UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No.    )

Filed by the Registrant ☒

Filed by a Party other than the Registrant ☐

Check the appropriate box:

☒Preliminary Proxy Statement

☐Confidential, for Use of the Commission Only (as permitted by Rule 14a-6 (e) (2))

☐Definitive Proxy Statement

☐Definitive Additional Materials

☐Soliciting Material Pursuant to Section 240.14a-11 (c) or Section 240.14a-12



Payment of Filing Fee (Check the appropriate box):

☐No fee required. 

☒Fee computed on table below per Exchange Act Rules 14a-6 (i) (1) and 0-11. 



(1)Title of each class of securities to which transaction applies: Common stock, $0.01 par value

(2)Aggregate number of securities to which transaction applies: Peak Resorts, Inc. will acquire 100% of the outstanding capital stock of Snow Time, Inc. in exchange for $76 million, $70 million payable in cash and $6 million of which will be paid in a number of shares of Peak Resorts, Inc. common stock based on the average closing price of the common stock during the 20 trading days preceding the closing of the acquisition. The aggregate number of securities and price per share is not determinable until the closing date of the acquisition.

(3)Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): See above.

(4)Proposed maximum aggregate value of transaction: $76,000,000.00

(5)Total fee paid:

☐Fee paid previously with preliminary materials. 



☐Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously.  Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 



(1)Amount previously paid:

(2)Form, Schedule or Registration Statement No.:

(3)Filing Party:

(4)Date Filed:

---

 





NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 31, 2018

Dear Peak Resorts, Inc. Stockholders:

We are pleased to invite you to attend a special meeting of the Peak Resorts stockholders to be held at 10:00 a.m., Central time, telephonically (the “Special Meeting”).  At the Special Meeting, we will ask you to consider the following proposals:

These items of business are more fully described in the Proxy Statement accompanying this Notice of Special Meeting. 

Stockholders of record as of the close of business on October 2, 2018 may vote at the Special Meeting or any postponements or adjournments thereof.

This Notice of Special Meeting and the accompanying Proxy Statement and form of proxy are being made available to all stockholders entitled to vote at the Special Meeting on or about October 4, 2018.

Your vote is important.  Whether or not you plan to attend the Special Meeting in person, we urge you to submit your vote via the Internet, telephone or mail.

We appreciate your continued support of Peak Resorts and look forward to either greeting you in person at the Special Meeting or receiving your proxy.

By Order of the Board of Directors,

Christopher J. Bub
Vice President,
Chief Financial Officer and
Corporate Secretary

Wildwood, Missouri
October 4, 2018

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON OCTOBER 31, 2018.  THIS PROXY STATEMENT AND THE ANNUAL REPORT ARE AVAILABLE AT: 
http://ir.peakresorts.com/docs

 

---

 



PROXY STATEMENT
______________________

SPECIAL MEETING OF STOCKHOLDERS
To Be Held On Wednesday, October 31, 2018
______________________

GENERAL INFORMATION.....................................................................................................................................................................1

SUMMARY TERM SHEET.......................................................................................................................................................................1

QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS AND THE SPECIAL MEETING...............................................................4

RISK FACTORS.....................................................................................................................................................................................10

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS.......................................................................................16

THE PROPOSED ACQUISITION OF SNOW TIME AND RELATED FINANCING.................................................................................17

THE ACQUISITION AGREEMENT.......................................................................................................................................................22

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION.........................................................................24

BUSINESS OF SNOW TIME.................................................................................................................................................................32

SNOW TIME’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...33

PEAK RESORTS’ MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.39

DESCRIPTION OF SECURITIES...........................................................................................................................................................58

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......................................................................61

PROPOSAL 1: THE NASDAQ PROPOSAL...........................................................................................................................................65

PROPOSAL 2: THE ADJOURNMENT PROPOSAL...............................................................................................................................65

WHERE YOU CAN FIND MORE INFORMATION.................................................................................................................................65

OTHER BUSINESS...............................................................................................................................................................................65

INDEX TO FINANCIAL STATEMENTS.............................................................................................................................................F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.....................................................................................F-2

PEAK RESORTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...........................................F-8

PEAK RESORTS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSF-31

INDEPENDENT AUDITOR’S REPORT...........................................................................................................................................F-36

SNOW TIME, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.............................................F-44

SNOW TIME, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.F-55

ANNEX A  STOCK PURCHASE AGREEMENT.................................................................................................................................A-1





 

---

 

PEAK RESORTS, INC.
17409 Hidden Valley Dr.
Wildwood, Missouri 63025

PROXY STATEMENT
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON WEDNESDAY, October 31, 2018

This Proxy Statement and the enclosed form of proxy are furnished in connection with the solicitation of proxies by our Board of Directors for use at the Special Meeting of Stockholders (the “Special Meeting”) of Peak Resorts, Inc., a Missouri corporation (“Peak Resorts” or the “Company”), and any postponements, adjournments or continuations thereof.  The Special Meeting will be held on Wednesday, October 31, 2018 at 10:00 a.m., Central Time telephonically for the purposes contained in the accompanying Notice of Special Meeting of Stockholders and in this Proxy Statement.  This Proxy Statement and our Annual Report on Form 10-K for the fiscal year ended April 30, 2018 (the “Annual Report”) are first being mailed on or about October 4, 2018 to all stockholders entitled to vote at the Special Meeting.  This Proxy Statement summarizes the information that you will need to know to vote in an informed manner.

The following is a summary of the material provisions of the Stock Purchase Agreement, dated September 24, 2018 (the “Acquisition Agreement”) entered into by and among Peak Resorts and the stockholders (the “Sellers”) of Snow Time, Inc., a privately held Delaware corporation (“Snow Time”) pursuant to which, at the closing, we will acquire 100% of the outstanding capital stock of Snow Time held by the Sellers (the “Acquisition”).  The following summary is qualified in its entirety by reference to the complete text of the Acquisition Agreement, a copy of which is attached as Annex A to this Proxy Statement and incorporated herein by reference. This summary may not contain all of the information about the Acquisition Agreement that is important to you.  You should refer to the full text of the Acquisition Agreement for details of the transaction and the terms and conditions of the proposed Acquisition.

It is important to understand that we are not required to seek, nor are we seeking, stockholder approval of the proposed Acquisition of Snow Time or the issuance of shares of our common stock, $0.01 per share (the “Common Stock”), to the Sellers as consideration for the Acquisition.  Rather, we are only seeking approval of the Nasdaq Proposal, as described herein.

Peak Resorts

Peak Resorts, a Missouri corporation, is a leading owner and operator of high-quality, individually branded ski resorts in the U.S. and operates 14 ski resorts primarily located in the Northeast and Midwest, 13 of which are owned.  The majority of the resorts are located within 100 miles of major metropolitan markets, including New York City, Boston, Philadelphia, Cleveland and St. Louis, enabling day and overnight drive accessibility.  The Company’s resorts are comprised of nearly 1,859 acres of skiable terrain appropriate to a wide range of ages and abilities.  The activities, services and amenities available at the Company’s resorts include skiing, snowboarding, terrain parks, tubing, dining, lodging, equipment rentals and sales, ski and snowboard instruction, zip lines, mountain coasters, mountain biking, hiking and other summer activities.  Peak Resorts’ Common Stock is traded on the Nasdaq Global Market under the symbol “SKIS”.  The principal executive offices of Peak Resorts are located at 17409 Hidden Valley Drive, Wildwood, Missouri 63025, and its telephone number is (636) 938-7474.

Snow Time

Snow Time, a privately held Delaware corporation, owns and operates three ski resorts in Pennsylvania: Liberty Mountain Resort, Whitetail Resort and Roundtop Mountain Resort.  The three resorts are within driving distance of the Baltimore-Washington D.C. market, which comprises nearly 10 million people, and welcomed more than 600,000 visitors during the 2017/2018 ski season. Snow Time’s resorts offer a combined 65 trails, more than 325 skiable acres, and an average of approximately 700 vertical feet of terrain. Snow Time also operates two 18-hole golf courses, a 115-room hotel and 22,000 square foot conference center at Liberty Mountain Resort, and more than 20 food and beverage locations across its three resorts.  Snow Time’s principal executive offices are located at 100 Boxwood Lane, Suite 2, York, Pennsylvania 17402, and its telephone number is (717) 757-1508.  See “Business of Snow Time” for additional information about the business and operations of Snow Time.

---

 

On September 24, 2018, Peak Resorts entered into the Acquisition Agreement with the stockholders of Snow Time, as Sellers, pursuant to which, at the closing, the Company will acquire 100% of the outstanding capital stock of Snow Time held by the Sellers.  Upon consummation of the Acquisition, we will own the assets and businesses of Snow Time.

The aggregate purchase price payable by the Company is $76.0 million, comprised of $70.0 million payable in cash and the remainder payable in shares of the Company’s Common Stock with a value equal to $6.0 million, determined based on the average closing price of the Common Stock for the 20 trading days immediately preceding the closing of the Acquisition.

Closing of the Acquisition is subject to customary closing conditions, including the completion of satisfactory due diligence relating to title and environmental matters.  The Company’s obligation to consummate the Acquisition is not subject to any condition related to the availability of financing.  The parties intend to close the Acquisition on or about November 8, 2018, subject to extension upon mutual consent, provided that either party may terminate the Acquisition Agreement if closing does not occur on or before November 30, 2018.  The Company has agreed to pay the Sellers a fee of $650,000 upon termination of the Agreement (other than as a result of a breach by Sellers of their representations, warranties, covenants and agreements under the Agreement).

See “Proposal 1: The Nasdaq Proposal” for additional information on the Acquisition and Acquisition Agreement.

In connection with the Company’s entry into the Acquisition Agreement, the Company has entered into a commitment letter, dated as of September 20, 2018 (the “Commitment Letter”), with Cap 1 LLC (“Cap 1”), pursuant to which and subject to the terms and conditions set forth therein, Cap 1 has committed to provide a two-year senior secured term loan facility in the amount of $50.0 million (the “Term Loan”) to fund a portion of the cash consideration to be paid to the Sellers pursuant to the terms of the Agreement.  The Term Loan will be secured by all real property on which the resorts acquired pursuant to the Agreement are located and improvements thereon, together with related rights.  Interest on the Term Loan will be charged at a rate of 6.95%, subject to a 2.0% increase upon an event of default.  Amounts due under the Term Loan may be prepaid without penalty.  The Term Loan may be extended for an additional one-year period at the Company’s option.  If extended, the Company has agreed to issue Cap 1 a warrant to purchase 666,667 shares of Common Stock, exercisable immediately at $7.50 per share (the “Extension Warrant”).

Pursuant to the terms of the Commitment Letter, the Company has agreed that, as a condition to the funding of the Term Loan, it will exercise the existing option (the “Cap 1 Option”) to issue to Cap 1 an additional 20,000 shares of Series A Cumulative Convertible Preferred Stock (the “Series A Preferred Stock”), along with additional warrants to purchase up to 2,719,018 shares of Common Stock at exercise prices ranging from $6.50 to $9.00 per share (the “Option Warrants”), for an aggregate consideration of $20.0 million as provided by the terms of the Securities Purchase Agreement between the Company and Cap 1, dated as of August 22, 2016 (the “Cap 1 Agreement”).  The Company intends to use the proceeds from the sale of the Series A Preferred Stock to fund the remainder of the cash portion of the Acquisition purchase price.  As consideration for the Term Loan and in lieu of fees, upon funding, the Company has also agreed to issue Cap 1 an additional warrant to purchase 1,750,000 shares of Common Stock at $10.00 per share (the “Financing Warrant”). 

The funding of the Term Loan is contingent on the satisfaction of certain conditions as described in this Proxy Statement, including obtaining stockholder approval to issue the Series A Preferred Stock, Option Warrants, Financing Warrants and Extension Warrants, and Common stock issuable thereunder, pursuant to Nasdaq Rule 5635(a).

See “Proposal 1: The Nasdaq Proposal” for additional information on the Commitment Letter, terms of the warrants and transactions contemplated thereunder. 

Interests of Certain Persons

Cap 1 and its affiliates are currently the beneficial owners of approximately 40% of the Company’s common stock, which includes 5,898,668 shares issuable upon conversion of the Series A Preferred Stock and full exercise of the warrants currently held by Cap 1. Following the closing of the Acquisition, and assuming consummation of the transactions contemplated by the Term Loan, Cap 1 and its affiliates will be the beneficial owners of approximately 54% of the Company’s common stock, assuming full conversion of the Series A Preferred Stock and full exercise of all warrants held by Cap 1 (except for the Extension Warrant).  Full exercise of all warrants currently held by Cap 1 and warrants issuable to Cap 1 pursuant to the Commitment Letter would require Cap 1 to pay approximately $57.5 million in aggregate exercise prices, ranging from $6.50 per share to $10.00 per share. The closing price of the Company’s Common Stock on October 1, 2018 was $4.96. Cap 1 has agreed that for a period of up to three years following closing of the Acquisition, Cap 1 would be required to vote any shares of Common Stock acquired upon exercise of any warrant held by Cap 1 in accordance with the recommendations of the board of directors on matters submitted to a vote of the stockholders, subject to certain exceptions with respect to non-routine matters such as tender offers, mergers, acquisitions and similar transactions.

---

 

Rory A. Held is a member of the Company’s Board of Directors and was nominated for election by Cap 1 pursuant to the terms of the Stockholders’ Agreement between the Company and Cap 1 dated as of November 2, 2016 (the “Stockholders’ Agreement”).  Mr. Held serves as Executive Vice President and Portfolio Manager of Summer Road LLC, which serves as a family office and provides investment management services to Cap 1.  Mr. Held has no equity interest in, or other relationship with, Cap 1 or Summer Road LLC and is not compensated by Cap 1 or Summer Road LLC for his services as a director of the Company.  Mr. Held has no direct or indirect interest in the Acquisition or the securities issuable to Cap 1 pursuant to the terms of the Commitment Letter.

See “Proposal 1: The Nasdaq Proposal” for additional information on the ownership and voting rights of Cap 1.

Effective as of October 1 2018, Mr. Timothy Boyd, Mr. Stephen Mueller and Mr. Richard Deutsch, in their respective capacities as stockholders of Peak Resorts, and Cap 1 have entered into a voting agreement with the Company pursuant to which such stockholders agreed, among other things, to vote their respective shares of Common Stock of Peak Resorts in favor of the approval of the Nasdaq Proposal and Adjournment Proposal and against any action, proposal, transaction, or agreement that could reasonably be expected to interfere with, delay, discourage, adversely affect, or inhibit approval of the Nasdaq Proposal or the timely consummation of the Acquisition (the “Voting Agreement”).  Notwithstanding the foregoing, the Voting Agreement will not impair the right or ability of stockholders who are also directors to exercise their fiduciary duties in their capacities as directors of the Company.  Collectively, Messrs. Boyd, Mueller and Deutsch and Cap 1 own approximately 43.4% of the voting power of the Company.

The Company’s stockholders will continue to hold their existing shares of Peak Resorts Common Stock following the Acquisition and transactions contemplated pursuant to the terms of the Commitment Letter.  However, the issuance of the Common Stock to the Sellers in connection with the Acquisition and the issuance of the Common Stock underlying the Series A Preferred Stock and various warrants to Cap 1 in connection with the Commitment Letter will dilute the ownership and voting interests of Peak Resorts’ current stockholders. 

See “The Proposed Acquisition of Snow Time and Related Financing” and “Principal Stockholders” for additional information.

There are a number of risks relating to the Acquisition and financing thereof pursuant to the terms of the Commitment Letter. See “Risk Factors” for a discussion of these risks.

---

 

The information provided in the “question and answer” format below is for your convenience only and is merely a summary of the information contained in this Proxy Statement.  You should read this entire Proxy Statement carefully.  Information contained on, or that can be accessed through, our website is not intended to be incorporated by reference into this Proxy Statement.

A:Stockholders will vote on the following items at the Special Meeting:

A:The Board of Directors recommends a vote:

A:Peak Resorts will pay the cost of preparing, assembling, printing, mailing and distributing these proxy materials and soliciting votes.  We may, on request, reimburse brokerage firms and other nominees for their expenses in forwarding proxy materials to beneficial owners.  In addition to soliciting proxies by mail, we expect that our directors, officers and employees may solicit proxies in person or by telephone or facsimile.  None of these individuals will receive any additional or special compensation for doing this, although we may reimburse these individuals for their reasonable out-of-pocket expenses.

Q:Why are we seeking stockholder approval of the Nasdaq Proposal?

A:Our Common Stock is traded on Nasdaq. Nasdaq Listing Rule 5635(a) requires us to seek stockholder approval with respect to issuances of our Common Stock when the shares to be issued are being issued in connection with the acquisition of the stock of another company, including as part of the acquisition funding, and are equal to 20% or more of our outstanding Common Stock before the issuance.  The issuance of the Series A Preferred Stock, Option Warrants, Financing Warrant and Extension Warrant to Cap 1 to be issued in connection with the Acquisition of Snow Time would result in the potential issuance of 8,315,335 shares of the Company’s Common Stock to Cap 1 upon conversion of the Series A Preferred Stock and full exercise of the Option Warrants, Financing Warrant and Extension Warrant, which exceeds 20% of the Company’s pre-Acquisition issued and outstanding shares of Common Stock. As such, under Nasdaq rules, we are required to seek stockholder approval of the issuance of these securities to Cap 1.

Q:Have any of our stockholders agreed to vote in favor of the Nasdaq Proposal?

Q:What will be the effect of the failure to adopt the Nasdaq Proposal?

A:We are not seeking stockholder approval for the Acquisition or the issuance of the Snow Time Shares to the Sellers.  However, we intend to fund the $70.0 million cash portion of the Acquisition purchase price with proceeds from the Term Loan and sale of the securities pursuant to the Cap 1 Option exercise. Cap 1’s obligation to fund the Term Loan is conditioned upon our ability to exercise the Cap 1 Option. As consideration for the Term Loan, we have also agreed to issue the Financing Warrant to Cap 1, and upon the extension of the Term Loan, we will be required to issue Cap 1 the Extension Warrant. We are seeking stockholder approval of the Nasdaq Proposal to enable us to satisfy our obligations and the conditions set forth in the Commitment Letter.

If the stockholders do not approve the Nasdaq Proposal, we will need to seek alternative sources of financing to pay all or a portion of the cash portion of the Acquisition purchase price. If we are not able to obtain such financing, we will not be able

---

 

to close the Acquisition, the transaction will be terminated, and we will be required to pay a termination fee in the amount of $650,000.

Please see “Proposal 1: The Nasdaq Proposal” and “Risk Factors” for additional information and risks relating to the Acquisition.

A:Only the holders of shares of our Common Stock and shares of our Series A Preferred Stock of record at the close of trading on October 2, 2018 (the “Record Date”) are entitled to receive notice of, to attend, and to vote at the Special Meeting. As of the Record Date, there were 13,982,400 shares of Common Stock issued and outstanding, held by ten holders of record. 

As of the Record Date, there were 20,000 shares of Series A Preferred Stock issued and outstanding, held by one holder of record, Cap 1. Subject to the conditions and in accordance with the terms set forth in the Certificate of Designation governing the Series A Preferred Stock, the Series A Preferred Stock is convertible into shares of Common Stock. The terms of the Series A Preferred Stock provide that as the holder, Cap 1 is entitled to vote, on an as-converted basis, together with holders of our Common Stock on all matters submitted to a vote of the holders of our Common Stock. As of the Record Date, Cap 1 has the right to vote the equivalent of 3,179,650 shares of Common Stock, as calculated pursuant to the conversion provisions of the Certificate of Designation (together with the outstanding shares of Common Stock on the Record Date, the “Voting Shares”). Together with the 2,026,500 shares of Common Stock held by Cap 1 and its affiliates, Cap 1 and its affiliates have the right to vote 5,206,150 shares on the Record Date, representing approximately 30.3% of the shares entitled to vote on the proposals presented in this Proxy Statement.

At the Record Date for the Special Meeting, the Company’s directors and executive officers have the right to vote 2,272,320 shares of Common Stock, which represents approximately 13.2% of the total shares entitled to vote at the Special Meeting. Collectively at the Record Date, the Company’s directors, executive officers and Cap 1 and its affiliates have the right to vote 7,478,470 shares of Common Stock, or approximately 43.6% of the shares entitled to vote.

Unless otherwise, indicated, references to “shares” throughout this Proxy statement refer to shares of our Common Stock and shares of Series A Preferred Stock. Each Voting Share is entitled to one vote on each matter at the Special Meeting.

Q:What is the difference between a stockholder of record and a beneficial owner of shares held in street name? 

A:Stockholder of Record.  If your shares are registered directly in your name with our transfer agent, Computershare Trust Company, N.A., you are considered the stockholder of record with respect to those shares, and the proxy materials were sent directly to you by Peak Resorts. 

Beneficial Owner of Shares Held in Street Name.  If your shares are held in an account at a brokerage firm, bank, broker-dealer, or other similar organization, then you are the “beneficial owner” of shares held in “street name,” and the proxy materials were forwarded to you by that organization.  The organization holding your account is considered the stockholder of record for purposes of voting at the Special Meeting.  As a beneficial owner, you have the right to instruct that organization on how to vote the shares held in your account.  Beneficial owners are also invited to attend the Special Meeting.  However, since a beneficial owner is not the stockholder of record, you may not vote your shares in person at the Special Meeting unless you follow the procedures for obtaining a legal proxy from your broker, bank or other nominee.  If you request a printed copy of our proxy materials by mail, your broker, bank or nominee will provide a voting instruction card for you to use.

Q:How do I vote? 

A:If you are a stockholder of record, there are four ways to vote:

If your shares are held in street name, you will receive voting instructions from your broker, bank or other nominee.  You must follow the voting instructions provided by your broker, bank or other nominee in order to instruct your broker, bank or

---

 

other nominee on how to vote your shares.  Street name stockholders should generally be able to vote by returning an instruction card, or by telephone or on the Internet.  However, the availability of telephone and Internet voting will depend on the voting process of your broker, bank or other nominee.  As discussed above, if you are a street name stockholder, you may not vote your shares in person at the Special Meeting unless you obtain a legal proxy from your broker, bank or other nominee.

Please note that the Internet and telephone voting facilities will close at 11:59 p.m., Eastern Time on the day before the Special Meeting.

Q:If I submit a proxy, how will it be voted? 

A:When proxies are properly dated, executed and returned, the shares represented by such proxies will be voted at the Special Meeting in accordance with the instructions of the stockholder.  If no specific instructions are given, the shares will be voted in accordance with the recommendations of our Board of Directors as described above.  If the Special Meeting is adjourned, the proxy holders can vote your shares on the new meeting date as well, unless you have revoked your proxy instructions, as described below under “Can I change my vote or revoke my proxy?”  Timothy Boyd and Christopher Bub have been designated as proxies by our Board of Directors.

Q:What should I do if I get more than one set of voting materials for the Special Meeting? 

A:Stockholders may receive more than one set of voting materials, including multiple proxy cards or voting instruction cards.  For example, stockholders who hold shares in more than one brokerage account may receive separate sets of voting instructions for each brokerage account in which shares are held.  Stockholders of record whose shares are registered in more than one name will receive more than one proxy card.  You should vote in accordance with all of the proxy cards and voting instruction cards you receive relating to the Special Meeting to ensure that all of your shares are counted. 

Q:Can I change my vote or revoke my proxy? 

A:You may change your vote or revoke your proxy prior to the taking of the vote at the Special Meeting.  If you are a stockholder of record, you can change your vote or revoke your proxy any time before the Special Meeting by:

If you are a street name stockholder, your broker, bank or other nominee can provide you with instructions on how to change your vote.

Q:Can I attend the Special Meeting in person? 

A:You are invited to attend the Special Meeting if you are a registered stockholder or a street name stockholder as of the close of trading on October 2, 2018, the Record Date.  In order to enter the Special Meeting, you must present a form of photo identification acceptable to us, such as a valid driver’s license or passport.  If you hold your shares beneficially in street name, you will need to provide proof of stock ownership as of the Record Date.  Please note that since a street name stockholder is not the stockholder of record, you may not vote your shares in person at the Special Meeting unless you follow the procedures of your broker, bank or other nominee for obtaining a legal proxy.  Please be aware that attendance at the Special Meeting will not, by itself, revoke a proxy. 

Q:How many shares must be present or represented to conduct business at the Special Meeting? 

A:At the Special Meeting, the presence in person or by proxy of a majority of the shares issued and outstanding and entitled to vote at the Special Meeting is required for the Special Meeting to proceed.  If you have returned valid proxy instructions or attend the Special Meeting in person, your shares will be counted for the purpose of determining whether there is a quorum, even if you wish to abstain from voting on some or all matters at the Special Meeting.  If there is no quorum, the chairman of the meeting or a majority of the shares present at the Special Meeting may adjourn the Special Meeting to another date.  Abstentions are counted as shares present and entitled to vote for purposes of determining a quorum.  Since there are no non-routine matters being voted on at the Special Meeting, we will not have any broker non-votes at the Special Meeting, which are described in more detail below.

---

 

Q:What are broker non-votes? 

A:Generally, a broker non-vote occurs when a bank, broker or other nominee that holds shares in “street name” for customers is precluded from exercising voting discretion on a particular proposal because (i) the beneficial owner has not instructed the bank, broker or other nominee how to vote, and (ii) the bank, broker or other nominee lacks discretionary voting power to vote the shares. A bank, broker or other nominee does not have discretionary voting power with respect to the approval of “non-routine” matters absent specific voting instructions from the beneficial owners of the shares.

If the proposals to be acted upon at any meeting include both routine and non-routine matters, the banker, broker or other nominee may turn in a proxy card for uninstructed shares that votes with respect to routine matters but not with respect to non-routine matters.  The “non-vote” with respect to non-routine matters is called a “broker non-vote.”  Each of the NASDAQ Proposal and the Adjournment Proposal is considered a non-routine matter.  Since there are no non-routine matters being voted on at the Special Meeting, we will not have any broker non-votes at the Special Meeting.  As a result, banks, brokers and other nominees are not allowed to vote on these matters unless they have received voting instructions from the beneficial owner of the shares.  Your bank, broker or other nominee will send you instructions on how you can instruct them to vote on these proposals.  If you do not provide voting instructions, your bank, broker or other nominee will not vote your shares on these proposals.

Q:What is the voting requirement to approve each of the proposals? 

A:The Nasdaq Proposal must be approved by the affirmative vote of a majority of votes cast, meaning the number of shares voted “for” a proposal must exceed the number of shares voted “against” such proposal. Abstentions are not considered votes cast for the foregoing purpose, and will have no effect on the vote for the Nasdaq Proposal.

The Adjournment Proposal must be approved by the affirmative vote of holders of a majority of our common stock present in person or represented by proxy at the Special Meeting and entitled to vote.  An abstention will have the effect of a vote against the Adjournment Proposal.

Stockholders are not entitled to dissenter’s rights for their shares in connection with the proposals included in this Proxy Statement.

Q:Who will tabulate the votes? 

A: A representative of Computershare Trust Company, N.A., our transfer agent, will serve as the Inspector of Election and will tabulate the votes at the Special Meeting. 

Q:How can I find the results of the Special Meeting?

A:Preliminary results will be announced at the Special Meeting.  Final results also will be published in a Current Report on Form 8-K to be filed with the Securities and Exchange Commission (the “SEC”) within four business days after the Special Meeting.  If the official results are not available at that time, we will provide preliminary voting results in the Current Report on Form 8-K and will provide the final results in an amendment to the Current Report on Form 8-K as soon as they become available. 

Q:Will my vote be kept confidential?

A:Proxies, ballots and voting tabulations are handled on a confidential basis to protect your voting privacy.  This information will not be disclosed, except as required by law. 

Q:What if I need to change my mailing address? 

A:You may contact our transfer agent, Computershare Trust Company, N.A., Stockholder Services, by telephone at (800) 962-4284 (toll free within the U.S.) or (781) 575-4247 (outside the U.S.), or online at https://www-us.computershare.com/Investor/, if you need to change your mailing address. 

Q:Will representatives of Peak Resorts’ independent registered public accounting firm and Snow Time’s independent accounting firm be at the Special Meeting?

A:Representatives of RSM US LLP, Peak Resorts’ independent registered public accounting firm, and RKL LLP, Snow Time’s independent accounting firm, are expected to have representatives at the Special Meeting who will have the opportunity to make a statement and who will be available to answer appropriate questions.

Q:What are the implications of being an “emerging growth company”?

---

 

A:We are an “emerging growth company,” as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, have elected to comply with certain reduced public company reporting requirements.  As an emerging growth company, we are permitted to provide less extensive disclosure about our executive compensation. We have elected to take advantage of scaled disclosure requirements for executive compensation.  We will remain an emerging growth company until the earlier of (i) the end of the fiscal year in which our annual revenues exceed $1.07 billion; (ii) the end of the fiscal year in which the fifth anniversary of our initial public offering occurred; (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt; and (iv) the date on which we qualify as a large accelerated filer.

   Q:What is the deadline to propose actions for consideration at next year’s annual meeting of stockholders or to nominate individuals to serve as directors?

A:Stockholder Proposals

Stockholders may present proper proposals for inclusion in our proxy statement and for consideration at the next annual meeting of stockholders by submitting their proposals in writing to our Secretary in a timely manner.  For a stockholder proposal to be considered for inclusion in our proxy statement for our 2019 annual meeting of stockholders, our Secretary must receive the written proposal at our principal executive offices not later than April 30, 2019.  In addition, stockholder proposals must comply with the requirements of Rule 14a-8 regarding the inclusion of stockholder proposals in company-sponsored proxy materials. Stockholder proposals should be addressed to: 

Peak Resorts, Inc.

Attn: Secretary

17409 Hidden Valley Drive

Wildwood, MO  63025

Our Amended and Restated By-Laws, as amended, (the “By-laws”) also establish an advance notice procedure for stockholders who wish to present a proposal before an annual meeting of stockholders but do not intend for the proposal to be included in our proxy statement. Our By-laws provide that the only business that may be conducted at an annual meeting is business that is (i) specified in our proxy materials with respect to such meeting given by or at the direction of the Board of Directors or the persons calling the meeting pursuant to the Amended and Restated Articles of Incorporation, (ii) otherwise properly brought before the annual meeting by or at the direction of our Board of Directors, or (iii) properly brought before the annual meeting by a stockholder of record entitled to vote at the annual meeting who has delivered timely written notice to our Secretary, which notice must contain the information specified in our By-laws.  To be timely for our 2019 annual meeting of stockholders, our Secretary must receive the written notice at our principal executive offices (i) not earlier than July 11, 2019 and (ii) not later than August 10, 2019. 

In the event that we hold our 2019 annual meeting of stockholders more than 30 days before the one-year anniversary of the annual meeting to be held on October 9, 2018, then notice of a stockholder proposal that is not intended to be included in our proxy statement must be received no earlier than the close of business on the tenth day following the day on which notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever first occurs.

If a stockholder who has notified us of his, her or its intention to present a proposal at an annual meeting does not appear to present his, her or its proposal at such annual meeting, we are not required to present the proposal for a vote at such annual meeting.

Nomination of Director Candidates

You may propose director candidates for consideration by our nominating and corporate governance committee.  Any such recommendations should include the nominee’s name, qualifications, other relevant biographical information and an indication of the willingness of the proposed nominee to serve on our Board of Directors and should be directed to:

Peak Resorts, Inc.

Attn: Chair of the Nominating and Corporate Governance Committee

17409 Hidden Valley Drive

Wildwood, MO  63025

In addition, our By-laws permit stockholders to nominate directors for election at an annual meeting of stockholders.  To nominate a director, the stockholder must provide the information required by our By-laws.  In addition, the stockholder must give timely notice to our Secretary in accordance with our By-laws, which, in general, require that the notice be received by our Secretary within the time period described above under “Stockholder Proposals” for stockholder proposals that are not intended to be included in a proxy statement.  The By-laws also permit any stockholder to nominate a director for election

---

 

pursuant to a written agreement with the Company that has been approved by the Board of Directors if that nominee meets the qualifications set forth in such written agreement.

Availability of By-laws

A copy of our By-laws is available on our website at www.peakresorts.com under the “Investors—Corporate Governance” sections of the website.  You may also contact our Secretary at our principal executive offices for a copy of the relevant By-law provisions regarding the requirements for making stockholder proposals and nominating director candidates.

---

 

Before you make your decision regarding how to vote on the Nasdaq Proposal and Adjournment Proposal set forth in this Proxy Statement, you should carefully consider each of the following risk factors and all of the other information contained in this Proxy Statement.  The risk factors described below related primarily to the Acquisition of Snow Time and the integration of Snow Time and its business, as well as risks relating to the transaction contemplated by the Commitment Letter.

The risk factors described below are not the only risks that we will face following the Acquisition.  Furthermore, additional risks and uncertainties not currently known to us may also materially and adversely affect our business operations and financial condition or the price of our Common Stock.  Additional information on material risks related to the Company, which may also affect the success of the acquired Snow Time resorts and business, can be found in Peak Resorts’ Annual Report on Form 10-K, as updated by the Company’s subsequent Quarterly Reports on Form 10-Q, all of which are filed with the SEC.  You should also read and consider the other information in this proxy statement.  Please see the section entitled “Where You Can Find More Information” of this Proxy Statement.

We intend to pay the cash portion of the Acquisition purchase price with the $50 million Term Loan funds and $20 million in proceeds from the sale of the Series A Preferred Stock, and issuance of accompanying Option Warrants, to Cap 1 pursuant to the terms of the Commitment Letter.  Funding of the Term Loan is conditioned upon our ability to issue the Series A Preferred Stock and Option Warrants to Cap 1.  Additionally, we have agreed to issue to Cap 1 the Financing Warrant and Extension Warrant, as may be necessary, pursuant to the terms of the Commitment Letter.  Issuance of the Common Stock underlying the Series A Preferred Stock and various warrants to Cap 1 will result in the issuance of more than 20% of the total number of shares of our Common Stock outstanding before the transactions contemplated by the Acquisition Agreement and Commitment Letter. Nasdaq Listing Rule 5635(a) requires stockholder approval when, in connection with an acquisition of stock or assets of another company, we issue a number of shares of our Common Stock that equals or exceeds 20% of the total number of shares of our Common Stock or voting power outstanding before the transaction.

If we fail to obtain the necessary stockholder approval, Cap 1 will not be required to fund the Term Loan, and we will be required to find alternative financing sources to fund the Snow Time Acquisition.  Even if we are able to secure alternative financing on similar terms, there is no assurance that such financing will be available to us before the November 30, 2018 Acquisition Agreement termination date, or that the Sellers will agree to an extension.  In such case, we will likely forfeit our opportunity to close the Acquisition and be required to pay the termination fee of $650,000 to the Sellers.   

Completion of the Acquisition is subject to various customary closing conditions, including the accuracy of the representations and warranties of the parties contained in the Acquisition Agreement, the parties’ performance and compliance in all material respects with the agreements and covenants contained in the Acquisition Agreement, no material adverse effect to Snow Time, issuance of title commitments, satisfactory completion of environmental and other due diligence, and such other conditions as are set forth in the Acquisition Agreement.  The required conditions to closing may not be satisfied in a timely manner, if at all, or they may be waived.  Satisfaction of certain of the closing conditions is out of our control.  If the Acquisition is not consummated for these or any other reasons, our ongoing business may be adversely affected and will be subject to a number of risks and consequences, including the following:

---

 

In addition, any delay in the consummation of the Acquisition, or any uncertainty about the consummation of the Acquisition, may adversely affect our future business, growth, revenue, and results of operations.

We may incur substantial expenses in connection with the integration of the business, policies, procedures, operations, technologies, and systems of Snow Time.  There are a large number of systems and functions that must be integrated, including, but not limited to, management information, accounting and finance, payroll, and benefits and regulatory compliance.  Acquisitions are particularly challenging because the prior practices of target companies may not meet the requirements of the Sarbanes-Oxley Act of 2002 or U.S. GAAP standards.  While we have assumed that a certain level of expenses would be incurred, there are a number of factors beyond our control that could affect the total amount or the timing of all of the expected integration expenses.  Moreover, many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time.

The Acquisition involves the combination of the businesses of two companies that currently operate as independent companies.  Our management will be required to devote significant attention and resources to integrating our business practices and operations with those of Snow Time. Potential difficulties we may encounter as part of the integration process include, but are not limited to, the following:

Any of the difficulties listed above could adversely affect our ability to maintain relationships with resort visitors, suppliers, employees, lenders, and other constituencies or our ability to achieve the anticipated benefits of the Acquisition.

We currently expect to realize an increase in gross revenue and other synergies as a result of the proposed Acquisition.  These expectations are subject to numerous assumptions, however, including assumptions derived from our diligence efforts concerning the status of and prospects for Snow Time’s business, which we do not currently control, and assumptions relating to the near-term prospects for our industry generally and the markets for Snow Time’s resorts in particular. Additional assumptions that we have made include, without limitation, the following:

---

 

We cannot provide any assurances with respect to the accuracy of our assumptions, including our assumptions with respect to future revenues or revenue growth rates, if any, of Snow Time, and we cannot provide assurances with respect to our ability to realize any cost savings that we currently anticipate.  Risks and uncertainties that could cause our actual results to differ materially from currently anticipated results include, but are not limited to, those discussed in this “Risk Factors” section and those relating to our business and industry as discussed in our filings with the SEC.  Any failure to integrate Snow Time successfully and to realize the financial benefits we currently anticipate from the Acquisition would have a material adverse impact on our future operating results and financial condition and could materially and adversely affect the trading price or trading volume of our Common Stock.

Snow Time’s obligations and liabilities, some of which may not have been disclosed to us or may not be reflected or reserved for in Snow Time’s historical financial statements, may be greater than we have anticipated.  The obligations and liabilities of Snow Time could have a material adverse effect on Snow Time’s value to us or on our business, financial condition, or results of operations.  In the event that we are responsible for liabilities substantially in excess of any amounts recovered through rights to indemnification or alternative remedies that might be available to us, or any applicable insurance, we could suffer consequences that would substantially reduce our earnings and cash flows or otherwise materially and adversely affect our business, financial condition, or results of operations.

The financial information contained in this Proxy Statement is presented for purposes of presenting our historical consolidated financial statements and is not necessarily indicative of the financial condition or results of operations of the Company following the Acquisition.  The financial information reflects adjustments, which are based upon preliminary estimates, to allocate the purchase price to Snow Time’s acquired assets and liabilities.  The purchase price allocation reflected in this Proxy Statement is preliminary, and final allocation of the purchase price will be based upon the actual purchase price and the fair value of the assets and liabilities of Snow Time as of the date of the consummation of the Acquisition.  In addition, the assumptions used in preparing the financial information may not prove to be accurate, and other factors may affect our financial condition and results of operations following the Acquisition.

We expect to use the net proceeds of the Term Loan to pay part of the cash portion of the Acquisition purchase price. However, the funding of the Term Loan is contingent on the satisfaction of certain conditions, including (i) the execution and delivery of mutually acceptable loan documentation and satisfaction of other customary conditions for debt facilities of this type; (ii) the absence of any circumstance that could reasonably be expected to have a material adverse effect on Snow Time; (iii) satisfaction of the terms and covenants, including consent rights of the Company’s current lenders, under the Company’s existing debt agreements; (iv) consummation of the Acquisition in accordance with the Acquisition Agreement; and (v) exercise of the Cap 1 Option by the Company. The Company is required to obtain shareholder approval to issue the additional shares of Series A Preferred Stock and warrants to Cap 1 pursuant to the Cap 1 Option exercise and the terms of the Commitment Letter, as required by the Nasdaq Listing Rules and as described in this Proxy Statement.

Satisfaction of certain of these conditions is out of our control.  If we are unable to satisfy such conditions, we may be unable to secure the Term Loan and will be required to find alternative debt or equity capital on acceptable terms or at all in order to consummation the Acquisition.  We cannot assure you that we will be able to obtain the Term Loan from Cap 1 or any alternative financing.  Our inability to obtain financing may prevent us from fulfilling our obligations under the Acquisition Agreement to consummate the Acquisition.

We are currently a party to various debt agreements with our existing lenders that provide our lenders with certain rights regarding the Acquisition and entry into the Term Loan with Cap 1, including the rights of the lenders to consent to the incurrence of additional debt. Funding of the Term Loan is also conditioned upon the receipt of any required consents from our existing lenders.

---

 

While our lenders have given us their contingent consents on the incurrence of the Term Loan debt, their final consents are subject to certain specified conditions, including (i) the final structure and terms of the Term Loan, including with respect to the borrower entity and Term Loan collateral; (ii) satisfactory final loan documentation; and (iii) entry into an intercreditor agreement among Cap 1, EPR Properties and Royal Banks of Missouri with respect to the Company’s indebtedness.  The willingness of our lenders to grant their consents and to negotiate and finalize an intercreditor agreement is within their discretion and not subject to our control.  If our lenders do not consent to the incurrence of the Term Loan debt, we will be required to find alternative financing sources for the Acquisition.  We cannot assure you that we will be able to obtain such financing in a timely manner and as such, may not be able to consummate the Acquisition.  In that event, we would be required to pay the $650,000 termination fee to the Sellers.

Under the proposed Term Loan provisions, we are required to repay the Term Loan debt in full within two years from the date of the Term Loan closing, subject to a one-year extension at our option. We anticipate that we will need to refinance the Term Loan debt in order to repay the Term Loan funds when they mature, which may include entering into a new credit facility or the issuance of debt or equity capital. If we are unable to repay the Term Loan debt at maturity, and we are otherwise unable to extend the maturity date or refinance this obligation, we would be in default. We cannot provide any assurances that we will be able to raise the necessary amount of capital to repay the Term Loan debt, or that we will be able to extend the maturity date or otherwise refinance this obligation. A default on the Term Loan would result in a default under existing credit agreements, and our lenders would have the right to exercise their rights and remedies to collect, which would include foreclosing on our assets and may require us to seek bankruptcy protection.

Issuance of the Term Loan will significantly increase our already substantial debt and we will become more significantly leveraged, resulting in increased risk of default on our obligations and an increase in debt service requirements which will adversely affect our financial condition. We may also incur additional indebtedness in the future.

The amount of debt we incur and our increased Series A Preferred Stock dividend obligations may have significant, and potentially adverse, consequences to us and our stockholders, including:

To the extent that we incur additional indebtedness, the risks described above could increase.  In addition, our actual cash requirements in the future may be greater than expected.  Our cash flow from operations may not be sufficient to service our outstanding debt or to repay the outstanding debt as it becomes due, and we may not be able to borrow money, sell assets, or otherwise raise funds on acceptable terms, or at all, to service or refinance our debt.

---

 

As holders of our Series A Preferred Stock are entitled to vote on an as-converted basis together with holders of our Common Stock on all matters submitted to a vote of the holders of our Common Stock, the issuance of 20,000 additional Series A Preferred Stock to Cap 1 further reduces the relative voting power of the holders of our Common Stock.  Holders of our Common Stock have no preemptive rights to purchase any securities in order to maintain their proportionate interest in the Company.  Immediately following the closing of the Acquisition, and assuming consummation of the transactions contemplated by the Term Loan, Cap 1 and its affiliates will hold approximately 38.9% of the voting power of the Company, the final percentage being subject to the number of shares issued to the Snow Time Sellers as consideration for the Acquisition.  This significant voting power and ownership interest could adversely affect prevailing market prices of our Common Stock.  Furthermore, sales by holders of a substantial number of shares of our Common Stock in the public market, or the perception that such sales might occur, could have a material adverse effect on the price of our Common Stock.  

Under the terms of the Series A Preferred Stock, the Series A Preferred Stock generally ranks, with respect to the liquidation, dividends and redemption, senior to other securities.  The Stockholders’ Agreement provides that, so long as the Cap 1 beneficially owns, on an as-converted basis, at least 11.4% of the outstanding equity securities of the Company, Cap 1’s approval is required in order for the Company or any subsidiary to: (a) materially change the nature of its business from owning, operating and managing ski resorts; or (b) acquire or dispose of any resorts, assets, or properties for aggregate consideration equal to or greater than 30% of the enterprise value of the Company and its subsidiaries.

The Stockholders’ Agreement grants to Cap 1 the right to nominate a director so long as it beneficially owns, on an as-converted basis, at least 20% of the outstanding equity securities of the Company, subject to satisfaction of reasonable qualification standards and Nominating and Corporate Governance Committee approval of the nominee.  Notwithstanding the fact that all directors will be subject to fiduciary duties to us and to applicable law, the interests of the directors designated by Cap 1 may differ from the interests of our security holders as a whole or of our other directors.

Assuming the conversion of the Series A Preferred Stock and exercise of all warrants held by Cap 1 (except for the Extension Warrant), Cap 1 would own approximately 54% of the outstanding shares of our Common Stock upon consummation of the transactions contemplated by the Term Loan.  Additional preemptive rights and rights of first offer in the documents governing the Series A Preferred Stock, Option Warrants, Financing Warrant and Extension Warrant may allow Cap 1 to maintain its ownership position upon the issuance of additional equity capital by the Company.  Holders of our Series A Preferred Stock are entitled to vote, on an as-converted basis, together with holders of our Common Stock on all matters submitted to a vote of the holders of our Common Stock.  While obtaining 54% of the Company’s voting power would require Cap 1 to pay approximately $57.5 million in aggregate exercise prices ranging from $6.50 to $10.00 per share, Cap 1 may, in the future, have the ability to control the outcome of any matter submitted for the vote of the holders of our Common Stock. 

The holders of Series A Preferred Stock have the right to receive a liquidation preference entitling them to be paid out of our assets available for distribution to stockholders before any payment may be made to holders of any other class or series of capital stock as well as a preferential right to receive cumulative dividends at the rate of 8% per annum on the liquidation value of $1,000 per share.  The holders of our Series A Preferred Stock also have certain redemption and conversion rights, and there are limitations on the Company’s ability to redeem other securities.  

These dividend obligations could impact our liquidity and reduce the amount of cash flows available for working capital, capital expenditures, growth opportunities, acquisitions, Common Stock dividends and other general corporate purposes.  Our obligations to the holders of our Series A Preferred Stock could limit our ability to obtain additional financing or increase our borrowing costs, which could have a material adverse effect on our business, financial condition, results of operations or cash flows.  The preferential rights could also result in divergent interests between the holders of shares of Series A Preferred Stock and holders of our Common Stock. 

The issuance of the Series A Preferred Stock, Option Warrants, Financing Warrant and Extension Warrant, and the Common Stock issuable upon conversion or exercise thereof, may impact the control of the Company.  The existence of a single stockholder with this level of significant ownership percentage and director nomination rights may discourage or deter third parties from

---

 

attempting to gain control of the Company, which could result in stockholders not being able to participate in any possible premiums which might be obtained in the absence of anti-takeover provisions.  Any transaction which may be so discouraged or avoided could be a transaction that the Company’s Common Stockholders might consider to be in their best interests.  However, the Board of Directors has a fiduciary duty to act in the best interests of the Company’s stockholders at all times. 

Conversion of the Series A Preferred Stock and exercise of the Option Warrants, Financing Warrant and Extension Warrant, if granted, issued in connection with the Term Loan will result in the issuance of a significant amount of Peak Resorts Common Stock. The issuance of such a significant amount of our Common Stock could depress the trading price of the Common Stock, and you may lose all or a part of your investment.

We currently anticipate that the Acquisition will be accretive to earnings per share, after factoring in synergies and excluding costs to achieve synergies and other one-time costs related to the Acquisition.  This expectation is based on preliminary estimates that are subject to change and risks and uncertainties, as described in this section and throughout the Proxy Statement.  We could also encounter additional transaction and integration-related costs, may fail to realize all of the benefits anticipated in the Acquisition, or be subject to other factors that affect preliminary estimates.  Any of these factors could cause a decrease in our earnings per share or decrease the expected accretive effect of the Acquisition and contribute to a decrease in the price of our Common Stock. 

In addition, we are unable to predict the potential effects of the issuance of the Series A Preferred Stock, Option Warrants, Financing Warrant and Extension Warrant, and the Common Stock underlying these securities, on the trading activity and market price of our Common Stock.  Sales of a substantial number of shares of our Common Stock in the public market, or the perception that such sales might occur, could have a material adverse effect on the price of our Common Stock. 

The risks and uncertainties described in this Proxy Statement are not the only ones we face.  We face a number of additional risks related to the operations of our business.  You should carefully consider each of the risk factors set forth in our filings with the SEC, including our Annual Report on Form 10-K for the fiscal year ended April 30, 2018, in evaluating our business and prospects.  Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also impair our business operations.  If any of the risks actually occur, our business and financial results could be harmed.  In that case the trading price of our Common Stock could decline. 

Certain information contained herein are not statements of historical or current fact constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.  These statements may be identified by the use of words such as “may,” “will,” “expect,” “should,” “anticipate,” “intend,” “believe” and “plan.”  The forward-looking statements contained in this Proxy Statement include, without limitation, statements related to: the planned Acquisition of Snow Time and the timing and financing thereof; the ability to meet closing conditions for the Acquisition and related financing; and the effect of the Acquisition on the business, operations, financial condition and results of operations of the Company.  These and other forward-looking statements are based on management’s current views and assumptions and involve risks and uncertainties that could significantly affect expected results.  Results may be materially affected by factors such as: risks associated with acquisitions generally; risks relating to the Term Loan financing, including the consent rights of lenders under the Company’s existing debt agreements and the need to obtain stockholder approval in order to issue Cap 1 the Series A Preferred Stock and various warrants in satisfaction of the terms of the Commitment Letter; terms and suitability of alternative financing sources, if needed; failure to retain key management and employees; issues or delays in the successful integration of the Snow Time operations with those of the Company, including incurring or experiencing unanticipated costs and/or delays or difficulties; difficulties or delays in the successful transition of the operations, systems and personnel of Snow Time; future levels of revenues being lower than expected and costs being higher than expected; failure or inability to implement growth strategies in a timely manner; unfavorable reaction to the acquisition by resort visitors, competitors, vendors and employees; conditions affecting the industry generally; local and global political and economic conditions; conditions in the securities market that are less favorable than expected; and other risks described in the Company’s filings with the SEC, including the Company’s Annual Report on Form 10-K for the year ended April 30, 2018, as may be updated from time to time in the Company’s subsequent SEC filings.

Actual results could differ materially from those projected in the forward-looking statements.  The Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law.

---

 

The following section and the section entitled “The Acquisition Agreement” in this Proxy Statement describe the material aspects of the Acquisition, the Term Loan financing and the material terms of the Acquisition agreement. This discussion may not contain all of the information that is important to you; accordingly, we encourage you to read carefully this entire Proxy Statement, including the Acquisition Agreement attached as Annex A to this Proxy Statement, and the other documents to which we refer in this Proxy Statement.

We have called the Special Meeting to solicit proxies from the holders of Peak Resorts Voting Shares to vote on the Nasdaq Proposal and Adjournment Proposal in connection with the Acquisition of Snow Time. The Nasdaq Proposal asks stockholders to approve, in accordance with Nasdaq Rule 5635(a), the issuance of the Series A Preferred Stock, Option Warrants, Financing Warrant, Extension Warrant and Common Stock upon conversion of the Series A Preferred Stock and exercise of the Option Warrants, Financing Warrant and Extension Warrant pursuant to the terms of the Commitment Letter with Cap 1 which sets forth the terms of the committed financing for the Acquisition. The Adjournment Proposal asks stockholders to approve any motion properly brought before the Special Meeting to adjourn the Special Meeting, if necessary, to solicit additional votes in favor of the Nasdaq Proposal.

On September 24, 2018, Peak Resorts entered into the Acquisition Agreement with the stockholders of Snow Time (referred to herein as the Sellers), pursuant to which, at the closing, the Company will own 100% of the outstanding capital stock of Snow Time held by the Sellers. Upon consummation of the Acquisition, the Company will acquire the assets and businesses of Snow Time, including Liberty Mountain Resort, Roundtop Mountain Resort and Whitetail Resort, which are day and overnight drive ski resorts located in southern Pennsylvania serving the Baltimore and Washington, D.C. metropolitan areas. Such resorts include two 18-hole golf courses, a 115-room hotel and conference center and more than 20 food and beverage locations across the three resorts, among other amenities.

The aggregate purchase price payable by the Company is $76.0 million, comprised of $70.0 million payable in cash and the remainder payable in shares of the Company’s Common Stock with a value equal to $6.0 million, determined based on the average closing price of the Common Stock for the 20 trading days immediately preceding the closing of the Acquisition. The purchase price is subject to customary purchase price adjustments related to prepaid services, working capital and transaction expenses, as described in the Acquisition Agreement. 

As previously disclosed by the Company, on August 22, 2016, the Company entered into the Securities Purchase Agreement with Cap 1, referred to herein as the Cap 1 Agreement, in connection with the sale and issuance (the “2016 Private Placement”) of $20 million in Series A Preferred Stock and three warrants (the “2016 Warrants”) to purchase shares of the Company’s Common Stock that expire 12 years from the date of issuance, as follows: (i) 1,538,462 shares of Common Stock at $6.50 per share; (ii) 625,000 shares of Common Stock at $8.00 per share; and (iii) 555,556 shares of Common Stock at $9.00 per share. On November 2, 2016, the Company completed the sale and issuance of the 20,000 shares of Series A Preferred Stock and the 2016 Warrants to Cap 1 in the 2016 Private Placement.  The Cap 1 Agreement grants to the Company the right to require Cap 1 to purchase an additional 20,000 shares of Series A Preferred Stock for $1,000 per share, along with additional warrants (referred to herein as the Option Warrants), all on the same terms as the 2016 Private Placement, subject to certain conditions (referred to herein as the Cap 1 Option).

In connection with the Company’s entry into the Acquisition Agreement, the Company has entered into the Commitment Letter with Cap 1, pursuant to which and subject to the terms and conditions set forth therein, Cap 1 has committed to provide a two-year senior secured term loan facility in the amount of $50.0 million (referred to herein as the Term Loan) to fund a portion of the cash consideration to be paid to the Sellers pursuant to the terms of the Acquisition Agreement. The Term Loan will be secured by all real property on which the resorts acquired pursuant to the Acquisition Agreement are located and improvements thereon, together with related rights. Interest on the Term Loan will be charged at a rate of 6.95% and be payable on a quarterly basis, subject to a 2.0% increase upon an event of default. Amounts due under the Term Loan may be prepaid without penalty. The Term Loan may be extended for an additional one-year period at the Company’s option. If extended, the Company has agreed to issue Cap 1 the Extension Warrant, which represents a right to purchase 666,667 shares of Common Stock, exercisable immediately at $7.50 per share and expiring ten years from the date of issuance.

Pursuant to the terms of the Commitment Letter, the Company has agreed that as a condition to the funding of the Term Loan, it will exercise the existing Cap 1 Option as provided by the terms of the Cap 1 Agreement. The Company intends to use the $20.0 million in proceeds from the sale of the Series A Preferred Stock to Cap 1 upon exercise of the Cap 1 Option to fund the remainder of the cash portion of the Acquisition purchase price. The terms of the Option Warrants to be issued to Cap 1 upon exercise of the Cap 1 Option will be identical to those issued to Cap 1 in the 2016 Private Placement and will be exercisable for 12 years to

---

 

purchase (i) 1,538,462 shares of Common Stock at $6.50 per share; (ii) 625,000 shares of Common Stock at $8.00 per share; and (iii) 555,556 shares of Common Stock at $9.00 per share, in each case, subject to adjustments.

As consideration for the Term Loan and in lieu of fees, upon funding, the Company has also agreed to issue Cap 1 the Financing Warrant to purchase 1,750,000 shares of Common Stock at $10.00 per share, which shall be immediately exercisable and expire ten years from the date of issuance.

The funding of the Term Loan is contingent on the satisfaction of certain conditions, including (i) the execution and delivery of mutually acceptable loan documentation and satisfaction of other customary conditions for debt facilities of this type; (ii) the absence of any circumstance that could reasonably be expected to have a material adverse effect on Snow Time; (iii) satisfaction of the terms and covenants, including consent rights of the Company’s current lenders, under the Company’s existing debt agreements; (iv) consummation of the Acquisition in accordance with the Acquisition Agreement; and (v) exercise of the Cap 1 Option by the Company. The issuance of the Series A Preferred Stock, Option Warrants, Financing Warrant and Exercise Warrant, and Common Stock issuable thereunder, to Cap 1 pursuant to the terms of the Commitment Letter requires stockholder approval under Nasdaq Listing Rule 5635(a), as described in this Proxy Statement.

We were contacted on or about March 15, 2018 by Mirus Resort Advisors (“Mirus”), Snow Time’s investment banker, indicating that its client, Snow Time, was exploring the possibility of a sale and would be seeking bids by potential purchasers.  For reasons set forth below under “Our Reasons for the Acquisition,” it was decided on April 27, 2018 to enter into a Confidential Mutual Non-Disclosure/Confidentiality Agreement with Snow Time to permit the commencement of initial due diligence. After reviewing the information and discussions among management and the board of directors, we prepared a bid and submitted the bid to Mirus.

We were subsequently notified by Mirus that we were one of two companies that Snow Time desired to speak with further. Company management met on May 8, 2018 with Snow Time’s senior management personnel and visited Snow Time’s three resorts.  On June 19, 2018, in response to Mirus’ inquiry memo dated June 11, 2018, we submitted a term sheet to Mirus responding to several questions asked by Snow Time.  We then reviewed a response from Mirus which stated Snow Time’s asking price for its acquisition. 

On July 9, 2018, Company management met with the board of directors and after deliberation and board approval, we submitted an initial letter of intent for the acquisition of Snow Time.  Following additional discussions and negotiations with Snow Time, and additional meetings among Company management and the board of directors, on July 24, 2018, we submitted an executed non-binding letter of intent.

Snow Time accepted the letter of intent on July 25, 2018.  Shortly thereafter, we and our advisors were provided access to additional due diligence materials through an online data room established by Mirus.  Our senior management, legal, accounting and other advisors then conducted detailed financial, legal, operational and technical due diligence.

While we conducted the due diligence of Snow Time from July 2018 through September 2018, and Snow Time and its advisors conducted the due diligence of Peak Resorts, the parties also negotiated the terms of the Acquisition Agreement. On August 27, 2018, Peak Resorts management and counsel met with Snow Time management and its counsel to further discuss the terms of the Acquisition Agreement and the business and operations of Snow Time.

On September 18, 2018, the board of directors received final information and presentations on the Snow Time Acquisition and approved the terms of the Acquisition Agreement. At that time, the board authorized entry into the Acquisition Agreement, subject to the approval of the committed financings. 

On September 24, 2018, after finalizing the terms of the Commitment Letter, we entered into the Acquisition Agreement with Snow Time and publicly announced the Acquisition.

In the ordinary course of business, our board of directors and senior management regularly review and assess various strategic alternatives available to us that may enhance stockholder value. A part of our growth strategy is to identify appropriate opportunities that would enhance our profitable growth through acquisition.

When evaluating the Snow Time Acquisition, our board of directors, with the advice of the senior management team and our financial and legal advisors, considered the following factors:

In the course of its deliberations, the board of directors also considered a variety of risks, uncertainties, and other potentially negative factors concerning the Acquisition of Snow Time, including without limitation the risks described under the section entitled “Risk Factors” and the following:

The foregoing discussion of the information considered by the board is not intended to be exhaustive, but includes the material factors that the board considered in approving and recommending the Snow Time Acquisition. The board, together with our management and our financial and legal advisors, conducted numerous discussion of the factors described above. In view of the wide variety of factors considered by the board in connection with its evaluation of the Acquisition and the complexity of these factors, the board did not consider it practical to, nor did it attempt to, quantify, rank, or otherwise assign any specific or relative weights to the specific factors that it considered in the course of reaching its decision. In addition, individual directors may have assigned different weights to different factors. The board discussed the factors described above, including asking questions of our management and legal and financial advisors, and, by the unanimous vote, determined that the Acquisition was in the best interests of our stockholders and the Company.

---

 

The above explanation of the reasoning of the board and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under “Cautionary Statement Concerning Forward-Looking Statements.”

Mr. Rory Held, a member of our board of directors, was nominated to serve on our board of directors by Cap 1 pursuant to the terms of the Stockholders’ Agreement between the Company and Cap 1.  Mr. Held serves as Executive Vice President and Portfolio Manager of Summer Road LLC, which serves as a family office and provides investment management services to Cap 1.  Mr. Held has no equity interest in, or other relationship with, Cap 1 or Summer Road LLC and is not compensated by Cap 1 or Summer Road LLC for his services as a director of the Company.  Mr. Held has no direct or indirect interest in the Acquisition or the securities issuable to Cap 1 pursuant to the terms of the Commitment Letter. 

Cap 1 has interests in the Acquisition that are different from, or in addition to, those of Peak Resorts stockholders generally as a participant in the Acquisition financing.   Cap 1 and its affiliates are currently the beneficial owners of approximately 40% of the Company’s common stock, which includes 5,898,668 shares issuable upon conversion of the Series A Preferred Stock acquired in the 2016 Private Placement and full exercise of the 2016 Warrants currently held by Cap 1. Following the closing of the Acquisition, and assuming consummation of the transactions contemplated by the Term Loan, Cap 1 and its affiliates will be the beneficial owners of approximately 54% of the Company’s common stock, assuming full conversion of all Series A Preferred Stock held by Cap 1 and full exercise of the 2016 Warrants, Option Warrants and Financing Warrant (excluding the Extension Warrant).  Full exercise of these warrants would require Cap 1 to pay approximately $57.5 million in aggregate exercise prices, ranging from $6.50 per share to $10.00 per share. The closing price of the Company’s Common Stock on October 1, 2018 was $4.96. Cap 1 has agreed that for up to three years following closing of the Acquisition, Cap 1would be required to vote any shares of Common Stock acquired upon exercise of any warrant held by Cap 1 in accordance with the recommendations of the board of directors on matters submitted to a vote of the stockholders, subject to certain exceptions with respect to non-routine matters such as tender offers, mergers, acquisitions and similar transactions.

These interests and arrangements may create potential conflicts of interest. The board was aware of these potential conflicts of interest and considered them, among other matters, in reaching their respective decisions to approve the Acquisition Agreement and Term Loan provisions as set forth in the Commitment Letter.

As of the Record Date, Cap 1 has the right to vote 5,206,150 Voting Shares, or approximately 30.3% of the voting power of the Company. Messrs. Boyd, Mueller and Deutsch, in their capacities as stockholders, and Cap 1, who together hold approximately 43.4% of the voting power of the Company, have entered into the Voting Agreement and have agreed to vote for the Nasdaq Proposal and Adjournment Proposal.

Pursuant to the terms of the Stockholders’ Agreement, for so long as at least 50% of the Series A Preferred Stock issued in the 2016 Private Placement is outstanding and Cap 1 beneficially owns, on a fully diluted, as-converted basis, at least 11.4% of the outstanding equity securities of the Company (the “11.4% Ownership Requirement”), Cap 1 has pre-emptive rights with respect to future issuances of securities, subject to standard exceptions. Furthermore, for so long as Cap 1 meets the 11.4% Ownership Requirement, Cap 1’s approval is required in order for the Company or any subsidiary to (i) materially change the nature of its business from owning, operating and managing ski resorts; (ii) acquire or dispose of any resorts, assets or properties for aggregate consideration equal to or greater than 30% of the enterprise value of the Company and its subsidiaries; or (iii) agree to do any of the foregoing.

The Company’s stockholders will continue to hold their existing shares of Peak Resorts Common Stock following the Acquisition and transactions contemplated pursuant to the terms of the Commitment Letter.  However, the issuance of the Common Stock to the Sellers in connection with the Acquisition and the issuance of the Common Stock underlying the Series A Preferred Stock and various warrants to Cap 1 in connection with the Commitment Letter will dilute the ownership and voting interests of Peak Resorts’ current stockholders. At the initial Conversion Price of $6.29 per share, which is subject to adjustment, Cap 1 would receive 3,179,650 shares of Common Stock upon conversion of the Series A Preferred Stock issuable pursuant to the terms of the Commitment Letter. Cap 1 would also receive an additional 5,135,685 shares of Common Stock upon full issuance of the Option Warrants, Financing Warrant and Extension Warrant.  Cap 1 will pay $20.0 million to the Company as consideration for the 20,000 shares of Series A Preferred Stock to be issued pursuant to the Commitment Letter. Full exercise of the Option Warrants, Financing Warrant and Extension Warrant would require Cap 1 to pay approximately $42.5 million in aggregate exercise prices, ranging from $6.50 per share to $10.00 per share. The closing price of the Company’s Common Stock on October 1, 2018 was $4.96.

---

 

Peak Resorts prepares its financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  The Acquisition will be accounted for by Peak Resorts using GAAP.  The Company will allocate the purchase price of the Snow Time capital stock to the fair value of Snow Time’s tangible and identifiable intangible assets acquired and liabilities assumed at the Acquisition closing date, with the excess purchase price, if any, being recorded as goodwill.

The transactions will not result in any taxable gain or loss for U.S. federal income tax purposes to Peak Resorts or to any of its stockholders in his, her or its capacity as a Peak Resorts stockholder.

Except with respect to obtaining our stockholder’s approval of the Nasdaq Proposal, there are no other regulatory or governmental approvals that must be obtained by any party prior to the closing of the Acquisition.



---

 

The following discussion of the terms and conditions of the Acquisition Agreement is subject to and is qualified in its entirety by reference to the Acquisition Agreement, which is attached to this Proxy Statement as Annex A and is incorporated herein by reference. This summary may not contain all of the information about the Acquisition Agreement that is important to you. You should refer to the full text of the Acquisition Agreement for details of the transaction and the terms and conditions of the Acquisition Agreement.

The Acquisition Agreement has been filed with this Proxy Statement to provide you with information regarding its terms. It is not intended to provide any other factual information about the Company, the Sellers or their respective businesses, or the actual conduct of their respective businesses during the period prior to the consummation of the Acquisition. The Acquisition Agreement contains representations and warranties that are the product of negotiations among the parties thereto and made to, and solely for the benefit of, each other as of specified dates. The assertions embodied in those representations and warranties are subject to qualifications and limitations agreed to by the respective parties and are also qualified in important part by confidential disclosure schedules delivered by the parties in connection with the Acquisition Agreement. The representations and warranties may have been made for the purpose of allocating contractual risk between the parties to the agreements instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Acquisition Agreement, which information may or may not be fully reflected in the Company’s public disclosures.

The Proposed Acquisition of Snow Time

Pursuant to the terms of the Acquisition Agreement, we will acquire 100% of the outstanding capital stock of Snow Time from the Sellers. Upon consummation of the Acquisition, Snow Time will become our wholly-owned subsidiary.

Consideration

The aggregate purchase price payable by the Company is $76.0 million, comprised of $70.0 million payable in cash and the remainder payable in shares of the Company’s Common Stock with a value equal to $6.0 million, determined based on the average closing price of the common stock for the 20 trading days immediately preceding the closing of the Acquisition. The purchase price is subject to customary purchase price adjustments related to prepaid services, working capital and transaction expenses, as described in the Acquisition Agreement. The purchase price will be increased in an amount equal to the dividends payable on the shares of Common Stock payable to the Sellers under the Agreement if the Acquisition closing occurs after the record date set in connection with the Company’s next Common Stock dividend, if any.

Representations, Warranties and Covenants

The Acquisition Agreement contains customary representations, warranties and covenants of the Sellers and the Company. Until closing of the Acquisition, the Sellers are required to operate the business of Snow Time in the ordinary course and comply with certain other covenants regarding the business operations.

Indemnification

The Acquisition Agreement contains mutual indemnification provisions pursuant to which the parties have agreed to indemnify the other from and against losses resulting from certain breaches of the Acquisition Agreement, provided that the aggregate liability provided by the Sellers shall not exceed $7.6 million.

Closing and Conditions to Close

The parties intend to close the Acquisition on or about November 8, 2018, subject to extension upon mutual consent.  Closing of the Acquisition is subject to customary closing conditions, including completion of satisfactory due relating to title and environmental matters. Our obligation to consummate the Acquisition is not subject to any condition related to the availability of financing.

Termination

The Acquisition may be terminated any time before closing (i) by the written mutual consent of the parties; (ii) upon notice by any party that the transactions contemplated by the Acquisition Agreement have been enjoined or otherwise prohibited by a court of competent jurisdiction or any other governmental agency; (iii) upon written notice at any time on or after November 30, 2018 (the “Termination Date”) by any party if the closing has not occurred by the Termination Date, provided that the terminating party shall not be in breach of the Acquisition Agreement; (iv) upon written notice by one party that the other has breached the Acquisition

---

 

Agreement. If the Acquisition Agreement is terminated, other than as a result of a breach by Sellers of their representations, warranties, covenants or agreements, the Company has agreed to pay the Sellers a termination fee of $650,000. 

---

 

The following unaudited pro forma condensed combined balance sheet as of July 31, 2018, and the unaudited pro forma condensed combined statements of operations for the year ended April 30, 2018 and the three months ended July 31, 2018 (together, the “Pro Forma Financial Data”), are based upon the historical consolidated financial statements of Peak Resorts, Inc. (“Peak”) and Snow Time, Inc. (“Snow Time”) after giving effect to the acquisition of Snow Time by Peak and related financing transactions (the “Snow Time Acquisition”), and after applying the assumptions, reclassifications and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial data.

Peak and Snow Time have different fiscal year ends.  For ease of reference, all pro forma statements use Peak’s year end and no adjustments were made to Snow Time’s reported information for its different period end dates.  Accordingly, the unaudited pro forma condensed combined balance sheet as of July 31, 2018, combines Peak’s historical unaudited condensed consolidated balance sheet as of July 31, 2018, and Snow Time’s historical unaudited consolidated balance sheet as of June 30, 2018, and is presented as if the Snow Time Acquisition had occurred on July 31, 2018.  The unaudited pro forma condensed combined statements of operations for the year ended April 30, 2018, combines the historical audited results of Peak for the year ended April 30, 2018, and the historical audited results of Snow Time for the twelve months ended March 31, 2018.  The unaudited pro forma condensed combined statements of operations for the three months ended July 31, 2018, combines the historical unaudited results of Peak for the three months ended July 31, 2018, and the historical unaudited results of Snow Time for the three months ended June 30, 2018.  The unaudited pro forma condensed combined statements of operations are presented as if the Snow Time Acquisition occurred on May 1, 2017.

The Pro Forma Financial Data is presented for informational purposes only, and does not purport to represent what Peak and Snow Time’s actual consolidated results of operations or consolidated financial condition would have been had the Snow Time Acquisition actually occurred on the date indicated, nor are they necessarily indicative of future consolidated results of operations or consolidated financial condition.  The Pro Forma Financial Data should be reviewed in conjunction with Peaks’ historical consolidated financial statements and accompanying notes included in this Proxy Statement, and Snow Time’s historical consolidated financial statements and accompanying notes included in this Proxy Statement.

The historical consolidated financial information has been adjusted in the Pro Forma Financial Data to give effect to pro forma events that are, based upon available information and certain assumptions, (i) directly attributable to the Snow Time Acquisition, (ii) factually supportable and reasonable under the circumstances, and (iii) with respect to the unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results.

The Snow Time Acquisition will be accounted for using the acquisition method of accounting.  Peak is the acquirer for accounting purposes, and thus Peak will, with the exception of certain excluded items (see Note 6, Item G), acquire all the assets, including identifiable intangible assets, and assume all of the liabilities of Snow Time (the “Net Assets”).  For purposes of the Pro Forma Financial Data, the Net Assets have been valued based on preliminary estimates of their fair values, which will be revised as additional information becomes available.  The actual adjustments to Peak’s consolidated financial statements as of the closing of the Snow Time Acquisition will depend on a number of factors, including additional information available and the actual balance of the Net Assets.  Therefore, the actual adjustments will differ from the pro forma adjustments, and the differences may be material.

The Pro Forma Financial Data does not reflect costs to integrate the operations of Peak and Snow Time or any cost savings, operating synergies or revenue enhancements that the combined companies may achieve as a result of the Snow Time Acquisition.

---

 

Unaudited Pro Forma Condensed Combined Balance Sheet

as of July 31, 2018



See accompanying notes to unaudited pro forma condensed combined financial data



---

 

Unaudited Pro Forma Combined Statements of Operations

for the Year Ended April 30, 2018



See accompanying notes to unaudited pro forma condensed combined financial data



---

 

Unaudited Pro Forma Combined Statements of Operations

for the Three Months Ended July 31, 2018



See accompanying notes to unaudited pro forma condensed combined financial data



---

 

Notes to Unaudited Pro Forma Condensed Combined Financial Data
(dollars in thousands, except per share amounts)

On September 24, 2018, Peaks Resorts, Inc. (“Peak”) entered into a stock purchase agreement (the “Acquisition Agreement”) to acquire 100% of the outstanding capital stock of Snow Time, Inc. (“Snow Time”) for total consideration of $76,000, $70,000 of which will be paid in cash and $6,000 of which will be payable in a number of shares of Peak’s common stock with a value based on the average closing price of the common stock for the 20 days prior to the acquisition closing, in each case subject to adjustment. The cash portion of the Snow Time Acquisition purchase price is expected to be funded with the proceeds of debt and preferred stock issued by Peak.  The acquisition of the Snow Time capital stock and related financing transactions are referred to in these notes as the “Snow Time Acquisition.”  The unaudited pro forma condensed combined financial data was prepared using the acquisition method of accounting and was based on the historical financial statements of Peak and Snow Time (the “Pro Forma Financial Data”).  The historical consolidated financial information has been adjusted in the Pro Forma Financial Data to give effect to pro forma events that are, based upon available information and certain assumptions, (i) directly attributable to the Snow Time Acquisition, (ii) factually supportable and reasonable under the circumstances, and (iii) with respect to the unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results.

Peak and Snow Time have different fiscal year ends. For ease of reference, all pro forma statements use Peak’s year end and no adjustments were made to Snow Time’s reported information for its different period end dates.  Accordingly, the unaudited pro forma condensed combined balance sheet as of July 31, 2018, combines Peak’s historical unaudited condensed consolidated balance sheet as of July 31, 2018, and Snow Time’s historical unaudited consolidated balance sheet as of June 30, 2018, and is presented as if the Snow Time Acquisition had occurred on July 31, 2018. The unaudited pro forma condensed combined statements of operations for the year ended April 30, 2018, combines the historical audited results of Peak for the year ended April 30, 2018, and the historical audited results of Snow Time for the twelve months ended March 31, 2018. The unaudited pro forma condensed combined statements of operations for the three months ended July 31, 2018, combines the historical unaudited results of Peak for the three months ended July 31, 2018, and the historical unaudited results of Snow Time for the three months ended June 30, 2018.  The unaudited pro forma condensed combined statements of operations are presented as if the Snow Time Acquisition occurred on May 1, 2017.

The Snow Time Acquisition will be accounted for using the acquisition method of accounting.  For the purposes of the Pro Forma Financial Data, Peak has been treated as the acquirer and will account for the transaction by using its historical accounting information and accounting policies and adding the assets acquired, including identifiable intangible assets and liabilities assumed from Snow Time (the “Net Assets”) as of the date of the Snow Time Acquisition at their respective fair values.  The process for estimating the fair values of the Net Assets requires the use of significant estimates and assumptions.  The amount by which the acquisition date fair value of the purchase price (consideration transferred) exceeds the fair value of net identifiable assets acquired (see Note 4) will be recognized as goodwill.  The purchase price allocation is subject to finalization of Peak’s analysis of the fair value of the Net Assets as of the date of the Snow Time Acquisition.  Accordingly, the purchase price allocation reflected in this Pro Forma Financial Data is preliminary and will be adjusted upon the completion of the final valuation. Such adjustments could be material.  The final valuation is expected to be completed as soon as practicable but no later than one year after the consummation of the Snow Time Acquisition.

The unaudited Pro Forma Financial Data does not assume any differences in accounting policies between Peak and Snow Time.  Upon consummation of the Snow Time Acquisition, Peak will review Snow Time’s accounting policies, and as a result of that review, Peak may identify differences between the accounting policies of the two companies that, when conformed, could have a material impact on the Pro Forma Financial Data.  At this time, Peak is not aware of any difference that would have a material impact Pro Forma Financial Data.

Certain reclassifications have been made to the historical financial statements of Snow Time to conform to Peak’s presentation. These adjustments primarily relate to (i) reclassifying depreciation expense included in cost of goods sold and direct operating expenses to the depreciation caption, (ii) reclassifying ancillary revenue from the other income caption below operating income to the net revenue caption, and (iii) reclassifying incentive compensation expense from the other expense caption to the general and administrative expenses caption.

---

 

In connection with the Snow Time Acquisition, Peak entered into a commitment letter (the “Commitment Letter”) with Cap 1 LLC (“Cap 1”), dated as of September 20, 2018, pursuant to which Cap 1 has committed to provide a two-year 6.95% fixed rate senior secured term loan facility (the “Term Loan”) in the amount of $50,000 to fund a portion of the cash consideration to be paid as part of the consideration transferred in the Snow Time Acquisition.  For the purpose of the Pro Forma Financial Data, the amounts presented as pro forma for the Snow Time Acquisition assume the funding of $50,000 under the Term Loan on May 1, 2017. For the purpose of the Pro Forma Financial Data, no value has been ascribed to certain common stock warrants to be issued in connection with the Term Loan, as the exact terms of the warrants are expected to be finalized in connection with the final Term Loan agreements.

Pursuant to the terms of the Commitment Letter, Peak agreed that as a condition to the funding of the Term Loan, it would exercise an existing option to issue Cap 1 an additional 20,000 shares of Peak’s Series A Cumulative Convertible Preferred Stock (the “Preferred Stock”), along with warrants (the “Warrants”) to purchase common stock, for an aggregate consideration of $20,000, which will be used to fund the remainder of the cash portion of the Snow Time Acquisition purchase price.  For the purpose of the unaudited pro forma condensed combined statements of operations, the amounts presented as pro forma for the Snow Time Acquisition assume the issuance of the Preferred Stock for consideration received of $20,000 on May 1, 2017.  For the purpose of the Pro Forma Financial Data, an estimated value of $3,500 has been ascribed to the Warrants based on the value of similar warrants issued by Peak to Cap 1 in 2016. 

Pursuant to the Acquisition Agreement, upon the date the Snow Time Acquisition closes, Snow Time will become a wholly-owned subsidiary of Peak.  Under the terms of the Acquisition Agreement, Peak will acquire all of the outstanding capital stock of Snow Time for cash consideration of $70,000, subject to adjustment, and common stock of Peak with a value of $6,000.  The Pro Forma Financial Data assumes the total cash consideration paid for the Snow Time Acquisition was $66,315, with total consideration transferred of $72,315.  These amounts reflect the $70,000 cash portion of the Snow Time Acquisition purchase price adjusted for certain working capital items as provided by the Acquisition Agreement.

The acquisition method of accounting requires that the purchase price (consideration transferred) in a business combination be allocated to the Net Assets acquired based on their estimated fair value. For the purpose of the Pro Forma Financial Data, Peak has made a preliminary allocation of the purchase price to the Net Assets acquired as follows:



The following table reconciles the historical value of the Net Assets as of July 31, 2018 to the fair value of the Net Assets:



Adjustments included in the column under the heading “Adjustments for the Snow Time Acquisition” which relate to the transactions with Cap 1 reflect the following:

A.Reflects the receipt of the $50,000 proceeds from the Term Loan and the use of all or a portion of those proceeds to pay a portion of the $66,315 cash consideration for the Snow Time Acquisition and to pay $115 of financing costs associated with the Term Loan.

B.Reflects the receipt of the $20,000 proceeds from the sale of the Preferred Stock and Warrants and the use of all or a portion of those proceeds to pay the remaining portion of the $66,315 cash consideration for the Snow Time Acquisition.

C.Reflects the accretion or payment of Preferred Stock dividends of $400 and $1,600 for the three months ended July 31, 2018 and for the year ended April 30, 2018, respectively.

D.Reflects amortization of deferred financing costs associated with the Term Loan of $14 and $58 for the three months ended July 31, 2018 and for the year ended April 30, 2018, respectively.

E.Reflects interest expense associated with the Term Loan of $869 and $3,475 for the three months ended July 31, 2018 and for the year ended April 30, 2018, respectively.

Adjustments in the column under the heading “Adjustments for the Snow Time Acquisition” which are necessary to reflect the Snow Time Acquisition and related acquisition accounting include the following:

F.Reflects the cash payment of estimated acquisition related fees and expenses by Peak of $850 incurred subsequent to July 31, 2018, with a corresponding decrease in retained earnings.

G.Reflects the elimination of (i) cash of $14,377, property and equipment of $202 and long-term liabilities of $1,621 which are excluded from Net Assets acquired under the terms of the Acquisition Agreement and (ii) the elimination of $46 and $73 of interest associated with excluded cash and investments for the year ended April 30, 2018 and the three months ended July 31, 2018, respectively.

H.At this time there is insufficient information as to the specific nature, age and condition of Snow Time’s property and equipment to make a reasonable estimation of fair value or the corresponding adjustment to depreciation expense.  For the purpose of the Pro Forma Financial Data, the carrying value of property and equipment acquired from Snow Time has been used in the purchase price allocation.  For each $1,000 fair value adjustment to property and equipment, assuming a weighted average useful life of 10 years, depreciation expense would change by approximately $25 and $100 in each quarterly and annual period, respectively.

I.Reflects (i) the elimination of Snow Time’s historical goodwill of $1,500 and (ii) recognition of $10,612 of goodwill resulting from the Snow Time Acquisition.

J.Reflects (i) the elimination of Snow Time’s historical intangible assets of $392, (ii) the recognition of intangible assets of $2,600 for Snow Time’s trade names, customer lists and liquor licenses, and (iii) the recognition of intangible asset amortization expense of $37 and $147 for the three months ended July 31, 2018 and the year ended April 30, 2018, respectively, related to the definite-lived intangible assets recognized assuming a weighted-average useful life of 15 years.  For the purpose of the Pro Forma Financial Data, the fair value of identifiable intangible assets was estimated based on Peak’s experience from previous acquisitions.

K.Snow Time’s historic unearned revenue represents payments collected from customers for services to be provided during the 2018/2019 snow sports season.  For the purpose of the Pro Forma Financial Data, the carrying value of the liability for unearned revenue acquired from Snow Time has been used in the purchase price allocation.

---

 

L.Reflects the recognition of $5,758 of deferred tax liabilities related to the difference between the book value and tax basis of the Net Assets acquired.

M.Reflects the elimination of the historical equity of Snow Time in accordance with acquisition accounting.

N.Reflects the payment of acquisition consideration in the form of 1,151,079 shares of Peak common stock valued, under the terms of the Acquisition Agreement, at $6,000 with a total par value of $12.

O.Reflects the elimination of Snow Time’s acquisition related expenses of $10 and $4 for the three months ended July 31, 2018 and the year ended April 30, 2018, respectively.

P.Snow Time provides for income taxes under Subchapter S of the Internal Revenue code and as such does not account for income taxes in its financial statements.  Reflects (i) the provision for income taxes for the income (loss) before taxes of Snow Time under the tax rules applicable to Peak and (ii) the tax effect of the above adjustments to the unaudited pro forma condensed combined statements of operations.

---

 

General

Snow Time is engaged in the ownership, operation and management of three ski resorts in South Central Pennsylvania:  Liberty Mountain Resort in Carroll Valley, Roundtop Mountain Resort in Lewisberry and Whitetail Resort in Mercersburg. Its primary business segment representing over 80% of its revenues is related to snowsports, including skiing, snowboarding and snow tubing.  Snow Time also operates business activities unrelated to snowsports, such as golf, lodging, outdoor adventure activities, conferences and events. 

Snow Time History 

Snow Time, a privately held Delaware corporation, was founded in 1964 through the formation and development of Ski Roundtop near York, Pennsylvania.  In 1974, Snow Time acquired the Charnita resort near Gettysburg, Pennsylvania and renamed it Ski Liberty.  In 1981, Snow Time expanded to the north with the acquisition of the Windham Mountain Club in the Catskill Mountains of New York.  The resort was renamed Ski Windham and was developed into a prominent resort catering to the metro New York City area before being sold by Snow Time in 2005 to a group of local homeowners.  In 1999, Snow Time acquired the Whitetail Ski Area, which was the primary competitor of Snow Time’s Roundtop Mountain Resort and Liberty Mountain Resort. 

Over the course of many years, Snow Time has rebranded the resorts as Liberty Mountain Resort, Roundtop Mountain Resort and Whitetail Resort to more appropriately represent the resorts as more than the traditional ski areas. Snow Time has expanded its resort offerings into a variety of activities in addition to winter sports in order to capitalize on the opportunities available in the local market areas.  The growth of the hospitality business at Liberty Mountain, largely related to the development of the 82,000 square feet Highland Lodge, has significantly transformed the resort into a four-season destination.  Roundtop Mountain has also capitalized on recreation and adventure activities by offering visitors zip line tours, adventure camps, paintball, challenge courses, a water slide and other warm weather activities.  Whitetail has similarly expanded its non-winter activities into golf and adventure camps.  Nearly 20% of Snow Time’s revenues are now related to activities other than snowsports. 

Snow Time has three stockholders of record.  Historical price information for Snow Time has not been presented, as there has not been an established trading market in Snow Time’s common stock.  Since April 1, 2016, Snow Time has paid one dividend, totaling $100,000 in the aggregate, to stockholders of record on November 1, 2017. 

Employees

Snow Time employs approximately 200 year-round full-time employees and over 3,500 seasonal and part-time employees.

Competition

Snow Time’s resorts market to the populous metropolitan areas of Baltimore, Washington D.C. and Northern Virginia as well as the more local regions in Southern Pennsylvania, namely Harrisburg, Lancaster and York.  The majority of Snow Time’s guests resides in Maryland and Virginia and travel for day visits to the resorts.  The vast majority of its guests travel less than two hours to enjoy skiing and snowboarding, whereas the majority of guests for snow tubing and various summer activities travel less than one hour.  Conferences, weddings and golf packages draw visitors from varying locations in the multi-state region.  Resort visitation ranges from year to year based on many factors, the most significant of which is favorable weather.  Snow Time’s visitation has ranged from 600,000 to 750,000 annual visitors in recent years. 

Snow Time’s resorts compete with many other types of recreational activities, competing for the disposable income and time of residents within its market areas.  Snow Time has several competitors in the surrounding regions with respect to snowsports, but believes superior guest services and regular investment in upgrades, improvements and maintenance differentiate its resorts from those of its competitors.

---

 

The following discussion of Snow Time’s financial condition and results of operations should be read in conjunction with the consolidated financial statements and the notes thereto included in this Proxy Statement. 

Snow Time is engaged in the ownership, operation and management of three ski resorts in South Central Pennsylvania with the primary activities of skiing, snowboarding and snow tubing (collectively, snowsports).  Snow Time also operates business activities unrelated to snowsports including golf, lodging, outdoor adventure activities, conferences and events, the combination of which represents approximately 19.0% of total revenues for each of the Snow Time fiscal years ended March 31, 2018 and 2017.  

The opening and closing dates of Snow Time’s ski resorts are dependent upon weather conditions, but its peak ski season generally runs from mid-December through mid-March.  Like other day ski resort and overnight drive ski resort operators, Snow Time earns snowsports revenues in six principal categories. In order of their contribution, they are: lift and tubing tickets, food and beverage sales, ski instruction, equipment rentals, lodging, and retail.

Snow Time’s largest source of revenue is the sale of lift tickets (including season passes) which represented approximately 44.6% and 46.0% of net revenue for the Snow Time fiscal years ending March 31, 2018 and 2017, respectively. Lift ticket revenue is driven by the volume of lift tickets and season passes sold and the pricing of these items.

The cost structure of Snow Time’s operations has significant fixed and variable components. Significant variable expenses include retail and food and beverage cost of sales, labor costs, power and utilities. As such, operating margins can fluctuate based on the level of revenues.

Snow Time’s revenues are highly seasonal in nature, with the majority of revenue generated during the ski season, which occurs during the winter months in Snow Time’s third and fourth fiscal quarters.  Snow Time’s properties also provide activities in the non-winter months including golf, lodging, outdoor adventure activities, conferences and events, the combination of which represented approximately 19.0% of Snow Time’s net operating revenues for its fiscal years ended March 31, 2018 and 2017, respectively.  As a result of the limited non-winter activities, Snow Time’s resorts typically experience operating losses and negative operating cash flows during the first and second quarters of each fiscal year.

The seasonality of Snow Time’s revenues amplifies the effect of events outside Snow Time’s control, especially weather.  Adverse weather could lower attendance due to suboptimal skiing conditions or limited access to resorts, render snowmaking wholly or partially ineffective in maintaining ski conditions, and increase operating costs related to snowmaking efforts and inefficient labor utilization.

The timing and duration of favorable weather conditions significantly influences the timing and volume of skier visits and the associated revenue. Cold weather is an essential element to a successful ski season and Snow Time’s snowmaking capabilities are sufficient to rapidly cover the ski slopes when the cold temperatures arrive.  Natural snowfall further stimulates the skiing market in the region.  Snow Time sells season passes and other multi-visit products prior to the start of the ski season to help mitigate any negative effects unfavorable weather may have on its revenues.  In addition to its continued investment in snowmaking technologies and related infrastructure, Snow Time relies on its season pass and multi-visit products, in addition to its non-winter activities, to help mitigate the impact on revenues from adverse weather.

Snow Time’s ski resorts operate in the Southeast region as defined by the Kottke Report, a ski industry data publication. Snow Time’s skier visits of 497,000 in fiscal 2018 were up 19.1% from fiscal 2017.  Snow Time’s increase in skier visits compares to a 0.5% decrease in total skier visits across the Southeast resorts as reported by the Kottke Report.  Snow Time’s total resort visits, which include tubing visits, were up 14.2% from fiscal 2017.  Skier visits grew in 2018 largely due to an extended season through late March resulting from below average March temperatures and natural snow events. 

---

 

Reinvestment into its resort properties has been a core priority of Snow Time throughout its history.  Snow Time regularly reinvests in new technologies to enhance the guest service experience at its resorts. Maintaining the infrastructure of its resorts has also been a central theme of Snow Time’s annual capital program.

The following table presents Snow Time’s consolidated statements of operations for the years ended March 31, 2018 and 2017:



Net Revenue.  Net revenue increased $6.8 million, or 16.3%, for the year ended March 31, 2018 as compared with the year ended March 31, 2017.  The increase was primarily attributable to increased resort attendance resulting from strong March 2018 results and the increased conference and event business at the recently completed Liberty Mountain Resort Highland Lodge.

Cost of Operations.  Resort operating costs increased $2.8 million, or 10.2%, for the year ended March 31, 2018, compared with the previous year.  Labor and other operational costs increased primarily as the result of the increased number of days of operation as compared to the previous year.  Two of Snow Time’s resorts experienced an early ending to the ski season in fiscal 2017 which resulted in significant costs saving for labor and operations in that year.  Costs of goods sold margins for retail and food and beverage remained stable; however, total costs rose commensurate with the increase in revenues for those categories.

Depreciation.  Depreciation increased by $0.6 million, or 9.5%, on a higher depreciable base which included, among other new assets, the expansion of the Whitetail Resort base lodge which was placed in service during the previous year.

General and Administrative Expenses.  General and administrative expenses increased $1.1 million, or 14.2%, for the year ended March 31, 2018 compared with the year ended March 31, 2017, primarily due to higher incentive compensation expense and employee benefits.

---

 

Net cash provided by operations totaled $11.5 million for the year ended March 31, 2018, as compared to net cash provided of $6.6 million for the year ended March 31, 2017.  The growth in net cash provided by operations was attributable to multiple factors including growth in net income, accounts payable, deferred compensation items and other liabilities relating largely to deposits from customers for future services.

Net cash used in investing activities totaled $7.6 million for the year ended March 31, 2018, as compared to net cash used of $10.5 million for the previous year.  The decline resulted from a significant reduction in capital expenditures in fiscal 2018 and the investment of nearly $5.0 million in Treasury securities.  Capital expenditures in fiscal 2017 were significantly higher than those in fiscal 2018 primarily as a result of the expansion of the Whitetail Resort base lodge. 

Net cash used in financing activities was limited to $0.1 million for stockholder dividends in fiscal 2018. 

Snow Time’s available cash is consistently highest in its fourth quarter primarily due to the seasonality of its resort business. Snow Time held $15.1 million of cash and cash equivalents as of March 31, 2018, not including marketable securities of $5.0 million, for total cash and liquid investments of $20.1 million.  This level compared to $11.4 million at March 31, 2017. 

Snow Time currently anticipates cash flow from operations will continue to provide a significant source of its future cash flows and believes that cash flow from operations and available cash on hand will be sufficient to fund its recurring capital expenditure requirements and other currently anticipated cash needs for the next twelve months and beyond.

Snow Time’s principal liquidity requirements over the next twelve months will be primarily for capital expenditure needs, continuing operations and working capital needs. Snow Time has historically invested significant cash in capital expenditures for its resort operations and expects to continue to invest in the future.  Planned capital expenditures for the fiscal year ending March 31, 2019 total $3.3 million.

Snow Time maintains an available credit facility in the amount of $20.0 million with M&T Bank at a stated interest rate of 1.8% above the LIBOR rate.  As of March 31, 2018 and 2017, there were no outstanding borrowings; however, Snow time has outstanding letters of credit against this facility in the amount of $0.4 million.  As of March 31, 2018, Snow Time was in compliance with all covenants of the loan agreements.

The preparation of financial statements in conformity with U.S. GAAP requires that management make certain estimates and assumptions that affect amounts reported in the financial statements and accompanying notes.  Actual results may differ from those estimates and assumptions and the differences may be material.  Significant accounting policies, estimates and judgments that management believes are the most critical to aid in fully understanding and evaluating the reported financial results are discussed below.

Snow Time accounts for intangible assets as required by the Financial Accounting Standards Board (“’FASB”) Accounting Standards Update (“ASU”) Topic 350, “Goodwill and Other Intangibles.” Goodwill and other intangibles are tested annually for impairment, or sooner when circumstances indicate an impairment exists.  This analysis is performed by comparing the respective carrying values of asset groups to the current and expected future cash flows, on an undiscounted basis, to be generated from such asset group.  Goodwill of $1,500,000 was recorded upon the purchase of a golf and conference facility at Liberty Mountain Resort.  Management determined that no impairment of goodwill exists at March 31, 2018 and 2017.  

Snow Time has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code.  Under those provisions, Snow Time does not pay federal or state corporate income taxes on its taxable income.  Instead, the stockholders of Snow Time are taxed on their proportionate share of Snow Time’s taxable income.  Snow Time distributes funds to stockholders at its discretion to cover those income taxes. 

---

 

Snow Time evaluates the impairment of long-lived assets whenever events or circumstances indicate that the carrying amount of the assets may not be recoverable.  An asset is considered to be impaired when the undiscounted estimated net cash flows to be generated by the asset are less than the carrying amount.  The impairment recognized is the amount by which the carrying amount exceeds the fair value amount.  Fair value estimates are based on assumptions concerning the amount and timing of estimated future cash flows and discount rates reflecting varying degrees of perceived risk.  Snow Time has concluded that no impairment adjustments were required during the years ended March 31, 2018 and 2017.

The following table presents Snow Time’s consolidated statements of operations for the three months ended June 30, 2018 and 2017:



Net Revenue.  Net revenue increased $0.1 million, or 3.8%, for the three months ended June 30, 2018 as compared with the three months ended June 30, 2017.  The increase was primarily attributable to increased resort attendance for conferences and event business at the Liberty Mountain Resort Highland Lodge.

Cost of Operations.  Resort operating costs decreased $0.2 million, or 3.5%, for the three months ended June 30, 2018, compared with the three months ended June 30, 2017.  The reduction in costs was attributable to fewer large maintenance and repair projects as compared to the three months ended June 30, 2017.  

Depreciation. Depreciation increased by $0.2 million, or 13.0%, on a higher depreciable base which included, among other new assets, the addition of a new fleet of rental skis at Whitetail Resort.

General and Administrative Expenses.  General and administrative expenses increased $0.05 million, or 2.7%, for the three months ended June 30, 2018 compared with the three months ended June 30, 2017, primarily due to general inflationary factors.

---

 

Net cash used in operations totaled $4.3 million for the three months ended June 30, 2018, as compared to net cash used of $3.3 million for the three months ended June 30, 2017.  The change in net cash used in operations was attributable to multiple factors, including payments of accounts payable and recognition of unearned revenue from customers for prepaid business. 

Net cash provided by investing activities totaled $3.5 million for the three months ended June 30, 2018, as compared to net cash used in investing activities of $0.6 million for the three months ended June 30, 2017.  This level resulted from the redemption of Treasury securities of nearly $5.0 million and an increase in capital expenditures as compared to the prior comparable period. 

Snow Time held $14.4 million of cash and cash equivalents at June 30, 2018.  This level compared to $15.1 million of cash and cash equivalents as of March 31, 2018, not including marketable securities of $5.0 million, for total cash and liquid investments of $20.1 million at March 31, 2018.  Snow Time currently anticipates cash flow from operations will continue to provide a significant source of its future cash flows and believes that cash flow from operations and available cash on hand will be sufficient to fund its recurring capital expenditure requirements and other currently anticipated cash needs for the next twelve months and beyond.

Snow Time’s principal liquidity requirements over the next twelve months will be primarily for capital expenditure needs, continuing operations and working capital needs. Snow Time has historically invested significant cash in capital expenditures for its resort operations and expects to continue to invest in the future. 

Snow Time maintains an available credit facility in the amount of $20 million with M&T Bank at a stated interest rate of 1.8% above the LIBOR rate.  As of June 30, 2018 and March 31, 2018, there were no outstanding borrowings; however, Snow Time has outstanding letters of credit against this facility in the amount of $0.4 million.  At June 30, 2018, Snow Time was in compliance with all covenants of the loan agreements.

The preparation of financial statements in conformity with U.S. GAAP requires that management make certain estimates and assumptions that affect amounts reported in the financial statements and accompanying notes.  Actual results may differ from those estimates and assumptions and the differences may be material.  Significant accounting policies, estimates and judgments that management believes are the most critical to aid in fully understanding and evaluating the reported financial results are discussed below.

Snow Time accounts for intangible assets as required by the FASB’s ASU Topic 350, “Goodwill and Other Intangibles.” Goodwill and other intangibles are tested annually for impairment, or sooner when circumstances indicate an impairment exists.  This analysis is performed by comparing the respective carrying values of asset groups to the current and expected future cash flows, on an undiscounted basis, to be generated from such asset group.  Goodwill of $1,500,000 was recorded upon the purchase of a golf and conference facility at Liberty Mountain Resort.  Management determined that no impairment of goodwill exists at June 30, 2018 and March 31, 2018. 

Snow Time has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code.  Under those provisions, Snow Time does not pay federal or state corporate income taxes on its taxable income.  Instead, the stockholders of Snow Time are taxed on their proportionate share of Snow Time’s taxable income.  Snow Time distributes funds to stockholders at its discretion to cover those income taxes. 

Snow Time evaluates the impairment of long-lived assets whenever events or circumstances indicate that the carrying amount of the assets may not be recoverable.  An asset is considered to be impaired when the undiscounted estimated net cash flows to be generated by the asset are less than the carrying amount.  The impairment recognized is the amount by which the carrying amount exceeds the fair value amount.  Fair value estimates are based on assumptions concerning the amount and timing of estimated future

---

 

cash flows and discount rates reflecting varying degrees of perceived risk.  Snow Time has concluded that no impairment adjustments were required during the three-month periods ended June 30, 2018 and 2017.

---

 

The following discussion of Peak Resorts’ financial condition and results of operations should be read in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this Proxy Statement. 

We own or lease and operate 14 ski resorts throughout the Midwestern, Northeastern and Southeastern (which includes Pennsylvania) United States.  Our ski resorts, which include both day ski resorts and overnight drive ski resorts, offer snow skiing, snowboarding and other snow sports.  During the last two ski seasons, we had an average of 1.6 million skier visits each year.

We operate in a single reportable business segment—resort operations.  The consolidated financial data presented in this Report is comprised of the data of our 14 ski resorts.

The opening and closing dates of our ski resorts are dependent upon weather conditions, but our peak ski season generally runs from early December through mid-April.

Like other day ski resort and overnight drive ski resort operators, we earn our revenues in six principal categories.  In order of their contribution, they are: lift and tubing tickets, food and beverage sales, equipment rentals, hotel/lodging, ski instruction, and retail.



Our largest source of revenue is the sale of lift tickets (including season passes) which represented approximately 46.8%, 47.1% and 47.6% of net revenue for the years ending April 30, 2018, 2017 and 2016, respectively.  Lift ticket revenue is driven by the volume of lift tickets and season passes sold and the pricing of these items.  Most of our season pass products are sold before the start of the ski season.  For the 2017/2018, 2016/2017 and 2015/2016 ski seasons, approximately 36.3%, 34.5% and 38.1%, respectively, of total lift revenue recognized was comprised of season pass revenue.  Season pass revenue, although collected prior to the ski season, is recognized ratably over the ski season based upon the number of days our resorts are open.

The cost structure of our operations has significant fixed and variable components. Our significant variable expenses include retail and food and beverage cost of sales, labor costs and power and utilities. As such, operating margins can fluctuate based on the level of revenues.

On December 22, 2017, the United States government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “2017 Tax Act”). The 2017 Tax Act made broad changes to the federal tax code which impacts us. The 2017 Tax Act included provisions that, among other things, provide for i) the reduction of the federal corporate tax rate, ii) the elimination of the corporate alternative minimum tax, iii) a new limitation on the deductibility of interest expense, iv) changes in the treatment of net operating losses after December 31, 2017, and v) bonus depreciation that allows for full expensing of qualified property.

Subsequent to the passage the 2017 Tax Act, SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the impact of the 2017 Tax Act.  SAB 118 provides for a measurement period, not to exceed one year from enactment of the 2017 Tax Act, for companies to complete accounting for the impact of the 2017 Tax Act under the FASB’s Accounting Standards Codification 740, “Income Taxes” (“ASC 740”).  In accordance with SAB 118, a company must reflect the income tax effect of those aspects of the 2017 Tax Act for which the accounting under ASC 740 is complete.  To the extent that a company’s accounting for income effects of the 2017 Tax Act is incomplete, but the company can determine a reasonable estimate, the company must record a provisional estimate in its financial statement.  If a company cannot determine a provisional estimate, it should continue to apply ASC 740 on the basis of the provision of the tax laws that were in effect immediately before the enactment of the 2017 Tax Act. 

We recorded an income tax benefit of $4.0 million for the year ended April 30, 2018, which includes a $0.1 million discrete benefit at the 2017 Tax Act enactment date and an additional benefit of $3.5 million which was directly attributable to the impact of the 2017 Tax Act’s reduced corporate tax rate that became effective January 1, 2018.  The additional benefit arises because we are a calendar year taxpayer and the seasonality of our business results in significant losses during the first eight months of fiscal 2018 which produce a federal benefit at the prior corporate tax rate of 34%, and significant income during the period January to April 2018 which was subject to the lower 21% corporate tax rate implemented by the 2017 Tax Act.

---

 

Our effective tax rate for the period from the enactment of the 2017 Tax Act through the end of our fiscal year ending April 30, 2018, was 27.0%.

On August 16, 2017, the Company announced its succession plan for its former Chief Financial Officer, Stephen J. Mueller.  Mr. Mueller stepped down from his position as the Company’s Chief Financial Officer and Secretary on October 3, 2017 and assumed a new role as Executive Vice President.  In connection with this transition, Christopher J. Bub became our Vice President, Chief Financial Officer and Secretary.  Mr. Bub previously served as the Company’s Vice President and Chief Accounting Officer. 

On October 27, 2017, we renewed and increased our existing credit facility with Royal Banks of Missouri (the “2017 Royal Banks Credit Facility”).  The 2017 Royal Banks Credit Facility provides for a $10 million working capital line of credit to be used for general business purposes and a $15 million acquisition line of credit to be used i) to pay off $12.4 million of principal and accrued interest outstanding under the previous credit agreement with Royal Banks of Missouri (the “Original Credit Facility”) and ii) for the acquisition of additional ski resort properties.  On October 27, 2017, we used $12.4 million of the borrowing capacity available under the acquisition line of credit to pay off all outstanding amounts under the Original Credit Facility, including amounts outstanding under a term loan which bore interest at the prime rate plus 1.00% per annum with an original maturity date of January 26, 2020.  As of April 30, 2018, approximately $12.4 million was outstanding under the acquisition line of credit and no amounts were outstanding under the working capital line of credit. 

The term of the 2017 Royal Banks Credit Facility is 14 months with loans payable in monthly interest only installments charged at the bank’s prime rate plus 1.00% per annum, with any outstanding principal amounts due at the end of the term. Beginning on January 31, 2018, we were required to fund a debt service account by depositing in three equal monthly installments an amount equal to the estimated annual interest due in connection with outstanding loans under the 2017 Royal Banks Credit Facility. We are required to maintain a minimum debt service coverage ratio (as defined in the credit agreement) of 1.25 to 1.00. In addition, were our fixed charge coverage ratio (as defined in the credit agreement) to fall below 1.50 to 1.00, we would be required to prefund certain other debt service payments, and should the ratio fall below 1.25 to 1.00, we would be prohibited from paying common or preferred dividends.  The 2017 Royal Banks Credit Facility is secured by the assets of our subsidiaries which operate our Hidden Valley, Paoli Peaks, Snow Creek, Crotched Mountain and Attitash resorts.

Impairment Loss

During the year ended April 30, 2018, we incurred approximately $1.6 million of fixed asset impairment losses in connection with our decision to cease operation of a restaurant and certain hotel-like amenities at a condominium building adjacent to our Attitash ski resort. In connection with our 2007 acquisition of the Attitash ski resort, we acquired property and equipment constituting the commercial core of a condominium building located adjacent to the resort.  Since this acquisition, we have i) provided management services to the condominium’s owners association under a management services agreement (the “Management Services Agreement”), ii) sponsored a rental management program whereby unoccupied condominium units may be rented as hotel rooms and iii) operated a restaurant and other hotel-type amenities in the areas of the building which we own. In December 2017, we determined we would not be able to renew the Management Services Agreement upon its expiration on April 30, 2018 and, as a result, decided to terminate the rental management program and cease operation of the hotel-type amenities as of that date.

The Company conducts an assessment of the carrying value of goodwill annually, as of last day of March, or more frequently if circumstances arise which would indicate the fair value of a reporting unit with goodwill is below its carrying amount.  As a result of the annual assessment as of March 31, 2018, the Company incurred an impairment loss of $0.4 million of goodwill associated with the acquisition of its Alpine Valley ski resort.  The Company did not record any impairment of goodwill for the years ended April 30, 2017 or 2016.

Our revenues are highly seasonal in nature.  The vast majority of revenue is generated during the ski season, which occurs during the winter months in our third and fourth fiscal quarters.  Some of our properties offer off season attractions, such as golf, roller coasters, swimming, summer concerts and zip rides; however, these activities do not comprise a substantial portion of our annual revenues.  As a result, our resorts typically experience operating losses and negative operating cash flows during the first and second quarters of each fiscal year.

The seasonality of our revenues amplifies the effect of events outside our control, especially weather. While our geographically diverse operating locations help mitigate the effect of weather conditions, adverse weather could lower attendance due to suboptimal skiing conditions or limited access to our resorts, render snowmaking wholly or partially ineffective in maintaining ski conditions, and increase operating costs related to snowmaking efforts and inefficient labor utilization. During years ended April 30,

---

 

2018, 2017 and 2016, the percentage of revenue we recognized in our third and fourth fiscal quarters, combined, was 87.6%, 87.3% and 87.9%, respectively.  As a result, the operating results for any quarterly period are not necessarily indicative of the results that may be achieved for any subsequent quarter or for a full year.

The timing and duration of favorable weather conditions significantly influences the timing and volume of skier visits and the associated revenue.  While natural snowfall early in the ski season influences skier visits, all of our ski resorts have snowmaking capabilities in the event that the natural snowfall is insufficient.  Cold weather, however, is essential to a successful ski season and there is no way to predict future weather conditions.  We sell season passes prior to the start of the ski season to help mitigate any negative effects unfavorable weather may have on our revenues.

During the 2017/2018 ski season we encountered significant weather-driven challenges, including bitterly cold weather which depressed skier visits at times and rainy weather during a holiday weekend which depressed skier visits during one of our historically busiest weekends.  Favorable weather conditions in the Northeast towards the end of the ski season helped to mitigate the impact of unfavorable weather conditions in the middle of the season.  Similarly, we faced significant weather challenges during the 2016/2017 ski season due to unseasonably warm weather in the Midwest midway through the ski season.

In addition to our continued investment in snow making technologies and infrastructure, we rely on our season pass products to help mitigate the impact on our revenues from adverse weather.

For the 2016/2017 ski season we introduced the Peak Pass which allows skiers to utilize any of our resorts in the Northeastern or Southeastern (which includes Pennsylvania) United States.  The introduction of the Peak Pass contributed to the increased revenue we experienced in our 2018 and 2017 fiscal years as compared to our 2016 fiscal year, despite significant weather challenges during those fiscal years.  Our pre-season season pass sales for the upcoming 2018/2019 increased 16.0% in dollars and 14.0% in units as compared to the 2017/2018 season, and the 2017/2018 season pre-season pass sales increased 8.6% in both dollars and units as compared to the same period for the 2016/2017 ski season.

Our ski resorts operate in the Northeast, Midwest and Southeast (which includes Pennsylvania) markets as defined by the Kottke Report.  Our skier visits of 1.7 million in fiscal 2018 were up 7.4% from fiscal 2017.  This compares to a 4.5% increase in total skier visits across the entire industry to Northeast, Midwest and Southeast resorts as reported by the Kottke Report.  Our total resort visits, which include tubing visits, were up 7.1% from fiscal 2017.  Total visits to our Northeast and Southeast resorts, in particular, increased to 1.25 million in fiscal 2018 from 1.22 million in fiscal 2017.  Total visits to our Midwest resorts increased to 0.59 million in fiscal 2018 from 0.49 million in fiscal 2017. 

As part of our mission to build value by investing in our current properties through expansions, new products and amenities that will elevate our customers’ skiing and off-season experiences, during fiscal 2018 we completed one major project and continued to move forward with capital improvement projects at our Hunter Mountain, Hidden Valley and Mount Snow resorts.

---

 

The following table presents our consolidated statements of operations for the years ended April 30, 2018, 2017 and 2016 (dollars in thousands):





---

 

Reported EBITDA is not a measure of financial performance under U.S. GAAP.  We have chosen to include “Reported EBITDA” (which we define as net income before interest, income taxes, depreciation, amortization, gain on sale/leaseback, other income and expense and other non-recurring items) as a measurement of our results of operations because we consider this measurement to be a significant indication of our financial performance and available capital resources.  Because of large depreciation and other charges relating to our ski resorts operations, it is difficult for management to fully and accurately evaluate our financial results and available capital resources using net income alone.  In addition, the use of this non-U.S. GAAP measure provides an indication of our ability to service debt, and we consider it an appropriate measure to use because of our highly leveraged position.

We believe that by providing investors with Reported EBITDA, they will have a clearer understanding of our financial performance and cash flows because Reported EBITDA i) is widely used in the ski industry to measure a company’s operating performance without regard to items excluded from the calculation of such measure; ii) helps investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our capital structure and asset base from our operating results; and iii) is used by our Board of Directors, management and our lenders for various purposes, including as a measure of our operating performance and as a basis for planning.

The items we exclude from net income to arrive at Reported EBITDA are significant components for understanding and assessing our financial performance and liquidity.  Reported EBITDA should not be considered in isolation or as an alternative to, or substitute for, net income, net change in cash and cash equivalents or other financial statement data presented in our consolidated financial statements as indicators of financial performance or liquidity.  Because Reported EBITDA is not a measurement determined in accordance with U.S. GAAP and is susceptible to varying calculations, Reported EBITDA, as presented, may not be comparable to other similarly titled measures of other companies, limiting its usefulness as a comparative measure.

Reconciliations of net income (loss) to Reported EBITDA for the years ended April 30, 2018, 2017 and 2016, were as follows (dollars in thousands):







Net Revenue.  Net revenue increased $8.4 million, or 6.8%, for the year ended April 30, 2018, compared with the year ended April 30, 2017.  The increase is primarily attributable to increased resort attendance driven, in part, by earlier ski season opening dates which led to higher ticket, rentals, retail and food and beverage sales.

Resort Operating Costs.  Resort operating costs increased $9.3 million, or 10.6%, for the year ended April 30, 2018, compared with the previous year.  Labor costs increased by $4.8 million, or 9.9%, due to i) lower pre-season staffing levels in fiscal 2017 as compared to fiscal 2018, ii) increased staffing needs due to earlier ski season opening dates and higher attendance in fiscal 2018, and iii) increases in the minimum wage which impacted certain of our resorts.  Other resort operating expenses increased by $3.0 million, or 14.6%, primarily as a result of increased maintenance and supplies costs.  During fiscal 2017, we experienced low liquidity levels and, as a result, implemented employee furloughs and strict spending controls on discretionary costs.  By the end of fiscal 2017, our liquidity levels had normalized.  As a result, our staffing levels returned to a more normal level, and our resorts incurred increased costs as they prepared for the 2017/2018 ski season.  Cost of goods sold related to food and beverage and retail sales increased $1.0 million, or 9.6%, due to increased food and beverage and retail sales stemming from higher resort attendance.

---

 

Depreciation and Amortization.  Depreciation and amortization increased by $0.5 million, or 4.1%, on a higher depreciable base which included, among other new assets, the West Lake Water project which was placed in service during the year.

General and Administrative Costs.  General and administrative expenses increased $0.4 million, or 6.7%, for the year ended April 30, 2018 compared with the year ended April 30, 2017, primarily due to higher incentive compensation expense and lower professional fee expense. 

Restructuring and Impairment.  During the year ended April 30, 2018 we incurred restructuring and impairment charges totaling $2.1 million which included i) $1.7 million related to our decision to terminate a rental management program and cease operation of hotel-type amenities at a condominium property adjacent to our Attitash ski resort, and ii) $0.4 million related to the impairment of goodwill associated with our Alpine Valley ski resort.

Interest.  Excluding amounts capitalized, interest expense increased by $0.8 million, or 6.8%, primarily as a result of increases in the interest rates on adjustable rate debt, partially offset by the effect of a $1.7 million net repayment of interest bearing debt over the course of the year.

Income Taxes.  The income tax benefit for the year ended April 30, 2018, was $4.0 million, which compares with income tax expense of $0.7 million for the year ended April 30, 2017.  The benefit for fiscal 2018 is primarily as result of positive impacts from the enactment of the 2017 Tax Act which, among other effects, i) reduced our deferred tax liabilities and ii) reduced our effective income tax rate for the four months ending April 30, 2018.

The increase in skier and tube visits we experienced during fiscal 2017 as compared to fiscal 2016 was the primary driver for increases in six of our seven principal revenue categories.  The Company experienced improved weather conditions, specifically in the Northeast, which helped to drive additional skier visits.

Lift and tubing revenue increased $12.6 million, or 27.6%, for fiscal 2017 compared to fiscal 2016.  Season pass sales and seasonal program sales increased $2.7 million, or 15.7%, from fiscal 2016 to fiscal 2017.

Food and beverage revenue increased $7.3 million, or 45.9%, for fiscal 2017 compared to fiscal 2016, $2.2 million of which was due to an increase in yield per skier and $5.1 million of which was due to increased skier visits.

An increase in rental revenue of $1.5 million, or 22.0%, for fiscal 2017 compared to fiscal 2016 was offset by a decrease in yield per skier visit of $0.7 million. Ski instruction revenue increased $2.0 million, or 30.1%, for fiscal 2017 compared to fiscal 2016.

Hotel and lodging revenue increased $1.8 million, or 22.1%, for fiscal 2017 compared to fiscal 2016.

Retail revenue increased $1.6 million, or 35.9%, for fiscal 2017 compared to fiscal 2016.

Revenue from summer activities increased $0.4 million, or 10.4%, for fiscal 2017 compared to fiscal 2016, which is primarily attributable to the inclusion of Hunter Mountain’s results in the consolidated financial statements for all of fiscal 2017.  We acquired Hunter Mountain on January 6, 2016, and as such, its summer activities were not included in fiscal 2016 results.

Other income increased $0.3 million, or 8.4%, for fiscal 2017 compared to fiscal 2016, as a result of the inclusion of Hunter Mountain’s results in the consolidated financial statements for all of fiscal 2017.  Hunter Mountain’s results were included only as of the acquisition date in fiscal year 2016.

The inclusion of Hunter Mountain’s results in the consolidated financial statements for all of fiscal 2017 also contributed to increases in our expenses, as illustrated below.

Labor and labor related expenses increased $8.9 million, or 22.7%, for fiscal 2017 versus fiscal 2016, $5.8 million of which was due to a longer operating season in fiscal 2017 compared to fiscal 2016.

Retail and food and beverage cost of sales increased $3.1 million, or 39.9%, for fiscal 2017 versus fiscal 2016, $1.4 million of which is a result of increased retail and food and beverage revenue.

Power and utility expense increased $1.0 million, or 14.7%, for fiscal 2017 versus fiscal 2016. Of the increase, $0.6 million is a result of increased snowmaking hours.

---

 

Other operating expense increased $2.1 million, or 11.4%, for fiscal 2017 versus fiscal 2016, $1.1 million of which is a result of the Hunter Mountain acquisition and the remaining $1.0 million of which is a result of costs tied to increased resort visits, such as credit card processing fees, insurance, supplies, payroll processing fees, repairs and maintenance.  Depreciation and amortization increased $2.0 million, or 18.7%, for fiscal 2017 versus fiscal 2016, as a result of the inclusion of Hunter Mountain’s results in the consolidated financial statements for all of fiscal 2017.

General and administrative expenses increased $0.9 million, or 20.3%, for fiscal 2017 versus fiscal 2016 primarily due to an increase in professional fees of $0.6 million related to incremental public company expenses and the Private Placement transaction and an increase in salaries and related benefits of $0.3 million.

Real estate and other taxes increased $0.4 million, or 20.2%, for fiscal 2017 versus fiscal 2016.

The increase in interest expense, net of $1.7 million was a result of the debt incurred in connection with the Hunter Mountain acquisition in the third quarter of fiscal 2016 and the debt incurred pursuant to the bridge loan agreement with EPR in fiscal 2017, which has been repaid.

Income tax increased $2.8 million as a result of an increase in the earnings before income tax expense of $7.3 million for fiscal 2017 versus fiscal 2016.

Cash Flow

Net cash used in operating activities was $0.2 million for the year ended April 30, 2018, as compared with net cash provided by operating activities of $12.7 million and $10.2 million for the years ended April 30, 2017 and 2016, respectively.  The reduction in net cash provided by operating activities in fiscal 2018 as compared with fiscal 2017, is primarily due to the prepayment of interest to EPR Properties and its affiliates (“EPR”), our primary lender, and lower income before income taxes.  Under the terms of the various borrowing agreements we have with EPR, we are required to, at EPR’s discretion, either prepay a certain amount of interest payments to EPR or deposit the equivalent amount of cash in a restricted account to fund interest payments to EPR.  As of April 30, 2018, we had prepaid interest to EPR of $8.9 million, which is included in the caption prepaid expenses and deposits in our consolidated balance sheet as of April 30, 2018.  As of April 30, 2017, we had no prepaid interest to EPR, although we had deposited a similar amount of interest payments into a restricted cash account to fund interest payments to EPR, which was included in the caption restricted cash in our consolidated balance sheet for the year ended April 30, 2017.  The increase in net cash provided by operating activities in fiscal 2017 as compared with fiscal 2016 was primarily the result of higher net income, partially offset by a decrease in accounts payable balances at April 30, 2017 as compared with April 30, 2016, as we reduced the number of average days our accounts payable balance was outstanding. 

Net cash used in investing activities was $31.1 million, $11.5 million and $46.7 million for the years ended April 30, 2018, 2017 and 2016, respectively.  Cash used by investing activities during fiscal 2018 related to capital expenditures with the most significant expenditures related to the completion of the West Lake Water Project and ongoing construction of the Carinthia Base Lodge Project at Mount Snow.  Cash used by investing activities in fiscal 2017 related entirely to capital expenditures.  Cash used by investing activities in fiscal 2016 primarily included $33.4 million for the acquisition of the Hunter Mountain ski resort and $13.8 million for capital expenditures.  The presentation of cash used by investing activities for the years ended April 30, 2017 and 2016, reflects a change in the presentation of changes in restricted cash balances due to the adoption of a new accounting standard regarding the presentation of restricted cash in the statement of cash flows.

Net cash used in financing activities for the year ended April 30, 2018, was $10.8 million, which compares to net cash provided by financing activities of $10.8 million and $48.6 million for the years ended April 30, 2017 and 2016, respectively.  During fiscal 2018 we made net repayments of borrowings of $5.9 million and made distributions to our common and preferred shareholders of $4.7 million.  Net cash flows provided by financing activities during fiscal 2017 primarily related to the $19.6 million of net proceeds from the issuance of our Series A Preferred Stock, partially offset by the payment of deferred financing costs of $4.5 million, the net repayments of borrowings of $3.4 million and distributions to our common shareholders of $1.0 million.  Net cash flows provided by financing activities during fiscal 2016 primarily related to i) net proceeds of $35.1 million from borrowings to finance our acquisition of the Hunter Mountain ski resort and ii) the release of $22.0 million of EB-5 investor funds from escrow to fund construction of the West Lake Water project, partially offset by iii) the net repayment of other borrowings of $0.8 million, iv) distributions to our common shareholders of $7.7 million and v) the payment of deferred financing costs of $1.4 million.

Liquidity and Significant Uses of Cash

Our available cash is consistently highest in our fourth quarter primarily due to the seasonality of our resort business.  We had $23.1 million of cash and cash equivalents as of April 30, 2018, compared with $33.7 million at April 30, 2017.  In addition, we had restricted cash balances on hand as of April 30, 2018, for i) the financing of our Carinthia Ski Lodge project and ii) interest

---

 

payments on our revolving credit facilities in the amount of $12.2 million and $1.2 million, respectively.  We generate the majority of our cash from operations during the ski season, which occurs during our third and fourth fiscal quarters.  We currently anticipate cash flow from operations will continue to provide a significant source of our future cash flows, and believe that cash flow from operations, availability on credit facilities and available cash on hand will be sufficient to fund our recurring capital expenditure requirements and other currently anticipated cash needs for the next 12 months

Our principal liquidity requirements over the next 12 months will be for i) debt service requirements in connection with our credit facilities and other debt, ii) capital expenditures to complete planned major projects, iii) capital expenditure needs for of our continuing operations, and iv) working capital needs including the payment of operating leases.  We have historically invested significant cash in capital expenditures for our resort operations and expect to continue to invest in the future.

We currently anticipate we will spend between approximately $28.0 to $32.0 million on capital expenditures during fiscal 2019, which includes approximately $11.5 million to $12.5 million to complete the Carinthia Ski Lodge Project, approximately $1.5 million to $2.5 million to finish construction of the zip tour at Hidden Valley, and approximately $8.5 million to $9.5 million on the expansion of Hunter North terrain.  We also expect to spend approximately $6.0 million to $8.0 million on resort maintenance capital expenditures, which is consistent with our historical maintenance capital expenditures that are needed to maintain and improve the level of service and overall experiences we strive to provide our visitors.  The Carinthia Ski Lodge Project is being funded with proceeds raised pursuant to the EB-5 Program.  We currently plan to use cash on hand and/or cash flow generated from future operations to provide the cash necessary to execute our other capital projects and believe that these sources of cash will be adequate to meet our needs.  Capital expenditures for fiscal 2017 were approximately $8.6 million, which reflects temporary decreased spending due to lower than normal liquidity levels experienced during fiscal 2017 as a result of unfavorably warm weather during the 2015/2016 ski season and unexpected delays in the release of EB-5 Program funds used to finance the West Lake Water project that was recently completed.

We continually evaluate opportunities to acquire new ski resorts.  We expect that we would finance the acquisition of any new ski resorts through a combination of cash on hand, existing credit facilities, new financing arrangements or the issuance of debt or equity.

The outstanding shares of the Company’s Series A Preferred Stock accrue cumulative dividends on a daily basis in arrears at the rate of 8% per annum on the liquidation value of $1,000 per share.  All accrued and accumulated dividends on the Series A Preferred Stock are required to be paid prior and in preference to any cash dividend on our common stock. In addition, until the earlier of i) such date as no Series A Preferred Stock remains outstanding and ii) January 1, 2027, we are prohibited from paying any dividend on capital stock when there are accrued or unpaid dividends with respect to the Series A Preferred Stock.  We intend to pay the Series A Preferred Stock dividends which are $1.6 million annually, or $0.4 million quarterly.

On July 10, 2018, our Board of Directors approved i) a cash dividend payment of $1.0 million ($0.07 per share of common stock) payable on August 10, 2018 to common shareholders of record on July 26, 2018, and ii) a cash dividend payment of $0.4 million payable on August 10, 2018 to the holder of our Series A Preferred Stock.

Financing Arrangements

Long-term debt at April 30, 2018 and 2017, consisted primarily of borrowings pursuant to the loans and other credit facilities with EPR Properties, our primary lender, Royal Banks of Missouri, our primary banking partner, and EB-5 limited partnerships. 

We have presented in the table below the composition of our long-term debt as of April 30, 2018 and April 30, 2017 (dollars in thousands):

---

 



EPR Secured Notes

The Company has various secured borrowings (the “EPR Secured Notes”) under a master credit and security agreement and other related agreements, as amended, (together, the “EPR Agreement”) with EPR. Each of the EPR Secured Notes is secured by one or more of the Company’s resort properties and is guaranteed by the Company.  The EPR Secured Notes bear interest at specified interest rates which are subject to increase each year by the lesser of i) three times the percentage increase in the Consumer Price Index (as defined) or ii) a capped index (the “Capped CPI Index”) which is 1.75% for the Hunter Mountain Secured Note and 1.50% for all other notes.  

Financial covenants set forth in the EPR Agreement consist of i) a maximum leverage ratio (as defined) of 65%, above which the Company and certain of its subsidiaries are prohibited from incurring additional indebtedness, ii) a consolidated fixed charge coverage ratio (as defined) of 1.50:1.00 on a rolling four quarter basis, and iii) a prohibition of the Company paying dividends if the Company is in default (as defined) or if the fixed charge coverage ratio (as defined) is below 1.25:1.00.  During the first two quarters of fiscal year 2017, the Company’s fixed charge coverage ratio fell below 1.25:1.00 and, as a result, the Company was prohibited from paying dividends.  As of April 30, 2018, the Company was in compliance with all debt covenants. 

Non-financial covenants set forth in the EPR Agreement include i) restrictions on certain transactions, including mergers, acquisitions, leases, asset sales, loans to third parties, and the incurrence of certain additional debt and liens and ii) a requirement that the Company obtain the consent of EPR prior to redeeming any preferred or common stock.

The EPR Agreement also provides that none of the EPR Secured Notes may be prepaid without the consent of EPR and that any default under any of the EPR Secured Notes, lease agreements between the Company and EPR, or credit facilities with other lenders would constitute a default under all EPR Secured Notes and lease agreements.  A change of control (as defined) would also constitute an event of default.

An additional contingent interest payment would be due to EPR if, on a calendar year basis, the gross receipts (as defined) from the properties securing the EPR Secured Notes (the “Gross Receipts”) are more than the result (the “Interest Quotient”) of diving the total interest charges for the EPR Secured Notes by a certain percentage rate (the “Additional Interest Rate”).  In such a case, the additional interest payment would equal the difference between the Gross Receipts and the Interest Quotient multiplied by the Additional Interest Rate.  This calculation is made on an aggregated basis for the notes secured by the Company’s Jack Frost, Big Boulder, Boston Mills, Brandywine, Alpine Valley and Hunter Mountain ski resorts, where the Additional Interest Rate is 10%, and is made on a standalone basis for the note secured by the Company’s Mount Snow ski resort, where the Additional Interest Rate is 12%.  The Company has not made any additional interest payments on the EPR Secured Notes based on these provisions.

The EPR Agreement grants EPR certain other rights including i) an option to purchase the Company’s Boston Mills, Brandywine, Jack Frost, Big Boulder and Alpine Valley resorts exercisable on the maturity dates of the applicable promissory notes for such properties, ii) a right of first refusal through 2021, subject to certain conditions, to provide all or a portion of the financing associated with any purchase, ground lease, sale/leaseback, management or financing transaction contemplated by the Company with respect to any new or existing ski resort properties, and iii) a right of first refusal through 2021 to purchase the Company’s Attitash ski resort in the event the Company were to desire to sell the Attitash ski resort. In the event EPR were to exercise one or more of its purchase options, the Company would be subject to capital gain taxes to the extent the purchase price exceeded the Company’s tax basis in the properties.  As the Company has deducted tax depreciation for these properties on its federal income tax returns, the amount of capital gains and related taxes might be significant.  To date, EPR has not exercised any purchase options.  If EPR exercises a purchase option, EPR will enter into an agreement with us for the lease of each acquired property for an initial term of 20 years, plus options to extend the lease for two additional periods of ten years each.

The EPR Secured Notes include the following:

---

 

EB-5 Development Notes

The Company serves as the general partner for two limited partnerships, Carinthia Group 1, LP and Carinthia Group 2, LP (together, the “Limited Partnerships”), which were formed to raise $52.0 million through the Immigrant Investor Program administered by the U.S. Citizenship and Immigration Services (“USCIS”) pursuant to the Immigration and Nationality Act (the “EB-5 Program”).  The EB-5 Program was created to stimulate the U.S. economy through the creation of jobs and capital investments in U.S. companies by foreign investors.  The program allocates immigrant visas to qualified individuals (“EB-5 Investors”) seeking lawful permanent resident status based on their investment in a U.S. commercial enterprise.

On December 27, 2016, the Company borrowed $52.0 million from the Limited Partnerships to fund two capital projects at its Mount Snow ski resort. The development projects include i) the West Lake Water Project, which was completed during fiscal 2018 and included the construction of a new water storage reservoir for snowmaking, and ii) the Carinthia Ski Lodge Project, which, as of April 30, 2018, is in progress and includes the construction of a new skier service building. The amounts were borrowed through two loan agreements, which provided $30.0 million for the West Lake Water Project and $22.0 million for the Carinthia Ski Lodge project (together, the “EB-5 Development Notes”).

Amounts outstanding under the EB-5 Development Notes accrue simple interest at a fixed rate of 1.0% per annum until the maturity date, which is December 27, 2021, subject to extension of up to an additional two years at the option of the borrowers with lender consent.  If the maturity date is extended, amounts outstanding under the EB-5 Development Notes will accrue simple interest at a fixed rate of 7.0% per annum during the first year of extension and a fixed rate of 10.0% per annum during the second year of extension.

Upon an event of default (as defined), amounts outstanding under the EB-5 Development Notes shall bear interest at the rate of 5.0% per annum, subject to the extension increases. For so long as amounts under the EB-5 Development Notes are outstanding, the Company is restricted from taking certain actions without the consent of the lenders, including, but not limited to transferring or disposing of the properties or assets financed with the loan proceeds.  In addition, the Company is prohibited from prepaying outstanding amounts owed if such prepayment would jeopardize any of the EB-5 Investors from being admitted to the U.S. via the EB-5 Program.

The Company has evaluated the facts and circumstances surrounding the Limited Partnerships and determined the Limited Partnership do not require consolidation in the Company’s financial statements as the Company does not have a variable interest in the Limited Partnerships under either the variable interest model or the voting interest model, as substantive participation rights give the limited partners the ability to effectively participate in significant decisions that would be expected to be made in the ordinary course of the Limited Partnerships’ business and thereby preclude the Company as general partner from exercising unilateral control over the partnerships.

Wildcat Mountain Note

The Wildcat Mountain Note due December 22, 2020 bears interest at a fixed rate of 4.00% and is secured by a security interest in the improvements at the Company’s Wildcat Mountain ski resort.  The loan is payable in monthly principal and interest payments with a balloon payment of $2.7 million due upon maturity.

Royal Banks of Missouri Credit Facilities

On October 27, 2017, the Company renewed and increased its existing credit facility with Royal Banks of Missouri (the “2017 Royal Banks Credit Facility”).  The 2017 Royal Banks Credit Facility provides for a $10.0 million working capital line of credit to be used for general business purposes and a $15.0 million acquisition line of credit to be used i) to pay off $12.4 million of principal and accrued interest outstanding under the previous credit agreement with Royal Banks of Missouri (the “Original Credit Facility”) and ii) for the acquisition of additional ski resort properties. On October 27, 2017, the Company used the borrowing capacity available under the acquisition line of credit to pay off the amount outstanding under the Original Credit Facility, including amounts outstanding under term loan described in the table above as Royal Banks of Missouri Debt.  As of April 30, 2018, $12.4 million was outstanding under the 2017 Royal Banks Credit Facility and $12.6 million was unused and available.

---

 

The term of the 2017 Royal Banks Credit Facility is 14 months with loans payable in monthly interest only installments charged at the bank’s prime rate plus 1.00% per annum, with any outstanding principal amounts due in December 2018.  Beginning on January 31, 2018, the Company is required to fund a debt service account by depositing in three equal monthly installments an amount equal to the estimated annual interest due in connection with outstanding loans under the 2017 Royal Banks Credit Facility.  The Company is required to maintain a minimum debt service coverage ratio (as defined in the credit agreement) of 1.25:1.00.  In addition, were the Company’s fixed charge coverage ratio (as defined in the credit agreement) to fall below 1.50:1.00, the Company would be required to prefund certain other debt service payments, and should the ratio fall below 1.25:1.00, the Company would be prohibited from paying dividends.  The 2017 Royal Banks Credit Facility is secured by the assets of the Company’s subsidiaries which operate its Hidden Valley, Paoli Peaks, Snow Creek, Crotched Mountain and Attitash resorts.

Series A Preferred Stock

As more fully described in Note 5 to our consolidated financial statements filed with this Proxy Statement, on November 2, 2016, we completed the Private Placement of $20 million of Series A Preferred Stock and the 2016 Warrants to Cap 1 pursuant to the Cap 1 Agreement.

The Cap 1 Agreement also grants to us the right to require Cap 1 to purchase an additional 20,000 shares of Series A Preferred Stock for $1,000 per share, along with additional warrants, all on the same terms and conditions as the Private Placement under certain conditions, including that the average closing price of the our common stock for the ten trading days prior to the transaction is not less than the average closing price of our common stock for the ten trading days prior to the execution of the Securities Purchase Agreement ($4.79).

From and after the date that is nine months from the date of issuance, cumulative dividends accrue on the Series A Preferred Stock on a daily basis in arrears at the rate of 8% per annum on the liquidation value of $1,000 per share.  All accrued and accumulated dividends on the Series A Preferred Stock shall be paid prior and in preference to any dividend or distribution on or redemption of any junior securities, provided that the Company may, prior to the payment of all accrued and accumulated dividends on the Series A Preferred Stock, (i) declare or pay any dividend or distribution payable on the common stock in shares of common stock; or (ii) repurchase common stock held by employees or consultants of the Company upon termination of their employment or services pursuant to agreements providing for such repurchase.  The Company may also redeem or repurchase junior securities at any time when there are no accrued or accumulated unpaid dividends on the Series A Preferred Stock.

We do not have any off balance sheet arrangements as defined under SEC rules.

The preparation of financial statements in conformity with U.S. GAAP requires that management make certain estimates and assumptions that affect amounts reported in the financial statements and accompanying notes.  Actual results may differ from those estimates and assumptions and the differences may be material.  Significant accounting policies, estimates and judgments that management believes are the most critical to aid in fully understanding and evaluating the reported financial results are discussed below.

We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, which provides that an emerging growth company may take advantage of an extended transition period for complying with new or revised accounting standards.  As an emerging growth company, we may delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. As a result, our financial statements may not be comparable to those of other public companies.

Goodwill

At April 30, 2018, our goodwill balance relates entirely to our Hunter Mountain ski resort.  We conduct an assessment of the carrying value of goodwill annually, as of the last day of March, or more frequently if circumstance arise which would indicate the fair value of a reporting unit is below its carrying amount.  A quantitative test of goodwill requires us to make certain assumptions and estimates in determining fair value of our reporting units.  When performing such a test, we use multiple methods to estimate the fair value of our reporting units, including discounted cash flow analyses and an EBITDA-multiple approach, which derives an implied fair value of a business unit based on the market value of comparable companies expressed as a multiple of those companies’ earnings before interest, taxes, depreciation and amortization (“EBITDA”).  Discounted cash flow analyses require us to make significant assumptions about discount rates, sales growth, profitability and other factors.  The EBITDA-multiple approach requires us to judgmentally select comparable companies based on factors such as their nature, scope and size.  Significant judgment is required in making assumptions and estimates to perform a quantitative impairment test, and should our assumptions change in the future, our fair value models could result in lower fair values, which could materially affect the value of goodwill and our operating results. 

---

 

In any given year we may elect to perform a qualitative impairment test for impairment.  A qualitative assessment requires us to consider a number of relevant factors and conclude whether it is more likely than not that the fair value of a reporting unit is more than its carrying amount.  In performing a qualitative assessment to screen for potential impairment of goodwill, we considered a number of factors, including i) macroeconomic conditions, ii) factors impacting our industry, iii) factors impacting our costs to operate our business, iv) the financial performance of reporting units compared with projections and prior periods, v) reporting unit specific events which could impact future operating results, vi) the market value of our debt and equity securities, and vii) other relevant events and circumstances identified at the time of the assessment. 

As a result of the annual assessment as of March 31, 2018, we recorded an impairment loss of $0.4 million of goodwill associated with our Alpine Valley ski resort.  We did not record any impairment of goodwill for the years ended April 30, 2017 or 2016.

Income Taxes

We are subject to income taxes in the United States and numerous state jurisdictions.  Significant judgments and estimates are required in determining our consolidated income tax expense or benefit.  Our income tax provision and deferred tax balances reflect our best assessment of estimated current and future taxes to be paid.

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements.  These temporary differences will result in taxable or deductible amounts in the future.  In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations.  In projecting future taxable income, we begin with historical results and incorporate assumptions about the amount of our future pretax operating income.  While our assumptions about future taxable income are consistent with the plans and estimates we use to manage our business, they require significant judgment and are subject to factors beyond our control, such as impact of weather on our operations.

Changes in tax laws and rates may affect recorded deferred tax assets and liabilities and our effective tax rate. Changes in tax laws are accounted for in the period of enactment.  On December 22, 2017, the U.S. government enacted the 2017 Tax Act which made broad and complex changes to the U.S. tax code that had an impact on our results and financial position as of and for our fiscal year ended April 30, 2018.  These impacts included, but were not limited to, i) a new bonus depreciation rule that allows for full expensing of qualified property, ii) a reduction of the U.S. federal corporate tax rate, iii) elimination of the corporate alternative minimum tax (“AMT”), iv) a new limitation on deductible interest expense, and v) limitations on NOLs generated after December 31, 2017, which caps their benefit at 80 percent of taxable income.  We recorded an income tax benefit of $4.0 million for the year ended April 30, 2018, which includes a $0.1 million discrete benefit at the 2017 Tax Act enactment date and an additional benefit of $3.5 million which was directly attributable to the impact of the 2017 Tax Act’s reduced corporate tax rate that became effective January 1, 2018.  The additional benefit arises because we are a calendar year taxpayer and the seasonality of our business resulted in significant losses during the first eight months of fiscal 2018, which produced a tax benefit at the prior corporate tax rate of 34%, and significant income during the period January to April 2018, which was subject to the lower 21% corporate tax rate implemented by the 2017 Tax Act.

As of April 30, 2018, we have federal income tax NOL carryforwards of $26.6 million, which will expire at various dates through 2035.  We believe it is more likely than not that the full benefit from a certain state’s NOL carryforwards will not be realized. In recognition of this risk, we have provided a valuation allowance of $0.4 million against the deferred tax assets relating to that state’s NOL carryforwards.  If our assumptions change and we determine we will be able to realize these NOLs, the tax benefits relating to any reversal of the valuation allowance would be recognized as a reduction of income tax expense.  We expect the limitation on deductible interest contained in the 2017 Tax Act will make it more likely we will be able to utilize our existing federal NOL carryovers; however, this provision may also give rise to interest carryforwards that could be subject to valuation allowances.

We must make certain estimates and judgments in determining income tax expense for financial statement purposes.  These estimates and judgments occur in the calculation of tax credits and deductions and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes, as well as the interest and penalties relating to uncertain tax positions.  The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations.  We recognize liabilities for uncertain tax positions based on a two-step process.  The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.  The second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.  It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the probability of various possible outcomes.  This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit and new audit activity.

---

 

A significant amount of time may pass before a particular matter, for which we may have established a reserve, is audited and fully resolved.  The estimates of our tax contingencies reserve, if any, contain uncertainty because management must use judgment to estimate the potential exposure associated with our various filing positions.  Although we believe the estimates and judgments discussed herein are reasonable and we have adequate reserves for our tax contingencies, actual results could differ, and we may be exposed to increases or decreases in those reserves and tax provisions that could be material.

An unfavorable tax settlement could require the use of cash and could possibly result in an increased tax expense and effective tax rate in the year of resolution.  A favorable tax settlement could possibly result in a reduction in our tax expense, effective tax rate, income taxes payable, other long-term liabilities and/or adjustments to our deferred tax assets, deferred tax liabilities or intangible assets in the year of settlement or in future years.

Management has made the assumption that the deferred tax assets will generally be recovered through the reversal of the deferred tax liabilities.  Changes in the timing of the reversal pattern of these deferred tax liabilities, such as due to changes in asset lives, could necessitate a further evaluation of whether a valuation allowance is required.  While management does not expect a need will arise to evaluate the valuation allowance, this would require management to estimate future taxable income, which would be subjective.

Impairment:  We review the carrying amounts of property and equipment, definite-lived intangible assets and other long-lived assets for potential impairment if an event occurs or circumstances change that indicates the carrying amount may not be recoverable.  In evaluating the recoverability of a long-lived asset, we compare the carrying values of the assets with corresponding estimated undiscounted future operating cash flows.  For impairment testing purposes, long-lived assets are grouped at the lowest level for which there are identifiable cash flows; however, where identifiable cash flows are not independent of the cash flows of other assets, those long-lived assets are evaluated for impairment on a higher level.  In the event the carrying values of long-lived assets are not recoverable by future undiscounted operating cash flows, impairments may exist.  In the event of impairment, an impairment charge would be measured as the amount by which the carrying value of the relevant long-lived assets exceeds their fair value.  During fiscal 2018 we recognized an impairment loss to property and equipment of $1.6 million as a result of our decision to terminate a rental management program and cease operation of a restaurant and other hotel-type amenities at a condominium property adjacent to our Attitash ski resort.

Depreciable Lives of Assets:  Mountain and lodging operational assets, furniture and fixtures, computer equipment, software, vehicles and leasehold improvements are primarily depreciated using the straight-line method over the estimated useful life of the asset. Assets may become obsolete or require replacement before the end of their useful life in which case the remaining book value would be written-off or we could incur costs to remove or dispose of such assets no longer in use. The estimate of our useful lives of the assets contain uncertainty because management must use judgment to estimate the useful life of the asset. Although we believe the estimates and judgments discussed herein are reasonable, actual results could differ, and we may be exposed to increased expense related to depreciable assets disposed of, removed or taken out of service prior to its originally estimated useful life, which may be material.

Accounting for Acquisitions

The acquisition method of accounting requires an acquirer to recognize the assets acquired and the liabilities assumed at the acquisition date measured at their estimated fair value as of that date.  Extensive use of estimates and judgments are required to allocate the consideration paid in a business combination to the assets acquired and liabilities assumed.  If necessary, these estimates can be revised during an allocation period when information becomes available to further define and quantify the value of assets acquired and liabilities assumed.  The allocation period does not exceed a period of one year from the date of acquisition.  To the extent additional information to refine the original allocation becomes available during the allocation period, the purchase price allocation would be adjusted accordingly.  Should information become available after the allocation period, the effects would be reflected in operating results.

Recently Adopted Accounting Standards

In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory,” which requires entities to measure inventory at “the lower of cost and net realizable value,” simplifying the current guidance under which entities must measure inventory at the lower of cost or market.  Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of disposal.  The Company adopted this ASU prospectively as of April 30, 2018, and there were no adjustments to the carrying value of the Company’s inventories upon adoption.

In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” which requires deferred tax assets and liabilities be classified as noncurrent on a classified balance sheet.  The Company

---

 

adopted this ASU retrospectively as of April 30, 2018.  As a result of the adoption of ASU 2015-17, we reclassified $0.6 million of current deferred tax assets to long-term deferred tax liabilities in our consolidated balance sheet as of April 30, 2017.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a Consensus of the FASB Emerging Issues Task Force),” which clarifies the requirements for the presentation of changes in restricted cash balances on the statement of cash flows.  The Company adopted this ASU retrospectively as of April 30, 2018.  Prior to the adoption of ASU 2016-18, we presented a reconciliation of cash flows from operating, investing and financing activities to the net change in cash and cash equivalents during each year presented in the consolidated statement of cash flows.  As a result of adoption of ASU 2016-18, we began to present a reconciliation of cash flows from operating, investing and financing activities to the net change in cash, cash equivalents and restricted cash during each year presented in the consolidated statement of cash flows.  See Note 1 to the consolidated financial statements included in this Report.

In January 2017, the FASB issued ASU 2017-04, “Intangibles-Goodwill and Other (Topic 350),” which simplifies the existing guidance for testing goodwill for impairment.  The new standard eliminates the current two-step approach used to test goodwill for impairment and requires an entity to apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill.  The Company adopted this ASU on a prospective basis as of March 31, 2018, the date of its annual goodwill impairment test for its fiscal year 2018.

Recently Issued Accounting Standards

We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, which provides that an emerging growth company may take advantage of an extended transition period for complying with new or revised accounting standards.  As an emerging growth company, we may delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which requires lessees to recognize most leases on the balance sheet.  This ASU requires modified retrospective adoption and will be applicable for the Company as of April 30, 2020, with early adoption permitted.  We are currently evaluating the impact the adoption of this ASU will have on our consolidated financial statements.  While we expect the pattern of expense for leases we currently classify as operating will be similar between the old and new guidance, we expect adoption of the new standard will result in a significant increase in assets and liabilities for right of use assets and lease obligations, respectively, for leases we currently classify as operating.  As of April 30, 2018, our future minimum lease payments under operating leases was approximately $15.6 million.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which was subsequently modified by other ASUs from 2015 through 2017.  This ASU, as amended, provides new guidance for the recognition of revenue and provides for a five-step analysis of transactions to determine when and how revenue is recognized.  This ASU establishes a core principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  It also requires additional disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.  This ASU may be adopted using either a full or modified retrospective approach and will be applicable for the Company as of April 30, 2020, with early adoption permitted.  We expect to adopt this ASU using the full retrospective approach and do not expect the adoption of this ASU will have a material impact on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which provides new guidance related to accounting for share-based payments.  This ASU requires entities to record the income tax effect of share-based payments when the awards vest or are settled, and clarifies the cash flow statement presentation of excess tax benefits and withholding tax payments.  In addition, the ASU allows for a policy election to account for forfeitures either upon occurrence or by estimating forfeitures.  This ASU requires prospective adoption and will be applicable for us as of April 30, 2019, with early adoption permitted.  We are currently evaluating the impact the adoption of this ASU will have on our consolidated financial statements.

The following table provides a summary of future payments due under contractual obligations and commitments as of April 30, 2018:





Three Months Ended July 31, 2018 and 2017



The following table presents our condensed unaudited consolidated statements of operations for the three months ended July 31, 2018 and 2017 (dollars in thousands):





---

 

We have specifically chosen to include “Reported EBITDA” (which we define as net income before interest, income taxes, depreciation, amortization, gain on sale/leaseback, other income and expense and other non-recurring items) as a measurement of our results of operations because we consider this measurement to be a significant indication of our financial performance and available capital resources.  Because of large depreciation and other charges relating to our ski resorts operations, it is difficult for management to fully and accurately evaluate our financial results and available capital resources using net income alone.  In addition, the use of this non-U.S. GAAP measure provides an indication of our ability to service debt, and we consider it an appropriate measure to use because of our highly leveraged position. 

We believe that by providing investors with Reported EBITDA, they will have a clearer understanding of our financial performance and cash flows because Reported EBITDA i) is widely used in the ski industry to measure a company’s operating performance without regard to items excluded from the calculation of such measure; ii) helps investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our capital structure and asset base from our operating results; and iii) is used by our Board of Directors, management and our lenders for various purposes, including as a measure of our operating performance and as a basis for planning.

The items we exclude from net income to arrive at Reported EBITDA are significant components for understanding and assessing our financial performance and liquidity.  Reported EBITDA should not be considered in isolation or as an alternative to, or substitute for, net income, net change in cash and cash equivalents or other financial statement data presented in our condensed consolidated financial statements as indicators of financial performance or liquidity.  Because Reported EBITDA is not a measurement determined in accordance with U. S. GAAP and is susceptible to varying calculations, Reported EBITDA, as presented, may not be comparable to other similarly titled measures of other companies, limiting its usefulness as a comparative measure.

Reconciliations of net loss to EBITDA for the three months ended July 31, 2018 and 2017, were as follows (dollars in thousands):



Three Months Ended July 31, 2018, Compared with the Three Months ended July 31, 2017



Net Revenue.  Net revenue decreased $0.5 million, or 6.8%, for the three months ended July 31, 2018, compared with the three months ended July 31, 2017.  The decrease is primarily attributable to reduced lodging and food and beverage sales at our Attitash resort following the April 30, 2018 termination of a hotel/condominium management agreement and closure of a restaurant facility adjacent to the Attitash resort (the “Attitash Hotel Closure”), partially offset by an increase in revenue from summer festivals, banquets and events.

Resort Operating Costs.  Resort operating costs increased $0.7 million, or 5.4%, for the three months ended July 31, 2018, compared with the same period in the prior year.  A $0.2 million decline in labor costs was more than offset by a $0.1 million increase in cost of goods sold, a $0.2 million increase in power and utility costs and a $0.6 million increase in other operating costs.

A decline in labor costs associated with the Attitash Hotel Closure, was partially offset by increased labor costs at our resorts in New York and Vermont, as a result of increased state minimum wage rates and additional labor at our Hunter Mountain resort to support the expansion project there.  Retail food and beverage cost of sales increased $0.1 million during the season due to increased banquet, events and festival sales during the period, partially offset by decreased food and beverage sales as a result of the Attitash Hotel Closure.  Power and Utility costs were up due to increased electric transmission charges associated with our Pennsylvania resorts.  Other operating expenses increased due to i) increased information technology costs associated with a new customer

---

 

marketing project, ii) costs associated with new snow groomer equipment leased prior to the 2017/2018 ski season and iii) pulled-forward supplies and repairs and maintenance projects.

General and Administrative Costs.  General and administrative expenses of approximately $1.3 million for the three months ended July 31, 2018, were unchanged as compared to the same period in the prior year.

Restructuring charges.  For the three months ended July 31, 2018, we incurred restructuring charges of $0.2 million in connection with the Attitash Hotel Closure, which included professional service fees and costs to maintain the facility pending its disposal, which we expect will occur during the second quarter of our 2019 fiscal year.

Total costs through July 31, 2018 associated with the Attitash Hotel Closure include $1.6 million of asset impairment charges and $0.3 million of other costs.  As of July 31, 2018, no amounts were accrued for costs associated with the Attitash Hotel Closure, and we expect we may incur future additional charges in the range of approximately $0.1 million related to professional fees and other costs.

Interest, net.  Net interest expense of $3.5 million for the three months ended July 31, 2018, increased by $0.5 million, or 15.5%, as compared to the $3.0 million of net interest expense for the three months ended July 31, 2017.  The increase in net interest expense relates primarily to i) a $0.3 million decrease in the amount of capitalized interest during the first quarter of fiscal 2019, as compared to the same quarter in fiscal 2018, as a result of the completion of the West Lake Water project in November 2017 and ii) an increase in interest rates on variable rate debt.

Income Taxes. Income tax benefit decreased $1.1 million, or 19.9%, to $4.6 million for the three months ended July 31, 2018 as compared with the three months ended July 31, 2017, as result of a decrease in our effective tax rate applied to a larger loss before income taxes.  Our effective income tax rates were 28.0% and 40.0% for the three months ended July 31, 2018 and 2017, respectively.  The 2018 tax rate reflects the enactment of the Tax Cuts and Job Act of 2017, which permanently reduced the U.S. corporate statutory rate from 35.0% to 21.0% as of January 1, 2018.

Reported EBITDA.  Reported EBITDA decreased by $1.2 million, or 14.9%, for the three months ended July 31, 2018, as compared with the same period in the prior year, primarily as a result of a higher operating loss.  See reconciliation above.

Significant Sources of Cash

Our available cash is consistently highest in our fourth quarter primarily due to the seasonality of our resort business. We had $10.1 million of cash and cash equivalents as of July 31, 2018, compared with $23.1 million at April 30, 2018.  Cash of $6.2 million and $5.9 million was used by operating activities during the three months ended July 31, 2018 and 2017, respectively.  We generate the majority of our cash from operations during the ski season, which occurs during our third and fourth quarters.  We currently anticipate cash flow from operations will continue to provide a significant source of our future cash flows.  We expect our liquidity needs for the near term and the next fiscal year will be met by operating cash flows (primarily those generated in our third and fourth fiscal quarters) and additional borrowings under our various credit agreements, as needed.

Long-term debt at July 31, 2018 and April 30, 2018 consisted primarily of borrowings pursuant to the loans and other credit facilities with EPR Properties, our primary lender, Royal Banks of Missouri, our primary banking partner, and our EB-5 partnerships.  We have presented in the table below the composition of our long-term debt as of July 31, 2018 and April 30, 2018 (dollars in thousands):

---

 

In addition to the credit facilities listed above, the Company maintains a $10.0 million working capital line of credit and a $15.0 million acquisition line of credit with Royal Banks of Missouri.  As of July 31, 2018, $12.4 million was outstanding under the acquisition line of credit and nothing was outstanding under the working capital line of credit, and $10.0 million and $2.6 million was unused and available under the lines of credit, respectively.

As of July 31, 2018, we were in compliance will all debt covenants under our various credit facilities and debt agreements.

Cash Flow

Cash of $6.2 million was used in operating activities in the first three months of fiscal 2019, a $0.3 million increase when compared with the $5.9 million of cash used in the first three months of fiscal 2018.  A higher net loss for the first quarter of fiscal 2019 was partially offset by positive changes in working capital.

Cash of $8.2 million was used by investing activities in the first three months of fiscal 2019, a decrease of $0.4 million when compared with the $8.6 million used in the first three months of fiscal 2018.  Investing cash flows in fiscal 2019 related primarily to the construction of the Carinthia Ski Lodge and Hunter Mountain expansion projects, and investing cash flows in fiscal 2018 related primarily to the construction of the West Lake Water and Carinthia Ski Lodge projects.

Cash of $1.9 million was used in financing activities in the first three months of fiscal 2019, a decrease of $2.0 million when compared with the $3.9 million used in the first three months of fiscal 2018.  Financing cash flows in fiscal 2019 included approximately $1.4 million of distributions to shareholders and approximately $0.5 million of debt payments.  Financing cash flows in the fiscal 2018 period included i) the repayment of approximately $2.4 million of credit facility and long-term debt; and ii) $1.0 million of distributions to shareholders, partially offset by $0.5 million in EB-5 investor funds released from escrow. 

Significant Uses of Cash

Our cash uses are currently expected to include i) operating expenditures, ii) capital expenditures, and iii) debt service. We have historically invested significant cash in capital expenditures for our resort operations and expect to continue to invest in the future.  

Capital expenditures during the first three months of fiscal 2019 were $8.2 million, and included $4.1 million related to the Hunter Mountain expansion project, $2.9 million on the Carinthia Ski Lodge project and $1.2 million to maintain and enhance our resort properties.  We currently anticipate we will spend between approximately $28.0 to $32.0 million on capital expenditures during fiscal 2019, which includes approximately $11.5 million to $12.5 million to complete the Carinthia Ski Lodge project, approximately $1.5 million to $2.5 million to finish construction of the zip tour at Hidden Valley, and approximately $8.5 million to $9.5 million on the expansion of Hunter North terrain.  We also expect to spend approximately $6.0 million to $8.0 million on resort maintenance capital expenditures, which is consistent with our historical maintenance capital expenditures that are needed to maintain and improve the level of service and overall experiences we strive to provide our visitors.  The Carinthia Ski Lodge project is being funded with proceeds raised pursuant to the Company’s EB‑5 program, which are reflected in Restricted cash, construction on our condensed consolidated balance sheet. We currently plan to use cash on hand, borrowings and cash generated from future operations to provide the cash necessary to execute our capital plans and believe that these sources of cash will be adequate to meet our needs.  

Currently, 20,000 shares of our Series A Cumulative Convertible Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”), are outstanding.  The terms of the Series A Preferred Stock provide that cumulative dividends accrue on a daily basis in arrears at the rate of 8.0% per annum on the liquidation value of $1,000 per share, beginning in August 2017.  All accrued and accumulated dividends on the Series A Preferred Stock must be paid prior and in preference to any cash dividend on our common stock.  In addition, until the earlier of i) such date as no Series A Preferred Stock remains outstanding and ii) January 1, 2027, we are prohibited from paying any dividend on capital stock when there are accrued or unpaid dividends with respect to the Series A Preferred Stock.  We intend to pay the Series A Preferred Stock dividends of approximately $1.6 million annually, or $0.4 million quarterly.

Our Board of Directors declared a cash dividend of $0.07 payable on August 10, 2018, to stockholders of record on July 26, 2018. The declaration and payment of future dividends will be at the sole discretion of our Board of Directors, and will depend on many factors, including our actual results of operations, financial condition, capital requirements, contractual restrictions, restrictions in our debt agreements, preference of our Series A Preferred Stock, economic conditions and other factors that could differ materially from our current expectations.

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

---

 

---

 

Stockholders are being asked to approve the issuance of Series A Preferred Stock and warrants to Cap 1, and the Common Stock issuable upon conversion of the Series A Preferred Stock and exercise of the warrants, pursuant to the terms of the Commitment Letter.  The following discussion summarizes the material terms of the Series A Preferred Stock and warrants to be issued in connection with the proposed Acquisition of Snow Time. 

The Series A Preferred Stock constitutes a single series of our preferred stock, consisting of 40,000 authorized shares, $0.01 par value per share, having a liquidation preference amount of $1,000 per share.  The rights, privileges and designations of the Series A Preferred Stock are set forth in the Certificate of Designation.

The Series A Preferred Stock shall, with respect to dividend rights or rights upon liquidation, dissolution or winding up of the Company (whether voluntary or involuntary), rank: (i) senior to Common Stock and to any capital stock that ranks junior with respect to payment of dividends and the distribution of assets upon liquidation; (ii) on parity with any capital stock, the terms of which expressly provide that such capital stock ranks on parity with the Series A Preferred Stock with respect to payment of dividends and the distribution of assets upon liquidation; (iii) junior to any other capital stock, the terms of which expressly provide that such capital stock ranks senior to the Series A Preferred Stock with respect to payment of dividends and the distribution of assets upon liquidation; and (iv) junior to all of the Company’s existing and future indebtedness (except indebtedness issued on or prior to the Expiration Date (as defined below) that is convertible into or exercisable for any class or series of capital stock).

Until the earlier of (x) such date as no shares of Series A Preferred Stock remain outstanding and (y) January 1, 2027 (the first to occur of which shall be the “Expiration Date”), the Company and its subsidiaries shall not (A) create, authorize, issue, sell or obligate itself to issue or sell, any capital stock (or any security convertible into or exercisable for any class or series of capital stock) that grants to the holder thereof the right to (i) receive any dividend or interest payment at any time prior to the Expiration Date when there are any accrued or accumulated unpaid dividends with respect to the Series A Preferred Stock or (ii) receive any payment upon any liquidation prior to the Expiration Date at a time when the holders of Series A Preferred Stock have not received their full liquidation value; (B) pay any dividend or interest on any capital stock (or any security convertible into or exercisable for capital stock) when there are any accrued or accumulated unpaid dividends with respect to the Series A Preferred Stock; (C)  pay or permit to be paid any liquidation payment on any capital stock (or any security convertible into or exercisable for capital stock) at a time when the holders of any shares of Series A Preferred Stock have not received their full liquidation value; or (D) issue any indebtedness convertible into or exercisable for capital stock.  In addition, prior to the Expiration Date, the Company shall not make any redemption payment on any capital stock (or any security convertible into or exercisable for capital stock) at any time prior to the Expiration Date when any shares of Series A Preferred Stock have not been redeemed except for the redemption of junior securities to the extent permitted under “Dividend Rights” below.  The foregoing shall not restrict the Company’s ability to create, authorize the creation of, issue, sell, or obligate itself to issue (i) any indebtedness (other than, prior to the Expiration Date, indebtedness convertible into or exercisable for capital stock) or (ii) any Common Stock (or any capital stock convertible into or exercisable for Common Stock (other than any capital stock that is prohibited by this paragraph)).

From and after the date that is nine months from the date of issuance, cumulative dividends shall accrue on the Series A Preferred Stock, whether or not declared by the board of directors and whether or not there are funds legally available for the payment of dividends, on a daily basis in arrears at the rate of 8% per annum on the liquidation value of $1,000 per share.  All accrued and accumulated dividends on the Series A Preferred Stock shall be paid prior and in preference to any dividend or distribution on or redemption of any junior securities, provided that the Company may, prior to the payment of all accrued and accumulated dividends on the Series A Preferred Stock, (i) declare or pay any dividend or distribution payable on the Common Stock in shares of Common Stock; or (ii) repurchase Common Stock held by employees or consultants of the Company upon termination of their employment or services pursuant to agreements providing for such repurchase.  The Company may also redeem or repurchase junior securities at any time when there are no accrued or accumulated unpaid dividends on the Series A Preferred Stock.

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of Series A Preferred Stock shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, before any payment shall be made to the holders of junior securities, and subject to the rights of any parity or senior securities, an amount in cash equal to $1,000 per share (the “Liquidation Value”) held by such holder, plus all unpaid accrued and accumulated dividends.  The

---

 

Series A Preferred Stock shall not be entitled to any further payment or other participation in any distribution of the available assets of the Company.  Neither the consolidation nor merger with or into any other person or entity, nor the voluntary sale, lease, transfer or conveyance of all or substantially all of the Company’s property or business shall be deemed to constitute a liquidation.

At any time on or after the third anniversary of the date of issuance that the average closing price of the Common Stock on the 30 trading days preceding written notice by the Company of its exercise of the redemption right is greater than 130% of the Conversion Price (as defined below), the Company shall  have the right to call for redemption all or any portion of the then outstanding Series A Preferred Stock for a price per share equal to 125% of the Liquidation Value, plus all unpaid accrued and accumulated dividends, whether or not declared (the “Redemption Price”).

In addition, upon occurrence of a change of control of the Company (which, as defined, excludes ownership changes by Cap 1 and its affiliates), any holder of Series A Preferred Stock shall have the right to elect to have all or any portion of its then outstanding Series A Preferred Stock redeemed for cash at the Series A Redemption Price by the Company or the surviving entity of such change of control.  The Redemption Price may, at the option of the Company, be paid in shares of Common Stock (valued at a price per share equal to the price to be paid in such change of control transaction).  Any such redemption shall occur immediately prior to the consummation of such change of control.

Upon the earlier of (x) a change of control and (y) (at any time and from time to time) on or after the date that is nine months from the date of issuance, any holder of Series A Preferred Stock shall have the right by written election to the Company to (a) convert all or any portion of the outstanding Series A Preferred Stock into an aggregate number of shares of Common Stock (including any fraction of a share) as is determined by (i) multiplying the number of shares to be converted by the Liquidation Value thereof, and then (ii) dividing the result by the Conversion Price in effect immediately prior to such conversion and (b) receive in cash the aggregate accrued or accumulated and unpaid dividends thereon.  The initial conversion price per Share (the “Conversion Price”) shall be $6.29, subject to adjustment.

In order to prevent dilution of the conversion rights granted, the Series A Preferred Stock have the following basic anti-dilution rights:

Each holder of Series A Preferred Stock shall be entitled to vote, on an as-converted basis, with holders of outstanding shares of Common Stock, voting together as a single class, with respect to any and all matters presented to the stockholders of the Company.

---

 

The Company shall at all times when any Series A Preferred Stock is outstanding reserve and keep available out of its authorized but unissued shares of capital stock, solely for the purpose of issuance upon the conversion of the Series A Preferred Stock, such number of shares of Common Stock issuable upon the conversion of all outstanding Series A Preferred Stock, taking into account any adjustment to such number of shares so issuable.  Any Series A Preferred Stock that is redeemed, converted or otherwise acquired by the Company or any subsidiary shall automatically be cancelled and shall become authorized but unissued shares of preferred stock and may be reissued.

No provision of the Certificate of Designation may be amended, modified or waived in any manner without the approval of the holders of a majority of the issues and outstanding Series A Preferred Stock.

The terms of the Option Warrants to be issued to Cap 1 pursuant to the exercise of the Cap 1 Option will be identical to the 2016 Warrants issued to Cap 1 pursuant to the Cap 1 Agreement and are exercisable for 12 years to purchase (i) 1,538,462 shares of Common Stock at $6.50 per share; (ii) 625,000 shares of Common Stock at $8.00 per share; and (iii) 555,556 shares of Common Stock at $9.00 per share.Each of the Option Warrants may be exercised in whole or in part at any time for a period of 12 years from the date of issuance.  The exercise price must be paid in cash. The exercise price of the Option Warrants and the number of shares of Common Stock issuable upon exercise of the Option Warrants are subject to adjustment in the event of a stock split, stock dividend, reorganization, reclassification, consolidation, merger, sale and similar transaction.

As consideration for the Term Loan and in lieu of fees, upon funding, the Company has also agreed to issue Cap 1 the Financing Warrant to purchase 1,750,000 shares of Common Stock at $10.00 per share, which shall be immediately exercisable and expire ten years from the date of issuance.  In addition, if the Company exercises the one-year Term Loan extension, it has agreed to issue Cap 1 the Extension Warrant to purchase 666,667 shares of Common Stock, exercisable immediately, at $7.50 per share. The Extension Warrant shall expire ten years from the date of issuance. The final terms of the Financing Warrant and Extension Warrant have not yet been determined, but they are expected to be the same as the terms of the Option Warrants as described above, provided that the warrant agreements will provide for cashless exercise at the option of the Company.

---

 

The following tables set forth as of October 2, 2018 certain information with respect to the beneficial ownership of the Company’s Common Stock and Series A Preferred Stock by (i) each of the named executive officers and directors; (ii) all executive officers and directors as a group; and (iii) each person known by the Company to beneficially own more than 5% of the Company’s Common Stock and Series A Preferred Stock.  All such information provided by the stockholders who are not executive officers or directors reflects their beneficial ownership as of the dates specified in the relevant footnotes to the table.

Shares of Common Stock subject to warrants and shares of Common Stock subject to RSUs that have vested or will vest within 60 days of October 2, 2018 are deemed to be outstanding for calculating the number and percentage of outstanding shares of the person holding such securities, but are not deemed to be outstanding for calculating the percentage ownership of any other person.  Beneficial ownership or voting power representing less than 1% is denoted with an asterisk (*).

Unless otherwise noted, these persons, to our knowledge, have sole voting and investment power over the shares listed, and the principal address for the stockholders is c/o Peak Resorts, Inc., 17409 Hidden Valley Drive, Wildwood, Missouri 63025.

Security Ownership Prior to the Acquisition and Term Loan Funding

The following table reflects the beneficial ownership of the named persons as of October 2, 2018, without giving effect to the Acquisition and the consummation of the transactions contemplated in the Commitment Letter and Term Loan funding.

Applicable percentage ownership for our Common Stock in the following table is based on 13,982,400 shares of Common Stock outstanding as of October 2, 2018 and the assumed conversion as of October 2, 2018 of 20,000 outstanding shares of our Series A Preferred Stock into 3,179,650 shares of Common Stock, for an aggregate of 17,162,050 shares of Common Stock deemed outstanding for voting purposes.  Such shares of Series A Preferred Stock were issued to Cap 1 in the 2016 Private Placement.  Upon the earlier of a change of control or nine months from the issuance date, each share of Series A Preferred Stock is convertible, at the option of the holder, into a number of shares of Common Stock equal to the number of shares of Series A Preferred Stock to be converted, times the liquidation value of $1,000, divided by the conversion price.  The initial conversion price per share is $6.29, subject to adjustment pursuant to the terms of the Series A Preferred Stock Certificate of Designation.  Each holder of Series A Preferred Stock is entitled to vote, on an as-converted basis, with holders of outstanding shares of Common Stock, voting together as a single class, with respect to any and all matters presented to the stockholders of the Company.





---

 

(1)Based on the Schedule 13D/A jointly filed with the SEC on behalf of Cap 1 LLC, Richard S. Sackler, M.D., the Richard and Beth Sackler Foundation, Inc. (the “Foundation”) and David Sackler on August 1, 2017.  CAP 1 LLC is a Delaware limited liability company wholly owned by Crystal Fiduciary Management LLC, as Trustee of the 1974 Irrevocable Trust A FBO BS and RSS.  The beneficiaries of the 1974 Irrevocable Trust A FBO BS and RSS are Beverly Sackler, Richard S. Sackler, M.D. and the issue of Richard S. Sackler, M.D. David Sackler is the President of Summer Road LLC, which serves as a family office and provides investment management services to Cap 1 LLC.  The Schedule 13D/A reports ownership as follows: (i) Cap 1 LLC reports sole voting and dispositive power over 7,696,373 shares (which includes 5,898,668 shares of Common Stock issuable upon conversion of the Series A Preferred Stock and exercise of the Warrants, as defined herein); (ii) Dr. Sackler reports sole voting and dispositive power over 102,595 shares; (iii) the Foundation reports sole voting and dispositive power over 26,200 shares; and (iv) David Sackler reports sole voting and dispositive power over 100,000 shares.  The percentage of shares of Common Stock beneficially owned by Cap 1 LLC as reported in the table above assumes conversion of the Series A Preferred Stock and exercise of the Warrants.

(2)Based on a Schedule 13G/A filed by the reporting person on January 26, 2018.  The percentage of shares of Common Stock beneficially owned as reported in the table above assumes conversion of the Series A Preferred Stock.  Without assumed conversion, the reporting person beneficially owns 8.91% of the outstanding shares of Common Stock as of October 2, 2018.



(3)Based on a Schedule 13G/A filed by the reporting person on February 9, 2018.  The percentage of shares of Common Stock beneficially owned as reported in the table above assumes conversion of the Series A Preferred Stock. Without assumed conversion, the reporting person beneficially owns 6.71% of the outstanding shares of Common Stock as of October 2, 2018.



(4)Includes 750,000 shares held by Mr. Boyd as Trustee of the Timothy D. Boyd Revocable Trust, dated August 27, 1996. This amount also includes 221,900 shares held by Mr. Boyd’s wife, Melissa K. Boyd, as Trustee of the Timothy D. Boyd 2011 Family Trust u/a, dated January 28, 2011, and 302,400 shares held by Ms. Boyd as Trustee of the Melissa K. Boyd Revocable Trust, dated August 27, 1996.  Ms. Boyd has sole voting and investment power as Trustee.  The percentage of shares of Common Stock beneficially owned as reported in the table above assumes conversion of the Series A Preferred Stock.  Without assumed conversion, Mr. Boyd beneficially owns 9.11% of the outstanding shares of Common Stock as of October 2, 2018.



(5)Represents 489,100 shares held by Mr. Mueller and Beth R. Mueller, Trustees of the Stephen J. Mueller Revocable Living Trust U/S dated October 5, 2012, as amended.  Mr. Mueller has pledged these shares as security for a loan.  The percentage of shares of Common Stock beneficially owned as reported in the table above assumes conversion of the Series A Preferred Stock.  Without assumed conversion, Mr. Mueller beneficially owns 3.50% of the outstanding shares of Common Stock as of October 2, 2018.



(6)Includes 50,000 shares pledged as security for a loan.  The percentage of shares of Common Stock beneficially owned as reported in the table above assumes conversion of the Series A Preferred Stock.  Without assumed conversion, Mr. Deutsch beneficially owns 3.46% of the outstanding shares of Common Stock as of October 2, 2018.



(7)Represents 7,924 vested RSUs.



(8)Includes 25,034 vested RSUs and 9,080 RSUs that will vest within 60 days of October 2, 2018.



(9)Includes 25,034 vested RSUs and 9,080 RSUs that will vest within 60 days of October 2, 2018.



(10)Includes 25,034 vested RSUs and 9,080 RSUs that will vest within 60 days of October 2, 2018.



(11)Includes 12,355 vested RSUs and 9,080 RSUs that will vest within 60 days of October 2, 2018.



(12)As described in the section “Director Compensation,” all compensation paid to Mr. Held in connection with his service on the Board, including awards of RSUs, is paid to his employer, Summer Road LLC, pursuant to an arrangement between Mr. Held and Summer Road LLC.

(13)The percentage of shares of Common Stock beneficially owned as reported in the table above assumes conversion of the Series A Preferred Stock. Without assumed conversion, all directors and executive officers as a group beneficially own 17.03% of the Common Stock as of October 2, 2018.

Security Ownership after Giving Effect to the Acquisition and Term Loan Funding

The table below reflects the beneficial ownership of the named persons after giving effect to the issuance of (i) 1,200,000 shares of Common Stock to the Snow Time Sellers in connection with the Snow Time Acquisition; (ii) 20,000 shares of Series A Preferred Stock and the Option Warrants to Cap 1 in connection with the Cap 1 Option exercise pursuant to the terms of the

---

 

Commitment Letter; and (iii) the Financing Warrant to Cap 1 pursuant to the terms of the Commitment Letter, as if the Acquisition and Term Loan funding occurred on October 2, 2018.  The table does not reflect the issuance of the Extension Warrant to Cap 1, as the Company is only obligated to issue the Extension Warrant upon extension of the Term Loan at maturity. The number of shares of Common Stock to be issued to the Snow Time Sellers is an estimate only. The final number is subject to adjustment, as described in this Proxy Statement, and will be finalized upon closing of the Acquisition.

Applicable percentage ownership for our Common Stock in the following table is based on (i) 13,982,400 shares of Common Stock outstanding as of October 2, 2018; (ii) the assumed issuance of 1,200,000 shares of Common Stock to the Sellers in connection with the Snow Time Acquisition; and (iii) the assumed conversion as of October 2, 2018 of 40,000 outstanding shares of our Series A Preferred Stock into 6,359,300 shares of Common Stock, for an aggregate of 21,541,700 shares of Common Stock deemed outstanding for voting purposes.  Upon the earlier of a change of control or nine months from the issuance date, each share of Series A Preferred Stock is convertible, at the option of the holder, into a number of shares of Common Stock equal to the number of shares of Series A Preferred Stock to be converted, times the liquidation value of $1,000, divided by the conversion price.  The initial conversion price per share is $6.29, subject to adjustment pursuant to the terms of the Series A Preferred Stock Certificate of Designation.  Each holder of Series A Preferred Stock is entitled to vote, on an as-converted basis, with holders of outstanding shares of Common Stock, voting together as a single class, with respect to any and all matters presented to the stockholders of the Company.



(1)Based on the Schedule 13D/A jointly filed with the SEC on behalf of Cap 1 LLC, Richard S. Sackler, M.D., the Richard and Beth Sackler Foundation, Inc. (the “Foundation”) and David Sackler on August 1, 2017.  CAP 1 LLC is a Delaware limited liability company wholly owned by Crystal Fiduciary Management LLC as Trustee of the 1974 Irrevocable Trust A FBO BS and RSS.  The beneficiaries of the 1974 Irrevocable Trust A FBO BS and RSS are Beverly Sackler, Richard S. Sackler, M.D. and the issue of Richard S. Sackler, M.D. David Sackler is the President of Summer Road LLC, which serves as a family office and provides investment management services to Cap 1 LLC.  The Schedule 13D/A reports ownership as follows: (i) Cap 1 LLC reports sole voting and dispositive power over 7,696,373 shares (which includes 5,898,668 shares of Common Stock issuable upon conversion of the Series A Preferred Stock and exercise of the Warrants, as defined herein); (ii) Dr. Sackler reports sole voting and dispositive power over 102,595 shares; (iii) the Foundation reports sole voting and dispositive power over 26,200 shares; and (iv) David Sackler reports sole voting and dispositive power over 100,000 shares.  The reported number and percentage of shares of Common Stock owned by Cap 1 assumes conversion of the 40,000 shares of Series A Preferred Stock and exercise of the 2016 Warrants, Option Warrants and Financing Warrant.

---

 

(2)Based on a Schedule 13G/A filed by the reporting person on January 26, 2018.  The percentage of shares of Common Stock beneficially owned as reported in the table above assumes conversion of the Series A Preferred Stock. Without assumed conversion, the reporting person would beneficially own 8.21% of the outstanding shares of Common Stock as of October 2, 2018 assuming the issuance of 1,200,000 shares of Common Stock to the Sellers.



(3)Based on a Schedule 13G/A filed by the reporting person on February 9, 2018.  The percentage of shares of Common Stock beneficially owned as reported in the table above assumes conversion of the Series A Preferred Stock.  Without assumed conversion, the reporting person would beneficially own 6.18% of the outstanding shares of Common Stock as of October 2, 2018 assuming the issuance of 1,200,000 shares of Common Stock to the Sellers.



(4)Includes 750,000 shares held by Mr. Boyd as Trustee of the Timothy D. Boyd Revocable Trust, dated August 27, 1996. This amount also includes 221,900 shares held by Mr. Boyd’s wife, Melissa K. Boyd, as Trustee of the Timothy D. Boyd 2011 Family Trust u/a, dated January 28, 2011, and 302,400 shares held by Ms. Boyd as Trustee of the Melissa K. Boyd Revocable Trust, dated August 27, 1996.  Ms. Boyd has sole voting and investment power as Trustee.  The percentage of shares of Common Stock beneficially owned as reported in the table above assumes conversion of the Series A Preferred Stock.  Without assumed conversion, Mr. Boyd would beneficially own 8.39% of the outstanding shares of Common Stock as of October 2, 2018 assuming the issuance of 1,200,000 shares of Common Stock to the Sellers.



(5)Represents 489,100 shares held by Mr. Mueller and Beth R. Mueller, Trustees of the Stephen J. Mueller Revocable Living Trust U/S dated October 5, 2012, as amended.  Mr. Mueller has pledged these shares as security for a loan.  The percentage of shares of Common Stock beneficially owned as reported in the table above assumes conversion of the Series A Preferred Stock.  Without assumed conversion, Mr. Mueller would beneficially own 3.22% of the outstanding shares of Common Stock as of October 2, 2018 assuming the issuance of 1,200,000 shares of Common Stock to the Sellers.



(6)Includes 50,000 shares pledged as security for a loan.  The percentage of shares of Common Stock beneficially owned as reported in the table above assumes conversion of the Series A Preferred Stock.  Without assumed conversion, Mr. Deutsch would beneficially own 3.18% of the outstanding shares of Common Stock as of October 2, 2018 assuming the issuance of 1,200,000 shares of Common Stock to the Sellers.



(7)Represents 7,924 vested RSUs.



(8)Includes 25,034 vested RSUs and 9,080 RSUs that will vest within 60 days of October 2, 2018.



(9)Includes 25,034 vested RSUs and 9,080 RSUs that will vest within 60 days of October 2, 2018.



(10)Includes 25,034 vested RSUs and 9,080 RSUs that will vest within 60 days of October 2, 2018.



(11)Includes 12,355 vested RSUs and 8,961 RSUs that will vest within 60 days of October 2, 2018.



(12)As described in the section “Director Compensation,” all compensation paid to Mr. Held in connection with his service on the Board, including awards of RSUs, is paid to his employer, Summer Road LLC, pursuant to an arrangement between Mr. Held and Summer Road LLC.

(13)The percentage of shares of Common Stock beneficially owned as reported in the table above assumes conversion of the Series A Preferred Stock. Without assumed conversion, all directors and executive officers as a group would beneficially own 15.70% of the outstanding shares of Common Stock as of October 2, 2018 assuming the issuance of 1,200,000 shares of Common Stock to the Sellers.





---

 

At the special meeting, Peak Resorts stockholders will be asked to approve, in accordance with Nasdaq Rule 5635(a), the issuance of the Series A Preferred Stock, Option Warrants, Financing Warrant, Extension Warrant and Common Stock upon conversion of the Series A Preferred Stock and exercise of the Option Warrants, Financing Warrant and Extension Warrant pursuant to the terms of the Commitment Letter in connection with the Acquisition of Snow Time.  The terms of, reasons for, and other aspects of the Acquisition and related financing are described in detail in other sections of this Proxy Statement.

It is important to understand that we are not required to seek, nor are we seeking, stockholder approval of the proposed Acquisition of Snow Time or the issuance of shares of our Common Stock to the Sellers as consideration for the Acquisition. 

The Nasdaq Proposal must be approved by the affirmative vote of a majority of votes cast, meaning the number of shares voted “for” a proposal must exceed the number of shares voted “against” such proposal.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE APPROVAL
OF THE NASDAQ PROPOSAL.

Stockholders are being asked to vote on whether or not to adjourn the Special Meeting, if necessary or appropriate, in the view of the Board of Directors, to solicit additional votes in favor of the Nasdaq Proposal if there are not sufficient votes at the time the Special Meeting is held to approve the proposal.  The affirmative vote of a majority of those shares present (either in person or by proxy) and entitled to vote at the Special Meeting is required for the approval of the Adjournment Proposal.  Our Board of Directors has concluded that it is in the best interest of the Company and its stockholders to adjourn the Special Meeting, if necessary or appropriate, to solicit additional votes in favor of the Nasdaq Proposal if there are not sufficient votes at the time the Special Meeting is held to approve the Nasdaq Proposal in order to improve the chance of it being approved.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE APPROVAL
OF THE ADJOURNMENT PROPOSAL.

The Company files annual, quarterly and current reports, proxy statements and other information with the SEC under the Exchange Act.  We make available free of charge on or through our website, www.peakresorts.com, these materials as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.  These materials can also be accessed free of charge via the SEC’s website, www.sec.gov.

We will provide, without charge, on the written request of any stockholder, a copy of our Annual Report, including the financial statements filed as part of the Annual Report.  Requests should be directed to our Secretary at Peak Resorts, Inc., 17409 Hidden Valley Drive, Wildwood, Missouri 63025.  

According to our bylaws, the only business that may be considered at a special meeting is that which is contained in the notice of such meeting.  Therefore, only the Nasdaq Proposal and, if necessary, the Adjournment Proposal will be considered at the Special Meeting, and no other business will be presented for consideration at the Special Meeting.  Stockholders are urged to complete, sign, date and return the accompanying proxy card in the enclosed envelope.

By order of the Board of Directors,

/s/ Christopher J. Bub
Christopher J. Bub
Vice President,
Chief Financial Officer and
Corporate Secretary

October 4, 2018