inability to effectthe capital markets transactions required to consummate the merger.  The companies each executed a letterterminating their existing Merger Agreement without liability to theother.  The Company recorded a $3.6million charge in the third quarter of Fiscal 2001 for the costs incurred in conjunctionwith the terminated MeriStar Merger. This $3.6 million charge included $2.5 million in legal, accounting andother consultation and professional services rendered in conjunction with theproposed merger, $0.8 million in fees paid to lenders related to the Company’sapplication for a new senior credit facility that would have been establishedfor the surviving merged enterprise, and $0.3 million in fees incurred for thepreparation and distribution of a consent solicitation statement seeking theapproval of the proposed merger from the holders of the Company’s Notes.

 

The Attitash Bear Peak GrandSummit Hotel had realized slower absorption in the market than previouslyanticipated, and 40% of the units remained unsold as of July 29, 2001.  As a result, the Company instituted programsto bring about a complete sell-out of the units during Fiscal 2002.  In accordance with SFAS No. 121, the Companyrecognized a $1.3 million impairment charge to recognize the net realizablevalue of the remaining quartershare units in the fourth quarter of Fiscal2001.  The remaining units were soldduring Fiscal 2002.

 

**Restructuring Charges**

On May 30, 2001, the Companyinitiated a comprehensive strategic plan to improve its capital structure andenhance future operating performance. The plan included the following key components:

 

•                  Strategicredeployment of management and capital resources to emphasize the integrationand growth of resort village development and operations.

 

F-27

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•                  Intentto sell the Steamboat resort and use the net proceeds to reduce the debt of theCompany.

•                  Reorganization,staff reduction and performance enhancement programs to achieve operationalcost savings and improve financial performance.

•                  Acomprehensive financial restructuring package, including amendments to seniorcredit facilities and an anticipated new capital infusion to enhance financialflexibility.

 

During Fiscal 2001, the Companyincurred $4.0 million in charges related to the implementation of itscomprehensive strategic plan.  Of thisamount, $2.8 million represents amounts paid for employee separation costsrelated to the termination of employees throughout the Company includingseveral senior management positions.  Asof July 29, 2001, all planned employee terminations had been completed.  These terminations and restructuringsconsisted of converting 160 full-time, year-round positions to seasonalpositions and the elimination of approximately 70 full-time, year-roundpositions.  The remaining $1.2 millionconsisted mainly of legal and financial consulting costs incurred in connectionwith evaluating capital restructuring alternatives, including amendments to theCompany’s credit facilities and the recapitalization of the Company (see Note12).  All of the amounts recognized inFiscal 2001 were paid or accrued for services rendered prior to July 29, 2001.

 

During Fiscal2002, the Company incurred $2.7 million in charges related to theimplementation of its comprehensive strategic plan.  These costs consisted mainly of legal, consulting and financingcosts incurred in connection with its resort and real estate credit facilityamendments.  All of the amountsrecognized during Fiscal 2002 were paid or accrued for services rendered priorto July 28, 2002.

 

Each of theamounts for Fiscal 2001 and Fiscal 2002 are included in merger, restructuringand asset impairment charges in the accompanying consolidated statements ofoperations.

 

**14.          Income Taxes**

 

The (provision) benefit for income taxes charged tooperations was as follows (in thousands):

 

|                                 |   | **Fiscal 2000** |       | **Fiscal 2001** |   | **Fiscal 2002** |       |
|--------------------------------------|--------|-----------------|------------|-----------------|--------|-----------------|------------|
| **Deferred tax (provision) benefit** |   |            |       |            |   |            |       |
| **Federal**                          |   | $               | 11,660     |            | $      | (1,203          | )          | $ | — |   |
| **State**                            |   | (1,498          | )          | 1,203           |   | —          |       |
|                                 |   |            |       |            |   |            |       |
| **Total (provision) benefit**        |   | **$**           | **10,162** | ** **      | **$**  | **—**      | ** ** | **$** | **—** | ** ** |

 

Deferred income taxes reflect the tax impact oftemporary differences between the amounts of assets and liabilities forfinancial reporting purposes and such amounts as measured by tax laws andregulations. Under SFAS No. 109, the benefit associated with future deductibletemporary differences and operating loss or credit carryforwards is recognizedif it is more likely than not that a benefit will be realized.  Deferred tax (expense) benefit representsthe change in the net deferred tax asset or liability balance.

 

F-28

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Deferred tax (liabilities) assets are comprised of thefollowing as of July 29, 2001 and July 28, 2002 (in thousands):

 

|                                           |   | **July 29, 2001** |       | **July 28, 2002** |   |
|------------------------------------------------|--------|-------------------|------------|-------------------|--------|
| **Property and equipment basis  differential** |   | $                 | (54,581    | )                 | $      | (50,261 | ) |
| **Other**                                      |   | (1,130            | )          | (6,528            | )      |
| **Gross deferred tax liabilities**             |   | (55,711           | )          | (56,789           | )      |
|                                           |   |              |       |              |   |
| **Tax loss and credit carryforwards**          |   | 80,098            |       | 103,314           |   |
| **Capitalized costs**                          |   | 6,321             |       | 4,351             |   |
| **Deferred revenue and contracts**             |   | 1,822             |       | 2,339             |   |
| **Stock compensation charge**                  |   | 486               |       | 248               |   |
| **Reserves and accruals**                      |   | 24,148            |       | 71,433            |   |
| **Gross deferred tax assets**                  |   | 112,875           |       | 181,685           |   |
|                                           |   |              |       |              |   |
| **Valuation allowance**                        |   | (57,164           | )          | (124,896          | )      |
| **Net deferred tax (liability) asset**         |   | **$**             | **—** | ** **        | **$**  | **—** | ** ** |

 

The (provision) benefit for income taxes differs fromthe amount of income tax determined by applying the applicable U.S. statutoryincome tax rate of 35% to income (loss) before (provision) benefit for incometaxes, cumulative effect of changes in accounting principles and income fromdiscontinued operations as a result of the following differences (inthousands):

 

|                                                    |   | **Fiscal 2000** |       | **Fiscal 2001** |   | **Fiscal 2002** |       |
|---------------------------------------------------------|--------|-----------------|------------|-----------------|--------|-----------------|------------|
| **Income tax benefit at the statutory  U.S. tax rates** |   | $               | 15,367     |            | $      | 43,759          |       | $ | 58,652 |   |
| **Increase (decrease) in rates  resulting from:**       |   |            |       |            |   |            |       |
| **State taxes, net**                                    |   | (974            | )          | 4,166           |   | 10,416          |       |
| **Change in valuation allowance**                       |   | (3,000          | )          | (47,182         | )      | (67,732         | )          |
| **Stock option compensation**                           |   | (761            | )          | —          |   | (163            | )          |
| **Nondeductible items**                                 |   | (498            | )          | (350            | )      | (360            | )          |
| **Other**                                               |   | 28              |       | (393            | )      | (813            | )          |
| **Income tax benefit at the effective  tax rates**      |   | **$**           | **10,162** | ** **      | **$**  | **—**      | ** ** | **$** | **—** | ** ** |

 

As of July 28, 2002, the Company has federal netoperating loss (NOL) carryforwards of approximately $235.9 million which expirein varying amounts though Fiscal 2022, a federal capital loss carryover ofapproximately $0.7 million that expires in Fiscal 2003 and 2004, andapproximately $1.1 million in general business credit carryforwards whichexpire in varying amounts through Fiscal 2022. The utilization of all or some of these losses and carryforwards will belimited pursuant to Internal Revenue Code Section 382 as a result of ownershipchanges.

 

Management has concluded that it is more likely thannot that the Company will not have sufficient taxable income of an appropriatecharacter within the carryback and carryforward period permitted by current lawto allow for the utilization of certain carryforwards and other tax attributesgenerating the net deferred tax asset. Therefore, a valuation allowance of $57.2 million and $124.9 million hasbeen established to reduce the deferred tax assets as of July 29, 2001 and July28, 2002, respectively.

 

# **15.          Cumulative Effect of Changes inAccounting Principles**

 

During Fiscal2002, the Company adopted SFAS No. 142, “Goodwill and Other IntangibleAssets”.  SFAS No. 142 applies to goodwilland intangible assets acquired after June 30, 2001, as well as goodwill andintangible assets previously acquired. As a result of the adoption of SFAS No. 142, the Company recorded agoodwill impairment loss of $18.7 million, which has been recorded as acumulative effect of changes in accounting principles in the accompanyingconsolidated statement of operations for Fiscal 2002.

 

In accordance with SFAS No. 137, “Accounting forDerivative Instruments and Hedging Activities — Deferral of the Effective Dateof FASB Statement No. 133,” the Company adopted SFAS No. 133, “Accounting forDerivative Instruments and Hedging Activities” and SFAS No. 138, “Accountingfor Certain Derivative Instruments

 

F-29

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and Hedging Activities, an Amendment of FASB Statement No. 133,”(collectively, SFAS No. 133, as amended) effective July 31, 2000.  These standards were adopted as of thebeginning of Fiscal 2001 as a cumulative effect of a change in accountingprinciple.

 

SFAS No. 133, as amended, establishes accounting andreporting standards requiring that every derivative instrument (includingcertain derivative instruments embedded in other contracts) be recorded in thebalance sheet as either an asset or liability measured at its fair value.  Special accounting for qualifying hedgesallows a derivative’s gains and losses to offset related results on the hedgeditem in the income statement, to the extent effective, and requires that theCompany formally document, designate and assess the effectiveness oftransactions that receive hedge accounting. SFAS No. 133, as amended, in part, allows special hedge accounting forfair value and cash flow hedges.  Thestatement provides that the gain or loss on a derivative instrument designatedand qualifying as a fair value hedging instrument, as well as the offsettingchanges in the fair value of the hedged item attributable to the hedged risk,be recognized currently in operations in the same accounting period.  SFAS No. 133, as amended, provides that theeffective portion of the gain or loss on a derivative instrument designated andqualifying as a cash flow hedging instrument be reported as a component ofother comprehensive income and be reclassified into operations in the same periodor periods during which the hedged forecasted transaction affectsoperations.  The ineffective portion ofa derivative’s change in fair value is recognized currently through operationsregardless of whether the instrument is designated as a hedge.

 

The Company had five interest rate swap contractsoutstanding at the time of adoption. Two of these contracts were designated ascash flow hedges, and were subsequently terminated by the floating rate payeron November 17, 2000.  Upon adoption,the fair value of these swaps were recorded as an asset on the balance sheetwith a corresponding credit to other comprehensive income.  The cancellation of these swaps effectivelyresulted in a reversal of the amounts recognized upon adoption.

#### ** **

The Company has entered into three other interest rateswap agreements that do not qualify for hedge accounting under SFAS No. 133, asamended.  As of July 30, 2000, theCompany had $8.6 million recorded in other long term liabilities in theaccompanying consolidated balance sheet and had been recording the net effectof the interest savings on a straight line basis over the life of theagreements through the statement of operations.  Upon adoption, the fair values of these swaps were recorded as anasset and a liability with a corresponding entry to cumulative effect of achange in accounting principle in operations; and the amount recorded in otherlong term liabilities was recognized through a cumulative effect of a change inaccounting principle in operations.  ForFiscal 2001 and Fiscal 2002, the subsequent change in the fair value of theswaps of $893,000 and $1.3 million, respectively, has been recorded as interestexpense in the accompanying consolidated statements of operations.  The net effect of the cumulative change inaccounting principle was derived as follows (in thousands):

 
| **Debit/(Credit)**          |   | **Asset - Swap** |   | **Liability - Swap** |   | **Other Long Term  Liabilities** |   | **Cumulative effect of a  change in accounting  principle** |   |
|-----------------------------|--------|------------------|--------|----------------------|--------|----------------------------------|--------|-------------------------------------------------------------|--------|
| **Non-hedging Derivatives** |   | $                | 6,520  |                 | $      | (11,065                          | )      | $                                                           | 8,592  |   | $ | (4,047 | ) |
|                             |        |                  |        |                      |        |                                  |        |                                                             |        |  |  |  |  |

 

The Company has no embedded derivatives under SFAS No.133, as amended, and is not aware of the potential impact of any othersignificant matter that may result from the adoption of this standard.

 

In Fiscal 2000, the Company adopted American Instituteof Certified Public Accountants (AICPA) Statement of Position 98-5, “Reportingon the Costs of Start-Up Activities” (SOP 98-5).  At adoption, SOP 98-5 required the Company to write-off anyunamortized start-up costs as a cumulative effect of a change in accountingprinciple and, going forward, expense all start-up activity costs as they areincurred.  The initial adoption of SOP98-5 resulted in the write-off of $1.2 million of start-up costs that hadpreviously been capitalized as of July 25, 1999.  The net effect of the write-off of $704,000 (which is net ofincome tax benefits of $449,000) has been expensed and reflected as acumulative effect of a change in accounting principle in the accompanyingconsolidated statement of operations for Fiscal 2000.

 

F-30

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**16.          Business Segment Information**

 

In accordance with SFAS No. 131, “Disclosures aboutSegments of an Enterprise and Related Information”, the Company has classifiedits operations into two business segments, resorts and real estate.  Revenues at each of the resorts are derivedfrom the same lines of business which include lift ticket sales, food andbeverage, retail sales including rental and repair, skier development, lodgingand property management, golf, other summer activities and miscellaneousrevenue sources.  The performance of theresorts is evaluated on the same basis of profit or loss from operations beforeinterest, taxes, depreciation and amortization, write-offs of deferredfinancing costs and  merger,restructuring, and asset impairment charges (EBITDA).  Additionally, each of the resorts has historically producedsimilar EBITDA margins and attracts the same class of customer.  Based on the similarities of the operationsat each of the resorts, the Company has concluded that the resorts satisfy theaggregation criteria set forth in SFAS No. 131.  The Company’s chief operating decision makers for each businesssegment monitor the results of those business segments utilizing EBITDA, whichthe Company believes is an indicative measure of the business segments’operating performance and is generally used by investors to evaluate companiesin the resort industry.

 

The Company’s real estate revenues are derived fromthe sale and leasing of interests in real estate development projectsundertaken by the Company at its resorts and the sale of other real propertyinterests.  The accounting policies ofthe operating segments are the same as those described in the summary ofsignificant accounting policies. Certain reclassifications and restatements have been made to prioryears’ amounts as a result of accounting for the sale of Heavenly asdiscontinued operations.  Data by segmentis as follows (in thousands):

** **
|                                                     |   | **July 30, 2000** |    | **July 29, 2001** |   | **July 28, 2002** |   |
|----------------------------------------------------------|--------|-------------------|---------|-------------------|--------|-------------------|--------|
| **Net revenues:**                                        |   |              |    |              |   |              |   |
| **Resorts**                                              |   | $                 | 240,226 |              | $      | 275,686           |   | $ | 243,842 |   |
| **Real estate**                                          |   | 132,063           |    | 96,864            |   | 28,274            |   |
|                                                     |   | $                 | 372,289 |              | $      | 372,550           |   | $ | 272,116 |   |
|                                                     |   |              |    |              |   |              |   |
| **Loss before  income taxes:**                           |   |              |    |              |   |              |   |
| **Resorts**                                              |   | $                 | (39,376 | )                 | $      | (93,925           | )      | $ | (82,494 | ) |
| **Real estate**                                          |   | (4,529            | )       | (31,101           | )      | (85,084           | )      |
|                                                     |   | $                 | (43,905 | )                 | $      | (125,026          | )      | $ | (167,578 | ) |
|                                                     |   |              |    |              |   |              |   |
| **Depreciation  and amortization:**                      |   |              |    |              |   |              |   |
| **Resorts**                                              |   | $                 | 37,264  |              | $      | 35,205            |   | $ | 28,940 |   |
| **Real estate**                                          |   | 1,269             |    | 2,836             |   | 1,906             |   |
|                                                     |   | $                 | 38,533  |              | $      | 38,041            |   | $ | 30,846 |   |
|                                                     |   |              |    |              |   |              |   |
| **Interest  Expense:**                                   |   |              |    |              |   |              |   |
| **Resorts**                                              |   | $                 | 24,262  |              | $      | 26,363            |   | $ | 32,479 |   |
| **Real estate**                                          |   | 11,486            |    | 27,009            |   | 17,665            |   |
|                                                     |   | $                 | 35,748  |              | $      | 53,372            |   | $ | 50,144 |   |
|                                                     |   |              |    |              |   |              |   |
| **Merger,  restructuring and asset impairment charges:** |   |              |    |              |   |              |   |
| **Resorts**                                              |   | $                 | —  |              | $      | 71,316            |   | $ | 47,912 |   |
| **Real estate**                                          |   | —            |    | 4,699             |   | 63,696            |   |
|                                                     |   | $                 | —  |              | $      | 76,015            |   | $ | 111,608 |   |
|                                                     |   |              |    |              |   |              |   |
| **EBITDA:**                                              |   |              |    |              |   |              |   |
| **Resorts**                                              |   | $                 | 23,167  |              | $      | 38,959            |   | $ | 30,175 |   |
| **Real estate**                                          |   | 8,226             |    | 3,443             |   | (1,817            | )      |
|                                                     |   | $                 | 31,393  |              | $      | 42,402            |   | $ | 28,358 |   |
|                                                     |   |              |    |              |   |              |   |
| **Capital  expenditures:**                               |   |              |    |              |   |              |   |
| **Resorts**                                              |   | $                 | 18,483  |              | $      | 7,477             |   | $ | 6,903 |   |
| **Real estate**                                          |   | 167,246           |    | 44,783            |   | 10,190            |   |
|                                                     |   | $                 | 185,729 |              | $      | 52,260            |   | $ | 17,093 |   |
| **Identifiable  assets:**                                |   |              |    |              |   |              |   |
| **Resorts**                                              |   | $                 | 459,067 |              | $      | 434,813           |   | $ | 389,270 |   |
| **Real estate**                                          |   | 291,754           |    | 234,122           |   | 124,764           |   |
|                                                     |   | $                 | 750,821 |              | $      | 668,935           |   | $ | 514,034 |   |

 

F-31

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Capital expenditures for the Company’s real estate segment include thenet change in real estate held for sale and real estate operating expenses forthe periods presented.  A reconciliationof the totals reported for the operating segments to the totals reported in theconsolidated financial statements is as follows:

 
|                                                                         |   | **July 30, 2000** |    | **July 29, 2001** |    | **July 28, 2002** |   |
|------------------------------------------------------------------------------|--------|-------------------|---------|-------------------|---------|-------------------|--------|
| **EBITDA:**                                                                  |   |              |    |              |    |              |   |
| **Loss before income taxes**                                                 |   | $                 | (43,905 | )                 | $       | (125,026          | )      | $ | (167,578 | ) |
| **Depreciation and amortization**                                            |   | 38,533            |    | 38,041            |    | 30,846            |   |
| **Interest expense**                                                         |   | 35,748            |    | 53,372            |    | 50,144            |   |
| **Merger,  restructuring and asset****impairment  charges**                  |   | —            |    | 76,015            |    | 111,608           |   |
| **Write-off of deferred financing costs**                                    |   | 1,017             |    | —            |    | 3,338             |   |
|                                                                         |   | $                 | 31,393  |              | $       | 42,402            |   | $ | 28,358 |   |
| **Capital expenditures:**                                                    |   |              |    |              |    |              |   |
| **Resort capital expenditures**                                              |   | $                 | 18,483  |              | $       | 7,477             |   | $ | 6,903 |   |
| **Capital expenditures for****discontinued operations**                      |   | 8,746             |    | 16,365            |    | 628               |   |
|                                                                         |   | $                 | 27,229  |              | $       | 23,842            |   | $ | 7,531 |   |
| **Assets:**                                                                  |   |              |    |              |    |              |   |
| **Identifiable  assets for segments**                                        |   |              |    | $                 | 668,935 |              | $      | 514,034 |   |
| **Assets of  discontinued operations**                                       |   |              |    | 105,377           |    | —            |   |
| **Intangible  and deferred income tax****assets not  allocated to segments** |   |              |    | 32,726            |    | 7,959             |   |
| **Total  consolidated assets**                                               |   |              |    | $                 | 807,038 |              | $      | 521,993 |   |

 

**17.          Related Party Transactions**

 

Tranche C of the Real Estate Term Facility waspurchased by Oak Hill on July 31, 2001 (see Note 7).  The Company paid a $375,000 financing fee to Oak Hill inconnection with this $13 million investment. The Real Estate Term Facility and the related Securities PurchaseAgreement with Oak Hill were restructured during the first quarter of Fiscal2002.

 

During Fiscal 2001, the Company paid $150,000 each toMr. Paul Wachter and Mr. David Hawkes, both of whom are members of theCompany’s Board of Directors, for their participation in the Special Committeethat was formed to evaluate the proposed merger between the Company andMeristar Hotels and Resorts, Inc.  TheCompany also reimbursed Oak Hill a total amount of $137,000 for itsprofessional and other fees incurred in connection with the proposed MeristarMerger.

 

On March 28, 2001, Mr. Otten resigned as the Company’sChairman and Chief Executive Officer. Mr. Otten is still a major shareholder of the Company and is a member ofthe Company’s Board of Directors.  Aspart of his separation agreement, the Company will continue to pay Mr. Ottenand his executive assistant their salaries and medical benefits for two years.  These amounts total approximately $480,000on an annual basis.  In addition, theCompany has granted Mr. Otten the use of Company office space for up to twoyears and the Company also transferred ownership of one of its vehicles (valuedat approximately $20,000) to Mr. Otten at no charge.

 

F-32

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After the consummation of the Series B Preferred Stocksale to Oak Hill, the Company, through one of its subsidiaries, acquired orobtained the rights to acquire the following assets from entities owned or controlledby Mr. Otten:

•                  The landunderlying the snowmaking ponds at the Sunday River resort, together with allassociated water rights, which were previously leased by a subsidiary of theCompany, for a purchase price of $2.1 million.

•                  The Ski Dormbuilding and land underlying the Snow Cap Inn, each located at the Sunday Riverresort, for an aggregate purchase price of $679,000.

•                  Approximately3,300 acres of undeveloped land at the Sunday River resort, which was optionedto a subsidiary of the Company for an initial payment of $650,000, whichpayment may be applied to the purchase price. The purchase price is $3,692,000. As of July 28, 2002, the Company has not exercised its option topurchase the undeveloped land and as described in Note 13, has recorded animpairment charge related to this asset due to the probability that it will notbe realized.

 

The Company also repaid the outstanding principal andaccrued interest of a note from a subsidiary of the Company payable to Mr.Otten totaling approximately $2.0 million. The note was originally issued to Mr. Otten to cover certain taxliabilities generated when one of the Company’s subsidiaries converted from a Scorporation to a C corporation.

 

Mr. Wachter is the founder and Chief Executive Officerof Main Street Advisors.  Main StreetAdvisors, through Mr. Wachter, acted as one of the Company’s investment bankersin connection with the marketing of the Steamboat and Heavenly resorts forsale.  Main Street Advisors is entitledto a percentage-based fee in the event of the sale of any significant asset ofthe Company, other than the Sugarbush resort and certain undeveloped realestate properties.  During Fiscal 2000,Fiscal 2001, and Fiscal 2002, the Company paid Main Street Advisors $0, $0 and$1.1 million, respectively, in connection with these services.

 

In May 2000, the Company, through one of itssubsidiaries, purchased two parcels of land adjacent to the Company’s Sugarbushresort from Sugarbush Land Holdings, Inc., a corporation controlled by Mr.Otten.  The two parcels, totalingapproximately 128 acres, were purchased for an aggregate price of approximately$589,000.  The terms of the purchase,including the purchase price, were reviewed and approved by the ExecutiveCommittee and Audit Committee of the Company’s Board of Directors.

 

In March 2000, the Company, through one of itssubsidiaries, sold residential units at the Company’s Sundial Lodge at TheCanyons to Mr. Blaise Carrig, Mr. Christopher Howard and Mr. Daniel Duquette.At the time of these transactions, Mr. Carrig was President of the Company’ssubsidiary which operates The Canyons, Mr. Howard was the Company’s ExecutiveVice President and Mr. Duquette was a member of the Company’s Board ofDirectors.  Mr. Carrig and Mr. Howardeach purchased one residential unit in the Sundial Lodge for a purchase priceof $201,000.  Mr. Duquette purchased oneresidential unit in the Sundial Lodge for a purchase price of $345,000.  The purchase prices which Mr. Carrig, Mr.Howard and Mr. Duquette purchased these units were the same as those at whichthe units (or units of comparable size and finish) were offered for sale to thegeneral public.

 

**18.          Commitments and Contingencies**

 

The Company leases certain land and facilities used inthe operations of its resorts under several operating lease arrangements.  These lease arrangements expire at varioustimes from the year 2010 through the year 2060. Lease payments are generallybased on a percentage of revenues. Total rent expense under these operating leases as recorded in resortoperating expenses in the accompanying consolidated statements of operationsfor Fiscal 2000, 2001, and 2002 was $3.8 million, $4.3 million, and $4.2million, respectively.

 

Significant portions of the land underlying certain ofthe Company’s ski resorts are leased or subleased by the Company or usedpursuant to renewable permits or licenses. If any such lease, sublease, permitor license were to be terminated or not renewed upon expiration, or renewed onterms materially less favorable to the Company, the Company’s ability topossess and use the land subject thereto and any improvements thereon would beadversely affected, perhaps making it impossible for the Company to operate theaffected resort. A substantial portion of the

 

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land constituting skiable terrain at Attitash Bear Peak, Mount Snow andSteamboat is located on federal land that is used under the terms of thepermits with the United States Forest Service (the Forest Service). Generally,under the terms of such permits, the Forest Service has the right to review andcomment on the location, design and construction of improvements in the permitarea and on many operational matters. The permits can be terminated or modifiedby the Forest Service to serve the public interest. A termination ormodification of any of the Company’s permits could have a material adverseeffect on the results of operations of the Company.  The Company does not anticipate any limitations, modifications, ornon-renewals which would adversely affect the Company’s operations.

 

The Company is also subject to a wide variety offederal, state and local laws and regulations relating to land use anddevelopment and to environmental compliance and permitting obligations,including those related to the use, storage, discharge, emission and disposalof hazardous materials.  Any failure tocomply with these laws could result in capital or operating expenditures or theimposition of severe penalties or restrictions on the Company’s operations thatcould adversely affect its present and future resort operations and real estatedevelopment.  In addition, these lawsand regulations could change in a manner that materially and adversely affectsthe Company’s ability to conduct business or to implement desired expansionsand improvements to its facilities.

 

In connection with the purchase of The Canyons, theCompany entered into an operating lease arrangement with the seller for thelease of certain land to be used in the operation of the resort and for futurereal estate development. The arrangement provides for an initial lease term of50 years, with the option to extend for three additional 50-year periods for afee of $1.0 million for each extension period. Lease payments are based on apercentage of gross skiing and lodging revenues.  The arrangement also provides for additional one-time paymentsranging from $250,000 to $3.0 million upon achievement of annual skier visitlevel increases in 100,000 visit increments up to 1,000,000.  Total rent expense under this arrangement,as recorded in resort operating expenses in the accompanying consolidatedstatements of operations for Fiscal 2000, 2001, and 2002 was $918,000, $1.4million, and $1.2 million, respectively. In addition, the Company has theoption to purchase parcels of land covered under the operating lease for realestate development. Payments for these options total approximately $19.4million and were payable at various times and in varying amounts through May2003.  Through July 28, 2002, theCompany has made $15.1 million of option payments.  The remaining $4.3 million in option payments have been accruedin other current liabilities in the accompanying consolidated balance sheet asof July 28, 2002 as the Company has entered into a non-cancelable agreement tomake the remaining $4.3 million option payments.

 

The ski development rights for approximately 3,000acres of skiable terrain that the Company has targeted for development at TheCanyons are contained in a development agreement with Iron Mountain Associates,LLC, which agreement includes a lease of all skiable terrain for a term endingSeptember 13, 2094.  The Company hasexecuted an amendment to this lease which provides that these ski developmentrights must be acquired in fee by The Canyons in 2003.  In November 2002, the Company paidapproximately $3.0 million in connection with the acquisition of thesedevelopment rights and expects to pay an additional $2.0 million in March andApril 2003.  This agreement will alsorequire the Company to build two lifts over the next three years for anestimated total cost of approximately $2.0 million.

 

The Company’s development activities at The Canyons inUtah are governed by permits issued pursuant to a Development Agreement withlocal authorities.  The DevelopmentAgreement requires the Company to achieve certain performance benchmarks inorder to remain in compliance with the Development Agreement and obtainadditional permits.  The Company has notachieved certain of these performance benchmarks within the time framesrequired under the Development Agreement, and the local authorities haveadvised management that these failures potentially constitute defaults underthe Development Agreement.  Managementis working with the local authorities to address these failures and reassessthe appropriate timing for compliance with these performance benchmarks.  The Company’s failure to satisfy localregulatory authorities with respect to these matters may result in an inabilityto obtain additional permits under the Development Agreement and couldsignificantly adversely impact the Company’s ability to meet its business andrevenue expansion goals at The Canyons. Defaults under the Development Agreement could also subject the Companyto risk of litigation with third parties whose development plans are adverselyimpacted by the delay or loss of permits under the Development Agreement byvirtue of the failure to meet performance benchmarks.

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In addition to the leases described above, the Companyis committed under several operating and capital leases for various facilities,machinery and equipment. Rent expense under all operating leases was $8.9million, $9.8 million, and $10.3 million for Fiscal 2000, 2001, and 2002,respectively.

 

Future minimum lease payments for lease obligations,exclusive of contingent skier visit payments, as of July 28, 2002 are asfollows (in thousands):

 
|                                                     |   | **Capital  Leases** |      | **Operating  Leases** |   |
|----------------------------------------------------------|--------|---------------------|-----------|-----------------------|--------|
| **2003**                                                 |   | $                   | 5,525     |                  | $      | 5,783 |   |
| **2004**                                                 |   | 8,834               |      | 4,373                 |   |
| **2005**                                                 |   | 542                 |      | 2,733                 |   |
| **2006**                                                 |   | 19                  |      | 2,889                 |   |
| **2007**                                                 |   | 125                 |      | 1,525                 |   |
| **2008 and  thereafter**                                 |   | —              |      | 21,340                |   |
| **Total  payments**                                      |   | 15,045              |      | $                     | 38,643 |   |
| **Less interest  (rates ranging from 5.0%****to 12.2%)** |   | (1,982              | )         |                  |   |
| **Present value  of net minimum payments**               |   | 13,063              |      |                  |   |
| **Less current  portion**                                |   | (4,388              | )         |                  |   |
| **Long-term  obligations**                               |   | **$**               | **8,675** |                  |   |   |

 

The Killington resort has been identified by the U.S.Environmental Protection Agency (the EPA) as a potentially responsible party(PRP) at two sites pursuant to the Comprehensive Environmental Response,Compensation and Liability Act (CERCLA or Superfund).  Killington has entered into a settlement agreement with the EPAat one of the sites, the Solvents Recovery Service of New England Superfundsite in Southington, Connecticut. Killington rejected an offer to enter into a de minimis settlement withthe EPA for the other site, the PSC Resources Superfund site in Palmer,Massachusetts, on the basis that Killington disputes its designation as aPRP.  The Company believes that itsliability for these Superfund sites, individually and in the aggregate, willnot have a material adverse effect on the business, financial condition,results of operations or liquidity of the Company.

 

In connection with its Real Estate Term Facility, theCompany is obligated to pay a contingent fee to the lenders in the event thereexists unsold quartershare inventory after the Construction Loan Facility andTranches A and B of the Real Estate Term Facility have been repaid.  This contingent fee would be equal to0.7168% of the revenues realized on the sales of the remaining units.  Based on current projections of future salesof the remaining units, management believes that the probability of making sucha payment is remote.  Therefore, noliability has been recorded in the accompanying consolidated balance sheets.

 

In connection with its membership in the ResortVillage Management Association (RVMA) at The Canyons, the Company is obligatedto fund $3 million of the estimated $18 million in construction costs for agolf course to be built at The Canyons. Part or all of this obligation may be satisfied by various capitalimprovements which would benefit the resort as well as the golf course.  Since the method of satisfying thisobligation as well as the ultimate construction of the golf course iscontingent upon the RVMA being able to obtain sufficient funding, no liabilityhas been recorded in the accompanying consolidated balance sheets for the $3million obligation.

 

On January 24, 2002, the Company entered into anagreement with Triple Peaks, LLC (Triple Peaks) for the sale of the Company’sSteamboat resort.  Management laterdetermined that the sale of the Company’s Heavenly resort more closely achievedits restructuring objectives and concluded that the Company would not proceedwith the sale of the Steamboat resort. On April 5, 2002, Triple Peaks filed a lawsuit against American SkiingCompany in federal district court in Denver, alleging breach of contractresulting from its refusal to close on the proposed sale of the Steamboatresort.  The suit seeks both monetarydamages resulting from the breach and specific performance of thecontract.  On April 16, 2002, before theCompany filed an answer to its complaint, Triple Peaks voluntarily dismissedits suit and re-filed a substantially identical complaint in Colorado statedistrict court in Steamboat, also naming Steamboat Ski & ResortCorporation, American Skiing Company Resort Properties and Walton Pond

 

F-35

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Apartments, Inc.  (each director indirect subsidiaries of American Skiing Company) as additionaldefendants.  On April 19, 2002, theCompany filed a complaint seeking declaratory judgment against Triple Peaks infederal court in Denver seeking a declaration from that court that the damagesunder the contract for failure to close on the proposed sale are limited to$500,000.  On December 31, 2002, theColorado state district court issued summary judgment in the Company’s favorand against Triple Peaks, confirming that the damages owed Triple Peaks underthe contract are limited to $500,000. This judgment was subject to a 45-day appeal period.  On January 26, 2003, the Company receivednotice that Triple Peaks had appealed the decision of the Colorado statedistrict court.  Subsequent to theissuance of the summary judgment order by the Colorado state district court,the companion federal court action was dismissed with prejudice at the Company’srequest.

 

On January 3, 2003, ASC received arbitration demandsfrom two former executive employees, Hernan Martinez and Peter Tomai.  Messrs. Martinez and Tomai each allege that they resigned from their employmentwith ASC for “good reason” under the terms of their executive employment agreementswith ASC, and that accordingly they are entitled to severance payments equal toone year’s salary ($300,000 and $225,000, respectively) and certain otherseverance benefits, including the maintenance of health insurance for sixmonths following the termination of their employment.  ASC has contested the existence of “good reason” for theirtermination of their employment and disputed its liability for the severancepayments and other benefits.

 

The Company has issued a letter of credit for $330,000related to certain workers compensation obligations.  This letter of credit is secured by certain cash deposits of oneof the Company’s wholly owned subsidiaries.

 

ASC has established the American Skiing CompanyPhantom Equity Plan (the “LTIP”), which management expects the Board ofDirectors will ratify on March 6, 2003. Certain of ASC’s Executive Officers participate in this plan.  Participants are entitled to a payment onawards granted under the LTIP, to the extent vested upon a Valuation Event orin certain cases upon termination of employment.  The amount of any awards are based ultimately on the EquityValue, as defined, obtained through a Valuation Event.  A Valuation Event is any of thefollowing:  (i) a sale ordisposition of a significant Company operation or property as determined by theBoard; (ii) a merger, consolidation or similar event of the Company otherthan one (A) in which the Company is the surviving entity or (B) where noChange in Control has occurred; (iii) a public offering of equity securitiesby the Company that yields net proceeds to the Company in excess of $50million; or (iv) a Change in Control, as defined.

 

The Company has entered into employment agreementswith five of its executive officers. These employment agreements provide for guaranteed annual base salariesranging from $214,000 to $400,000 per person. The employment agreements also provide for contingent annual bonusesranging from 40% to 75% of annual base salaries, involuntary terminationbenefits, termination benefits resulting from a change in control of theCompany, LTIP participation levels and, in certain cases, benefits where thetermination of employment was voluntary. These agreements also provide for certain benefits in the event of thedeath of the executive.

 

The Company entered into a comprehensive managementconsulting agreement beginning in Fiscal 2002 with Interstate Hotels &Resorts, Inc., under which Interstate is supporting the management andoperations of the Company’s lodging and property management division.  The agreement is for a 5-year term ending onJuly 30, 2006.  However, at eitherparty’s option, this agreement may be terminated during the 60-day periodcommencing on July 30, 2003.  Theagreement provides for a basic fee of $620,000 per year as well as an incentivefee determined and paid in accordance with the agreement.  No incentive fees have been earned as ofJuly 28, 2002.

 

Certain claims, suits and complaints in the ordinarycourse of business are pending or may arise against the Company, including allof its direct and indirect subsidiaries. In the opinion of management, all matters are adequately covered byinsurance or, if not covered, are without merit or are of such kind, or involvesuch amounts as would not have a material effect on the financial position,results of operations or liquidity of the Company if disposed of unfavorably.

 

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**19.          Stock Option Plan**

 

Effective August 1, 1997, the Company established afixed stock option plan, the American Skiing Company Stock Option Plan (thePlan), to provide for the grant of incentive and non-qualified stock optionsfor the purchase of up to 8,688,699 shares of the Company’s common stock byofficers, management employees of the Company and its subsidiaries and otherkey persons (eligible for nonqualified stock options only) as designated by theOptions Committee. The Options Committee, which is appointed by the Board ofDirectors, is responsible for the Plan’s administration. The Options Committeedetermines the term of each option, option exercise price, number of shares forwhich each option is granted and the rate at which each option is exercisable.Options granted under the Plan generally expire ten years from the date ofgrant and vest either immediately or over a five-year term. Incentive stockoptions shall not have an exercise price less than the fair market value of thecommon stock at the date of grant.

 

Nonqualified stock options shall be granted at anexercise price as determined by the Options Committee.  The status of the Company’s stock optionplan is summarized below:

 

|                                 |   | **Number  of Shares** |       | **Weighted  Average  Exercise  Price** |     |
|--------------------------------------|--------|-----------------------|------------|----------------------------------------|----------|
| **Outstanding  as of July 25, 1999** |   | 3,890,836             |       | $                                      | 11.97    |   |
| **Granted**                          |   | 2,660,000             |       | 2.70                                   |     |
| **Exercised**                        |   | (182,390              | )          | 2.00                                   |     |
| **Forfeited**                        |   | (2,325,127            | )          | 15.60                                  |     |
| **Outstanding  as of July 30, 2000** |   | 4,043,319             |       | $                                      | 4.24     |   |
| **Granted**                          |   | 1,235,000             |       | 2.58                                   |     |
| **Exercised**                        |   | (248,960              | )          | 2.00                                   |     |
| **Forfeited**                        |   | (439,062              | )          | 4.26                                   |     |
| **Outstanding  as of July 29, 2001** |   | 4,590,297             |       | $                                      | 3.91     |   |
| **Granted**                          |   | —                |       | —                                 |     |
| **Exercised**                        |   | (6,018                | )          | 2.00                                   |     |
| **Forfeited**                        |   | (357,700              | )          | 1.94                                   |     |
| **Outstanding  as of July 28, 2002** |   | **4,226,579**         | ** ** | **$**                                  | **4.08** | ** ** |

 

During Fiscal 1998, the Company granted nonqualifiedoptions under the Plan to certain key members of management to purchase 672,010shares of common stock with an exercise price of $2.00 per share when the fairmarket value of the stock was estimated to be $18.00 per share. The majority ofthese options (511,530 shares) were granted to members of senior management andwere 100% vested on the date of grant. Accordingly, the Company recognized stock compensation expense of $8.1million in Fiscal 1998 relating to the grants based on the intrinsic value of$16.00 per share.  Under these seniormanagement grant agreements, the Company also agreed to pay the optionees afixed tax “bonus” in the aggregate of $5.8 million to provide for certain fixedtax liabilities that the optionees will incur upon exercise. The liability forthis fixed tax bonus has been reduced to reflect $5.2 million in tax bonuspayments made through July 28, 2002 in connection with options exercised.  The remaining $0.6 million tax bonusliability is reflected in accounts payable and other current liabilities in theaccompanying consolidated balance sheet as of July 28, 2002.  The remainder of these original $2.00options (160,480 shares) were granted under the Plan to certain members ofmanagement and were vested 20% on the date of grant and vest ratably to 100%over the following four years.  ForFiscal 2000, 2001, and 2002, the Company recognized $1.0 million, $0.4 millionand $0.1 million, respectively, of stock compensation expense relating to theseoptions.

 

The following table summarizes information about thestock options outstanding under the Stock Plan as of July 28, 2002:

 

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| **Range of  Exercise  Prices** |   | **Outstanding  @ 7/28/02** |       | **Weighted  Average  Remaining  Contractual  Life (in years)** |       | **Weighted  Average  Exercise Price** |     | **Exercisable  @ 7/28/02** |          | **Weighted  Average  Exercise  Price** |   |
|--------------------------------|--------|----------------------------|------------|----------------------------------------------------------------|------------|---------------------------------------|----------|----------------------------|---------------|----------------------------------------|--------|
| **$0.72**                      |   | 25,000                     |       | 8.9                                                            |       | $                                     | 0.72     |                       | 25,000        |                                   | $      | 0.72 |   |
| **1.75 - 2.50**                |   | 1,714,379                  |       | 7.6                                                            |       | 2.10                                  |     | 1,380,379                  |          | 2.11                                   |   |
| **3.00 - 4.00**                |   | 1,546,500                  |       | 7.6                                                            |       | 3.16                                  |     | 1,076,500                  |          | 3.23                                   |   |
| **7.00 - 8.75**                |   | 749,850                    |       | 6.2                                                            |       | 7.19                                  |     | 658,850                    |          | 7.22                                   |   |
| **14.19 - 18.00**              |   | 190,850                    |       | 5.2                                                            |       | 17.55                                 |     | 190,850                    |          | 17.55                                  |   |
|                           |   | **4,226,579**              | ** ** | **7.3**                                                        | ** ** | **$**                                 | **4.08** | ** **                 | **3,331,579** | ** **                             | **$**  | **4.36** | ** ** |

 

The Company continues to account for stock-basedcompensation using the method prescribed in Accounting Principles Board OpinionNo. 25, “Accounting for Stock Issued to Employees”, under which no compensationexpense for stock options is recognized for stock option awards granted toemployees at or above fair market value. The Company has adopted the disclosure-only provisions of SFAS No. 123.Had stock compensation expense been determined based on the fair value at thegrant dates for awards granted under the Company’s stock option plan,consistent with the provisions of SFAS No. 123, the Company’s net loss and lossper share would have been changed to the pro forma amounts indicated below(dollar amounts in thousands):

 
| **Fiscal Years Ended**                           |   | **2000** |    | **2001** |   | **2002** |   |
|--------------------------------------------------|--------|----------|---------|----------|--------|----------|--------|
| **Net loss  available to common shareholders**   |   |     |    |     |   |     |   |
| **As reported**                                  |   | $        | (52,452 | )        | $      | (141,572 | )      | $ | (206,710 | ) |
| **Pro forma**                                    |   | (53,610  | )       | (144,425 | )      | (207,968 | )      |
| **Basic and  diluted net loss per common share** |   |     |    |     |   |     |   |
| **As reported**                                  |   | $        | (1.73   | )        | $      | (4.64    | )      | $ | (6.54 | ) |
| **Pro forma**                                    |   | (1.77    | )       | (4.73    | )      | (6.58    | )      |

 

The fair value of each option grant is estimated onthe date of grant using the Black-Scholes option-pricing model with thefollowing weighted average assumptions:

 
| **Fiscal Years Ended**       |   | **2000** |   | **2001** |   | **2002** |   |
|------------------------------|--------|----------|--------|----------|--------|----------|--------|
| **Expected life**            |   | 10  yrs  |   | 10  yrs  |   | N/A      |   |
| **Risk-free  interest rate** |   | 6.6      | %      | 5.9      | %      | N/A      |   |
| **Volatility**               |   | 93.9     | %      | 73.9     | %      | N/A      |   |
| **Dividend  yield**          |   | —   |   | —   |   | —   |   |

 

The weighted average grant date fair value for the optionsgranted in Fiscal 2000 with an exercise price of $2.00 to $3.00 per share was$2.12 per share. The weighted average grant date fair value for the optionsgranted in Fiscal 2001 with an exercise price of $0.72 to $4.00 per share was$1.65 per share.

 

**20.          Assets/LiabilitiesHeld For Sale and Discontinued Operations**

 

**Heavenly Sale**

On May 9, 2002, the Company completed the sale ofHeavenly to Vail Resorts, Inc. (Vail). Management determined that the sale of Heavenly more closely achievedthe Company’s restructuring objectives and resulted in a significantly higherasset valuation than the previously announced Steamboat sale transaction.  As a result, management concluded that theCompany would not proceed with the sale of the Steamboat resort.  Total consideration for the sale of Heavenlywas $104.9 million, which was comprised of a $102.0 million sales price, less$2.4 million in purchase price adjustments, plus $5.3 million of currentliabilities assumed by Vail.  Vail alsoassumed $2.8 million in capital lease obligations leaving $96.8 million in netproceeds after assumption of the capital lease obligations.  At closing, the Company paid $1.8 million incosts related to the sale with net proceeds after transaction costs of $95.0million.

 

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The Company paid fees and accrued interest totaling$2.8 million related to the Resort Senior Credit Facility out of the salesproceeds and an early prepayment penalty associated with the retirement of aterm loan, including accrued interest. After these payments, the Company made reductions to its outstandingdebt of the following amounts:

 

| Real Estate Term Facility                        |   | $     | 2.0      |    | million |   |
|--------------------------------------------------|--------|-------|----------|---------|---------|--------|
| Resort Senior  Credit Facility, term portion     |   | 28.6  |     | million |    |
| Resort Senior  Credit Facility, revolver portion |   | 44.1  |     | million |    |
| Heavenly capital  lease                          |   | 12.8  |     | million |    |
| **Total**                                        |   | **$** | **87.5** |    | million |   |

 

In connection with the completion of the sale ofHeavenly, the availability under the revolving portion of the Resort SeniorCredit Facility was reduced from $94.6 million to $52.1 million.  After prepayment penalties of $0.7 millionand the total debt reduction of $87.5 million, the remaining proceeds from thesale of $4 million were deposited into a temporary cash account.  In conjunction with the repayment of theHeavenly capital lease, the guaranty provided by Oak Hill to secure that loanwas released.

 

The sale of Heavenly has been accounted for inaccordance with SFAS No. 144.  Inaccordance with SFAS No. 144, the assets and liabilities related to Heavenlyhave been reclassified as discontinued operations in the accompanyingconsolidated balance sheet as of July 29, 2001 and the results of operationsfor Heavenly for Fiscal 2000, Fiscal 2001 and Fiscal 2002 have been removedfrom continuing operations and classified as discontinued operations.  The gain on sale of Heavenly was $2.9million which is included in income from discontinued operations in theaccompanying consolidated statement of operations for Fiscal 2002.  Revenues applicable to the operations ofHeavenly were $51.9 million, $53.0 million, and $51.6 million for Fiscal 2000,Fiscal 2001, and Fiscal 2002, respectively.

 

**Sugarbush Sale**

On September 28, 2001, the Company finalized the saleof its Sugarbush resort in Warren, Vermont to Summit Ventures NE, Inc. Thissale generated net proceeds of $5.2 million that were used by the Company topermanently pay down the revolving and term portions of its Resort SeniorCredit Facility, on a pro-rata basis, in accordance with the mandatoryprepayment requirements of the facility. In conjunction with this transaction, the Company also entered into athird amendment to its Resort Senior Credit Facility, dated as of September 10,2001.  This amendment, among otherthings, provided the consent of the lenders to sell Sugarbush resort and itfurther reduced the maximum revolver availability amounts established in thesecond amendment to the facility by $1.5 million.

 

The sale of theSugarbush resort was accounted for in accordance with SFAS No. 121 and APB No.30, since the disposal activities were initiated prior to the Company’sadoption of SFAS No. 144.  In accordancewith SFAS No. 121, the carrying value of the net assets for Sugarbush that weresubject to sale were reclassified as assets held for sale in the accompanyingconsolidated balance sheet as of July 29, 2001.  The assets held for sale were reduced to their estimated fairvalue based on the estimated selling price less costs to sell, resulting in animpairment

 

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charge of $15.1 million,which is included in merger, restructuring and asset impairment charges in theaccompanying consolidated statement of operations for Fiscal 2001.  The components of net assets held for sale forSugarbush as of July 29, 2001 are as follows (in thousands):

 
| **Net Assets as of July 29, 2001**  |   | **Total** |      |
|-------------------------------------|--------|-----------|-----------|
| **Inventory**                       |   | $         | 594       |   |
| **Property and  equipment, net**    |   | 22,727    |      |
| **Real estate  developed for sale** |   | 1,138     |      |
| **Debt**                            |   | (414      | )         |
| **Assets held  for sale**           |   | 24,045    |      |
| **Impairment  charge**              |   | (15,111   | )         |
| **Net assets  held for sale**       |   | **$**     | **8,934** | ** ** |

 

Summary resort segment operating results forSugarbush, excluding the $15.1 million asset impairment charge in Fiscal 2001,are as follows (in thousands):

 
| **Fiscal Years Ended**             |   | **2000** |       | **2001** |   | **2002** |       |
|------------------------------------|--------|----------|------------|----------|--------|----------|------------|
| **Total revenues**                 |   | $        | 16,926     |     | $      | 17,471   |       | $ | 781 |   |
| **Total  expenses**                |   | 18,419   |       | 16,475   |   | 1,696    |       |
| **Income (loss)  from operations** |   | **$**    | **(1,493** | **)**    | **$**  | **996**  | ** ** | **$** | **(915** | **)** |

 

**Steamboat Sale**

The Company had previously communicated its intent to sell its Steamboat resort in SteamboatSprings, Colorado, to reduce the debt of the Company as part of itscomprehensive strategic plan to improve its financial condition andongoing operations.  During October2001, the Company executed a non-binding letter of intent to sellSteamboat.  In accordance with SFAS No.121, the Company reduced the carrying value of the net assets of the resort totheir estimated fair market value as of July 29, 2001 by $50 million (see Note13).  The carrying value of the net assetswas classified as assets held for sale as of July 29, 2001.  On January 24, 2002, the Company signed apurchase and sale agreement for Steamboat. The proceeds from the sale were estimated to be $25.4 million less thanoriginally estimated.  Therefore, theCompany recorded an additional impairment of $25.4 million in Fiscal 2002 toreduce the carrying value of the net assets to the revised fair value.

 

On March 26, 2002, in conjunction with the decision tosell Heavenly, the Company determined that it would not sell Steamboat.  As a result, the carrying value of the netassets of Steamboat that were previously classified as held for sale as of July29, 2001 have been reclassified to the appropriate captions in the accompanyingconsolidated balance sheet as of July 29, 2001.  The components of these net assets which have been reclassified,net of any allowance for losses, are as follows (in thousands):

 
| **Net Assets as of July 29, 2001**            |   | **Total** |       |
|-----------------------------------------------|--------|-----------|------------|
| **Accounts  receivable**                      |   | $         | 1,890      |   |
| **Inventory**                                 |   | 1,123     |       |
| **Prepaid  expenses**                         |   | 49        |       |
| **Property and  equipment, net**              |   | 80,427    |       |
| **Real estate  developed for sale**           |   | 6,500     |       |
| **Intangible  assets**                        |   | 10,081    |       |
| **Other assets**                              |   | 28        |       |
| **Accounts  payable and accrued liabilities** |   | (4,711    | )          |
| **Deposits and  deferred revenues**           |   | (1,568    | )          |
| **Other  liabilities**                        |   | (401      | )          |
| **Debt**                                      |   | (4,133    | )          |
| **Net assets  previously held for sale**      |   | **$**     | **89,285** | ** ** |

 

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**21.          Quarterly Financial Information(Unaudited)**

 

Following is a summary of unaudited quarterlyinformation which reflects the operations of the Heavenly resort as discontinuedoperations.  When the Company filed itsthird quarter Fiscal 2002 information, Heavenly resort was presented asdiscontinued operations.  All amountsare in thousands, except per share amounts. Also provided is a reconciliation to previously reported amounts for thefirst and second Fiscal 2002 quarters.

 
|                                                                                                              |   | **First****Quarter** |    | **Second****Quarter** |   | **Third****Quarter** |   | **Fourth****Quarter** |    |
|-------------------------------------------------------------------------------------------------------------------|--------|----------------------|---------|-----------------------|--------|----------------------|--------|-----------------------|---------|
| **Year ended  July 28, 2002:**                                                                                    |   |                 |    |                  |   |                 |   |                  |    |
| **Net revenues  as previously reported**                                                                          |   | $                    | 23,108  |                  | $      | 121,154              |   | $                     | 131,641 |   | $ | 20,296 |   |
| **Reclassification  for discontinued operations**                                                                 |   | (2,995               | )       | (21,088               | )      | —               |   | —                |    |
| **Net revenues**                                                                                                  |   | $                    | 20,113  |                  | $      | 100,066              |   | $                     | 131,641 |   | $ | 20,296 |   |
|                                                                                                              |   |                 |    |                  |   |                 |   |                  |    |
| **Income (loss)  from operations as previously reported**                                                         |   | $                    | (25,447 | )                     | $      | (21,982              | )      | $                     | 35,733  |   | $ | (105,550 | ) |
| **Reclassification  for discontinued operations**                                                                 |   | 2,680                |    | (2,868                | )      | —               |   | —                |    |
| **Income (loss)  from operations**                                                                                |   | $                    | (22,767 | )                     | $      | (24,850              | )      | $                     | 35,733  |   | $ | (105,550 | ) |
|                                                                                                              |   |                 |    |                  |   |                 |   |                  |    |
| **Income (loss)  before cumulative effect of change in****accounting  principle as previously reported**          |   | $                    | (39,205 | )                     | $      | (35,380              | )      | $                     | 34,572  |   | $ | (115,108 | ) |
| **Amortization  of Heavenly gondola guaranty**                                                                    |   | —               |    | (53                   | )      | (87                  | )      | —                |    |
| **Income (loss)  before cumulative effect of change in****accounting  principle**                                 |   | $                    | (39,205 | )                     | $      | (35,433              | )      | $                     | 34,485  |   | $ | (115,108 | ) |
|                                                                                                              |   |                 |    |                  |   |                 |   |                  |    |
| **Income (loss)  from discontinued operations as****previously  reported**                                        |   | $                    | —  |                  | $      | —               |   | $                     | 9,940   |   | $ | 2,668 |   |
| **Reclassification  for discontinued operations**                                                                 |   | (2,727               | )       | 2,523                 |   | —               |   | —                |    |
| **Amortization  of Heavenly gondola guaranty**                                                                    |   | —               |    | —                |   | (87                  | )      | —                |    |
| **Income (loss)  before cumulative effect of change in****accounting  principle**                                 |   | $                    | (2,727  | )                     | $      | 2,523                |   | $                     | 9,853   |   | $ | 2,668 |   |
|                                                                                                              |   |                 |    |                  |   |                 |   |                  |    |
| **Net income  (loss) available to common shareholders****as previously reported**                                 |   | $                    | (65,451 | )                     | $      | (43,499              | )      | $                     | 26,414  |   | $ | (123,642 | ) |
| **Amortization  of Heavenly gondola guaranty**                                                                    |   | —               |    | (53                   | )      | (87                  | )      | —                |    |
| **Accretion on  preferred stock**                                                                                 |   | (98                  | )       | (147                  | )      | (147                 | )      | —                |    |
| **Net income  (loss) available to common shareholders**                                                           |   | $                    | (65,549 | )                     | $      | (43,699              | )      | $                     | 26,180  |   | $ | (123,642 | ) |
|                                                                                                              |   |                 |    |                  |   |                 |   |                  |    |
| **Basic income  (loss) per share:**                                                                               |   |                 |    |                  |   |                 |   |                  |    |
| **Net income  (loss) available to common shareholders**                                                           |   | $                    | (2.09   | )                     | $      | (1.38                | )      | $                     | 0.82    |   | $ | (3.90 | ) |
| **Income (loss)  available to common shareholders before cumulative effect of changes in  accounting principles** |   | $                    | (1.49   | )                     | $      | (1.38                | )      | $                     | 0.82    |   | $ | (3.90 | ) |
| **Weighted  average common shares outstanding**                                                                   |   | 31,344               |    | 31,718                |   | 31,718               |   | 31,719                |    |
|                                                                                                              |   |                 |    |                  |   |                 |   |                  |    |
| **Diluted  income (loss) per share:**                                                                             |   |                 |    |                  |   |                 |   |                  |    |
| **Net income  (loss) available to common shareholders**                                                           |   | $                    | (2.09   | )                     | $      | (1.38                | )      | $                     | 0.39    |   | $ | (3.90 | ) |
| **Income (loss)  available to common shareholders before cumulative effect of changes in  accounting principles** |   | $                    | (1.49   | )                     | $      | (1.38                | )      | $                     | 0.39    |   | $ | (3.90 | ) |
| **Weighted  average common shares outstanding**                                                                   |   | 31,344               |    | 31,718                |   | 65,347               |   | 31,719                |    |
|                                                                                                              |   |                 |    |                  |   |                 |   |                  |    |
| **Year ended  July 29, 2001:**                                                                                    |   |                 |    |                  |   |                 |   |                  |    |
| **Net revenues  as previously reported**                                                                          |   | $                    | 48,128  |                  | $      | 156,264              |   | $                     | 179,574 |   | $ | 41,603 |   |
| **Reclassification  for discontinued operations**                                                                 |   | (2,385               | )       | (20,401               | )      | (27,674              | )      | (2,559                | )       |
| **Net revenues**                                                                                                  |   | $                    | 45,743  |                  | $      | 135,863              |   | $                     | 151,900 |   | $ | 39,044 |   |
|                                                                                                              |   |                 |    |                  |   |                 |   |                  |    |
| **Income (loss)  from operations as previously reported**                                                         |   | $                    | (20,238 | )                     | $      | 7,935                |   | $                     | 39,529  |   | $ | (95,135 | ) |
| **Reclassification  for discontinued operations**                                                                 |   | 2,734                |    | (726                  | )      | (8,462               | )      | 2,709                 |    |
| **Income (loss)  from operations**                                                                                |   | $                    | (17,504 | )                     | $      | 7,209                |   | $                     | 31,067  |   | $ | (92,426 | ) |
|                                                                                                              |   |                 |    |                  |   |                 |   |                  |    |
| **Income (loss)  before cumulative effect of change in****accounting  principle**                                 |   | $                    | (20,999 | )                     | $      | (4,600               | )      | $                     | 13,025  |   | $ | (108,150 | ) |
| **Income (loss)  from discontinued operations**                                                                   |   | (2,013               | )       | 454                   |   | 8,593                |   | (2,732                | )       |
| **Net income  (loss) available to common shareholders**                                                           |   | (24,176              | )       | (10,405               | )      | 7,236                |   | (114,227              | )       |
|                                                                                                              |   |                 |    |                  |   |                 |   |                  |    |
| **Basic income  (loss) per share:**                                                                               |   |                 |    |                  |   |                 |   |                  |    |
| **Net income  (loss) available to common shareholders**                                                           |   | $                    | (0.79   | )                     | $      | (0.34                | )      | $                     | 0.24    |   | $ | (3.73 | ) |
| **Income (loss)  available to common shareholders before cumulative effect of changes in  accounting principles** |   | $                    | (0.87   | )                     | $      | (0.34                | )      | $                     | 0.24    |   | $ | (3.73 | ) |
| **Weighted  average common shares outstanding**                                                                   |   | 30,469               |    | 30,470                |   | 30,509               |   | 30,653                |    |
|                                                                                                              |   |                 |    |                  |   |                 |   |                  |    |
| **Diluted  income (loss) per share:**                                                                             |   |                 |    |                  |   |                 |   |                  |    |
| **Net income  (loss) available to common shareholders**                                                           |   | $                    | (0.79   | )                     | $      | (0.34                | )      | $                     | 0.24    |   | $ | (3.73 | ) |
| **Income (loss)  available to common shareholders before cumulative effect of changes in  accounting principles** |   | $                    | (0.87   | )                     | $      | (0.34                | )      | $                     | 0.24    |   | $ | (3.73 | ) |
| **Weighted  average common shares outstanding**                                                                   |   | 30,469               |    | 30,470                |   | 30,509               |   | 30,653                |    |

 

F-41

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Certain itemsrelated to merger, restructuring and impairment charges recorded during Fiscal2001 and Fiscal 2002 are material to the results of the quarterly informationabove.  These charges are discussed inNote 13.  During the fourth quarter ofFiscal 2002, the Company made certain adjustments to its accounting associatedwith the recapitalization as discussed in Note 12.  Accordingly, the Company has adjusted certain previously reportedamounts for the first, second, and third quarters of Fiscal 2002.

 

**22.          SubsequentEvents**

 

On November 22, 2002, Resort Properties entered into aforbearance agreement with the lenders whereby the lenders have agreed to notpursue additional foreclosure remedies and to cease publication of foreclosurenotices for a 30-day period.  Althoughthis 30-day period has expired, management continues discussions with thelenders regarding a restructuring of this facility, and the lenders have notexercised any further foreclosure remedies since the expiration of theforbearance agreement (see Note 7).

 

Effective August 29, 2002, the Company and Textronentered into amendments to the Senior Construction Loan and the SubordinatedConstruction Loan.  The terms of therevised agreements waive certain defaults, relax mandatory principalamortization requirements and provide additional liquidity to support ongoingsales and marketing activities of the remaining quartershare units at TheCanyons Grand Summit and Steamboat Grand hotels (see Note 7).

 

As part of its comprehensive strategic plan torestructure its debt, the Company entered into an agreement dated February 14,2003 with General Electric Capital Corporation (GE Capital) and CapitalSourceFinance LLC (CapitalSource) whereby GE Capital and CapitalSource have provideda new $91.5 million senior secured loan facility (the New Resort CreditFacility).  The New Resort CreditFacility replaces the Company’s existing Resort Senior Credit Facility (seeNote 6) and is secured by substantially all the assets of the Company and theassets of its resort operating subsidiaries. Resort Properties and its subsidiaries are not guarantors of the NewResort Credit Facility nor are their assets pledged as collateral under the NewResort Credit Facility.  The New ResortCredit Facility consists of the following:

 

•                  Revolving CreditFacility - $40.0 million, including letter of credit (L/C) availability of upto $5.0 million of which approximately $4.1 million of L/C’s was outstanding onthe funding date of February 18, 2003. The amount of availability under the Revolving Credit Facility will becorrespondingly reduced by the amount of each L/C issued.

 

•                  Tranche A TermLoan -  $25.0 million borrowed on thefunding date of February 18, 2003.

 

•                  SupplementalTerm Loan - $6.5 million borrowed on the funding date of February 18, 2003.

 

F-42

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•                  Tranche B TermLoan -  $20.0 million borrowed on thefunding date of February 18, 2003.

 

The Revolving, Tranche A Term Loan and SupplementalTerm Loan portions of the New Resort Credit Facility mature on April 15, 2006and bear interest at JPMorgan Chase Bank’s prime rate plus 3.25% (payablemonthly).  The Supplemental Term Loanalso requires a principal payment of approximately $342,000 on July 15, 2003,payments of approximately $1.0 million on January 15 and July 15 of each year,and a final payment of approximately $1.0 million on April 15, 2006.  The Tranche B Term Loan matures on June 15,2006 and bears interest at JPMorgan Chase Bank’s prime rate plus 5.0% (payablemonthly) with an interest rate floor of 12.25%.  The New Resort Credit Facility contains affirmative, negative andfinancial covenants customary for this type of credit facility, which includesmaintaining a minimum level of EBITDA, as defined, places a limit on theCompany’s capital expenditures and contains an asset monetization covenantwhich requires the Company to refinance the facility or sell assets sufficientto retire the facility on or prior to December 31, 2005.  The financial covenants of the New ResortCredit Facility are less restrictive than those of the Resort Senior CreditFacility. The New Resort Credit Facility also restricts the Company's abilityto pay cash dividends on or redeem its common and preferred stock.

 

F-43

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