<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 9, 1996.
REGISTRATION NO. 333-4877.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT
NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
AMF GROUP INC.*
---------------------
<TABLE>
<S> <C> <C>
DELAWARE 7933, 3949 13-3873272
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) Classification Code Number) identification number)
</TABLE>
8100 AMF DRIVE
MECHANICSVILLE, VIRGINIA 23111
(804) 730-4000
(Address, including zip code, and telephone number, including
area code, of the Company's principal executive offices)
---------------------
<TABLE>
<S> <C>
STEPHEN E. HARE Copy to:
CHIEF FINANCIAL OFFICER ELLIOTT V. STEIN, ESQ.
AMF GROUP INC. WACHTELL, LIPTON, ROSEN & KATZ
8100 AMF DRIVE 51 WEST 52ND STREET
MECHANICSVILLE, VIRGINIA 23111 NEW YORK, NEW YORK 10019
(804) 730-4000 (212) 403-1000
(Name, address, including zip code and telephone
number,
including area code, of agent for service)
</TABLE>
---------------------
Approximate date of commencement of proposed sale to public: Upon
consummation of the Exchange Offer referred to herein.
---------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G check the following box. / /
---------------------
The Registrant hereby amends the Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
*TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF PRIMARY STANDARD I.R.S. EMPLOYER
INCORPORATION OR INDUSTRY IDENTIFICATION
NAME, ADDRESS AND TELEPHONE NUMBER ORGANIZATION CLASSIFICATION NUMBER NUMBER
- ---------------------------------------- ---------------- --------------------- ---------------
<S> <C> <C> <C>
AMF Group Holdings Inc.................. Delaware 6719 13-3873270
AMF Bowling Holdings Inc................ Delaware 6719 54-1790126
AMF Bowling Centers Holdings Inc........ Delaware 6719 54-1789642
AMF Bowling, Inc........................ Virginia 3949 54-1390740
AMF Worldwide Bowling Centers Holdings
Inc................................... Delaware 6719 54-1789643
AMF Bowling Centers, Inc................ Virginia 7933 54-1221662
Bush River Corporation.................. South Carolina 6719 57-0707033
AMF Beverage Company of Oregon, Inc..... Oregon 6719 54-1634960
King Louie Lenexa, Inc.................. Kansas 6719 54-1540814
AMF Beverage Company of W. Va., Inc..... West Virginia 6719 54-1800461
AMF Bowling Centers Switzerland
Inc................................... Delaware 7933 54-1792353
AMF Bowling Centers (Aust) International
Inc................................... Virginia 7933 54-1492964
AMF Bowling Centers (Canada)
International Inc..................... Virginia 7933 54-1492976
AMF Bowling Centers (Hong Kong)
International Inc..................... Virginia 7933 54-1493834
AMF Bowling Centers International
Inc................................... Virginia 7933 54-1493442
AMF BCO-UK One, Inc..................... Virginia 6719 54-1511045
AMF BCO-UK Two, Inc..................... Virginia 6719 54-1511040
AMF BCO-France One, Inc................. Virginia 6719 54-1513230
AMF BCO-France Two, Inc................. Virginia 6719 54-1513758
AMF Bowling Centers Spain Inc........... Delaware 7933 54-1792351
AMF Bowling Mexico Holding, Inc......... Delaware 6719 54-1467931
Boliches AMF, Inc....................... Virginia 6719 54-1529631
AMF BCO-China, Inc...................... Virginia 6719 54-1768882
AMF Bowling Centers China, Inc.......... Virginia 6719 54-1768871
</TABLE>
- ---------------
The address of these additional registrants is 8100 AMF Drive, Mechanicsville,
Virginia 23111. Their telephone number is (804) 730-4000.
<PAGE> 3
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501 OF REGULATION S-K
SHOWING THE LOCATION IN THE PROSPECTUS OF THE
INFORMATION REQUIRED BY PART I OF FORM S-4
<TABLE>
<CAPTION>
LOCATION
ITEM NUMBER AND CAPTION IN PROSPECTUS
------------------------------------------ ---------------------------------------------
<C> <S> <C>
A. Information About the Transaction
1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus............................. Front Cover Page of the Registration
Statement; Outside Front Cover Page of the
Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus.................... Inside Front Cover Page of the Prospectus;
Outside Back Cover Page of Prospectus
3. Risk Factors, Ratio of Earnings to
Fixed Charges and Other Information.... Prospectus Summary; Risk Factors; The
Company; Selected Financial Data; Pro Forma
Financial Data
4. Terms of the Transaction............... Prospectus Summary; Risk Factors; The
Exchange Offer; Certain Federal Income Tax
Consequences of The Exchange Offer;
Description of Exchange Notes
5. Pro Forma Financial Information........ Prospectus Summary; Pro Forma Consolidated
Financial Statements
6. Material Contacts with the Company
Being Acquired......................... *
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters.............. *
8. Interest of Named Experts and Counsel.. *
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................ *
B. Information About the Registrant
10. Information with Respect to S-3
Registrants........................... *
11. Incorporation of Certain Information
by Reference.......................... *
12. Information With Respect to S-2 or S-3
Registrants........................... *
13. Incorporation by Certain Information
by Reference.......................... *
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
LOCATION
ITEM NUMBER AND CAPTION IN PROSPECTUS
------------------------------------------ ---------------------------------------------
<C> <S> <C>
14. Information With Respect to
Registrants Other than S-3 or S-2
Registrants........................... Prospectus Summary; Risk Factors; The
Company; The Acquisition; Capitalization;
Selected Financial Data; Pro Forma Financial
Data; Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management; Certain
Transactions
C. Information About the Company Being
Acquired
15. Information With Respect to S-3
Companies............................. *
16. Information with Respect to S-2 or S-3
Companies............................. *
17. Information With Respect to Companies
Other Than S-3 or S-2 Companies....... *
D. Voting and Management Information
18. Information if Proxies, Consents or
Authorizations are to be Solicited.... *
19. Information if Proxies, Consents or
Authorizations are not to be
Solicited, or in an Exchange Offer.... Management; Certain Transactions
</TABLE>
- ---------------
* Item is omitted because response is negative or item is inapplicable.
<PAGE> 5
EXPLANATORY NOTE
THIS REGISTRATION STATEMENT COVERS THE REGISTRATION OF AN AGGREGATE
PRINCIPAL AMOUNT OF $250,000,000 OF 10 7/8% SERIES B SENIOR SUBORDINATED NOTES
DUE 2006 (THE "EXCHANGE SENIOR SUBORDINATED NOTES") AND $452,000,000 OF 12 1/4%
SERIES B SENIOR SUBORDINATED DISCOUNT NOTES DUE 2006 (THE "EXCHANGE SENIOR
SUBORDINATED DISCOUNT NOTES" AND, COLLECTIVELY WITH THE EXCHANGE SENIOR
SUBORDINATED NOTES, THE "EXCHANGE NOTES") OF AMF GROUP INC. (THE "COMPANY") THAT
MAY BE EXCHANGED FOR EQUAL PRINCIPAL AMOUNTS OF THE COMPANY'S OUTSTANDING
10 7/8% SERIES A SENIOR SUBORDINATED NOTES DUE 2006 (THE "SENIOR SUBORDINATED
NOTES") AND THE COMPANY'S OUTSTANDING 12 1/4% SERIES A SENIOR SUBORDINATED
DISCOUNT NOTES DUE 2006 (THE "SENIOR SUBORDINATED DISCOUNT NOTES" AND,
COLLECTIVELY WITH THE SENIOR SUBORDINATED NOTES, THE "NOTES"), RESPECTIVELY (THE
"EXCHANGE OFFER"). THIS REGISTRATION STATEMENT ALSO COVERS THE REGISTRATION OF
THE EXCHANGE NOTES FOR RESALE BY GOLDMAN, SACHS & CO. IN MARKET-MAKING
TRANSACTIONS. THE COMPLETE PROSPECTUS RELATING TO THE EXCHANGE OFFER (THE
"EXCHANGE OFFER PROSPECTUS") FOLLOWS IMMEDIATELY AFTER THIS EXPLANATORY NOTE.
FOLLOWING THE EXCHANGE OFFER PROSPECTUS ARE CERTAIN PAGES OF THE PROSPECTUS
RELATING SOLELY TO SUCH MARKET-MAKING TRANSACTIONS (THE "MARKET-MAKING
PROSPECTUS"), INCLUDING ALTERNATE FRONT AND BACK COVER PAGES, A SECTION ENTITLED
"RISK FACTORS -- TRADING MARKET FOR THE EXCHANGE NOTES" TO BE USED IN LIEU OF
THE SECTION ENTITLED "RISK FACTORS -- LACK OF PUBLIC MARKET FOR THE EXCHANGE
NOTES," A NEW SECTION ENTITLED "USE OF PROCEEDS" AND AN ALTERNATE SECTION
ENTITLED "PLAN OF DISTRIBUTION." IN ADDITION, THE MARKET-MAKING PROSPECTUS WILL
NOT INCLUDE THE FOLLOWING CAPTIONS (OR THE INFORMATION SET FORTH UNDER SUCH
CAPTIONS) IN THE EXCHANGE OFFER PROSPECTUS: "PROSPECTUS SUMMARY -- THE NOTE
OFFERING" AND "-- THE EXCHANGE OFFER", "RISK FACTORS -- EXCHANGE OFFER
PROCEDURES" AND "-- RESTRICTIONS ON TRANSFER," "THE EXCHANGE OFFER" AND "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER". ALL OTHER SECTIONS OF
THE EXCHANGE OFFER PROSPECTUS WILL BE INCLUDED IN THE MARKET-MAKING PROSPECTUS.
<PAGE> 6
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 9, 1996
LOGO
OFFER TO EXCHANGE
ALL OUTSTANDING
10 7/8% SERIES A SENIOR SUBORDINATED NOTES DUE 2006
($250,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
10 7/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2006
($250,000,000 PRINCIPAL AMOUNT)
AND
12 1/4% SERIES A SENIOR SUBORDINATED DISCOUNT NOTES DUE 2006
($452,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
12 1/4% SERIES B SENIOR SUBORDINATED DISCOUNT NOTES DUE 2006
($452,000,000 PRINCIPAL AMOUNT)
OF
AMF GROUP INC.
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON SEPTEMBER , 1996, UNLESS EXTENDED.
- --------------------------------------------------------------------------------
THE NOTES ARE NOT CURRENTLY, AND THE EXCHANGE NOTES UPON ISSUANCE ARE NOT
EXPECTED TO BE, SENIOR IN PRIORITY TO ANY OUTSTANDING INDEBTEDNESS OF THE
COMPANY OR ITS SUBSIDIARIES. THE COMPANY HAS NO CURRENT PLAN OR INTENTION TO
INCUR ANY INDEBTEDNESS TO WHICH THE NOTES OR THE EXCHANGE NOTES WOULD BE SENIOR
IN PRIORITY. THE SENIOR SUBORDINATED NOTES, THE SENIOR SUBORDINATED DISCOUNT
NOTES, THE EXCHANGE SENIOR SUBORDINATED NOTES AND THE EXCHANGE SENIOR
SUBORDINATED DISCOUNT NOTES ALL RANK pari passu WITH ONE ANOTHER.
AMF Group Inc., a Delaware corporation (the "Company"), hereby offers (the
"Exchange Offer"), upon the terms and subject to the conditions set forth in
this Prospectus and the accompanying Letters of Transmittal (the "Letters of
Transmittal"), to exchange up to an aggregate principal amount of $250,000,000
of its 10 7/8% Series B Senior Subordinated Notes due 2006 (the "Exchange Senior
Subordinated Notes") and $452,000,000 of its 12 1/4% Series B Senior
Subordinated Discount Notes due 2006 (the "Exchange Senior Subordinated Discount
Notes" and, collectively with the Exchange Senior Subordinated Notes, the
"Exchange Notes") for an equal principal amount of its outstanding 10 7/8%
Series A Senior Subordinated Notes due 2006 (the "Senior Subordinated Notes")
and 12 1/4% Series A Senior Subordinated Discount Notes due 2006 (the "Senior
Subordinated Discount Notes" and, collectively with the Senior Subordinated
Notes, the "Notes"), in integral multiples of $1,000. The Exchange Notes will be
fully and unconditionally guaranteed on a senior subordinated basis, jointly and
severally, by AMF Group Holdings Inc., a Delaware corporation of which the
Company is a wholly owned subsidiary, and by each of the Company's direct and
indirect domestic subsidiaries (the "Guarantors"). The Exchange Notes will be
senior subordinated unsecured obligations of the Company and are substantially
identical (including principal amount, interest rate, maturity and redemption
rights) to the Notes for which they may be exchanged pursuant to this offer,
except that (i) the offering and sale of the Exchange Notes will have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and (ii) holders of Exchange Notes will not be entitled to certain rights of
holders under a Registration Rights Agreement of the Company dated as of March
21, 1996 (the "Registration Rights Agreement").
The Exchange Notes will be general, unsecured obligations of the Company,
will be subordinated to all Senior Debt of the Company and will rank pari passu
with all senior subordinated debt of the Company and will be senior in right of
payment to all future subordinated indebtedness, if any, of the Company. The
claims of holders of the Exchange Notes will be effectively subordinated to the
Senior Debt, which, as of March 31, 1996, on a pro forma basis giving effect to
the Acquisition and the related financing transactions, would have been
approximately $517 million, $515 million of which would have been fully secured
borrowings under the New Bank Credit Agreement, and will be effectively
subordinated to all indebtedness and other liabilities (including trade payables
and capital lease obligations) of the Company's subsidiaries that are not
Guarantors. Such indebtedness and other liabilities on a pro forma basis
aggregated approximately $7.8 million at March 31, 1996. The Company's pro forma
ratio of debt to total capitalization at March 31, 1996 was approximately 72%.
See "The Acquisition" and "Capitalization."
------------------------
SEE "RISK FACTORS," COMMENCING ON PAGE 25, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER NOTES IN THE EXCHANGE
OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is August , 1996.
(Cover text continued on next page)
<PAGE> 7
The Senior Subordinated Notes have been, and the Exchange Senior Subordinated
Notes will be, issued under an Indenture dated as of March 21, 1996 (the "Senior
Subordinated Note Indenture"), among the Company, the Guarantors and IBJ
Schroder Bank & Trust Company, as trustee (the "Senior Subordinated Note
Trustee"). The Senior Subordinated Discount Notes have been, and the Exchange
Senior Subordinated Discount Notes will be, issued under an Indenture dated as
of March 21, 1996 (the "Senior Subordinated Discount Note Indenture" and,
collectively with the Senior Subordinated Note Indenture, the "Indentures"),
among the Company, the Guarantors, and American Bank National Association, as
trustee (the "Senior Subordinated Discount Note Trustee" and, collectively with
the Senior Subordinated Note Trustee, the "Trustees"). See "Description of
Exchange Notes." There will be no proceeds to the Company from this offering;
however, pursuant to the Registration Rights Agreement, the Company will bear
certain offering expenses.
The Company will accept for exchange any and all validly tendered Notes on or
prior to 5:00 p.m. New York City time, on September , 1996, unless the
Exchange Offer is extended (the "Expiration Date"). Tenders of Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date; otherwise such tenders are irrevocable. IBJ Schroder Bank & Trust Company
will act as Exchange Agent with respect to the Senior Subordinated Notes and
American Bank National Association will act as Exchange Agent with respect to
the Senior Subordinated Discount Notes (in such capacities, the "Exchange
Agents") in connection with the Exchange Offer. The Exchange Offer is not
conditioned upon any minimum principal amount of Notes being tendered for
exchange, but is otherwise subject to certain customary conditions.
The Notes were sold by the Company on March 21, 1996 in transactions not
registered under the Securities Act in reliance upon the exemption provided in
Section 4(2) of the Securities Act. A portion of the Notes were subsequently
resold to qualified institutional buyers in reliance upon Rule 144A under the
Securities Act and to a limited number of institutional accredited investors in
a manner exempt from registration under the Securities Act. The remainder of the
Notes were resold outside the United States in reliance on Regulation S under
the Securities Act. Accordingly, the Notes may not be reoffered, resold or
otherwise transferred in the United States unless registered under the
Securities Act or unless an applicable exemption from the registration
requirements of the Securities Act is available. The Exchange Notes are being
offered hereunder in order to satisfy certain obligations of the Company under
the Registration Rights Agreement. See "The Exchange Offer."
The Exchange Senior Subordinated Notes will bear interest from March 21,
1996, the date of issuance of the Senior Subordinated Notes that are tendered in
exchange for the Exchange Senior Subordinated Notes (or the most recent Interest
Payment Date (as defined herein) to which interest on such Notes has been paid),
at a rate equal to 10 7/8% per annum. Interest on the Exchange Senior
Subordinated Notes will be payable semiannually on March 15 and September 15 of
each year, commencing September 15, 1996. The Exchange Senior Subordinated
Discount Notes will not bear interest until March 15, 2001, and thereafter will
bear interest at a rate equal to 12 1/4% per annum. Interest on the Exchange
Senior Subordinated Discount Notes will be payable semiannually on March 15 and
September 15 of each year commencing September 15, 2001. The Exchange Notes are
redeemable at the option of the Company, in whole or in part, at any time on or
after March 15, 2001, at the redemption prices set forth herein, plus accrued
and unpaid interest to the date of redemption. See "Prospectus
Summary -- Summary of Terms of Exchange Notes."
Prior to March 15, 1999, up to $100 million in aggregate principal amount of
Exchange Senior Subordinated Notes will be redeemable at the option of the
Company, on one or more occasions, from the net proceeds of public or private
sales of common stock of, or contributions to the common equity capital of, the
Company, at a price of 110.875% of the principal amount of the Exchange Senior
Subordinated Notes, together with accrued and unpaid interest, if any, to the
date of redemption; provided that at least $150 million in aggregate principal
amount of Exchange Senior Subordinated Notes remains outstanding immediately
after such redemption. In addition, prior to March 15, 1999, the Exchange Senior
Subordinated Discount Notes will be redeemable at the option of the Company, on
one or more occasions, from the net proceeds of public or private sales of
common stock of, or contributions to the common equity capital of, the Company,
at a price of 112.250% of the Accreted Value (as defined herein) of the Exchange
Senior Subordinated Discount Notes; provided that at least $150 million in
Accreted Value of Exchange Senior Subordinated Discount Notes remains
outstanding immediately after such redemption. The selection of Exchange Notes
to be redeemed pursuant to the options described in this paragraph would be pro
rata, by lot or by such method as the applicable Trustee deems fair and
appropriate.
Upon the occurrence of a Change of Control, each Holder of Exchange Notes may
require the Company to repurchase all or a portion of such Holder's Exchange
Notes at 101% of the aggregate principal amount of the Exchange Senior
Subordinated Notes and 101% of the Accreted Value of the Exchange Senior
Subordinated Discount Notes, as applicable, together with accrued and unpaid
interest, if any, to the date of repurchase. There can be no assurance that the
Company will have sufficient funds, or will obtain the requisite consent of the
Lenders under the New Bank Credit Agreement, to satisfy the Change of Control
repurchase requirement if such requirement arises. See "Risk Factors -- Payment
Upon a Change of Control" and "Description of Exchange Notes."
The Exchange Offer is being made in reliance on certain no-action positions
that have been published by the staff of the Securities and Exchange Commission,
which require each tendering noteholder to represent that it acquired the Notes
in the ordinary course of its business and that such holder does not intend to
participate and has no arrangement or understanding with any person to
participate in a distribution of the Exchange Notes. In some cases, certain
broker-dealers may be required to deliver a prospectus in connection with the
resale of Exchange Notes that they receive in the Exchange Offer. See
"Prospectus Summary -- The Note Offering -- The Exchange Offer."
The Company does not intend to list the Exchange Notes on any national
securities exchange or to seek admission thereof to trading in the National
Association of Securities Dealers Automated Quotation System. Goldman, Sachs &
Co. ("Goldman Sachs") has advised the Company that it intends to make a market
in the Exchange Notes; however, it is not obligated to do so and any
market-making may be discontinued at any time. As a result, the Company cannot
determine whether an active public market will develop for the Exchange Notes.
ANY NOTES NOT TENDERED AND ACCEPTED IN THE EXCHANGE OFFER WILL REMAIN
OUTSTANDING. TO THE EXTENT ANY NOTES ARE TENDERED AND ACCEPTED IN THE EXCHANGE
OFFER, A HOLDER'S ABILITY TO SELL UNTENDERED NOTES COULD BE ADVERSELY AFFECTED.
FOLLOWING CONSUMMATION OF THE EXCHANGE OFFER, THE HOLDERS OF NOTES WILL CONTINUE
TO BE SUBJECT TO THE EXISTING
(Cover text continued on next page)
<PAGE> 8
RESTRICTIONS UPON TRANSFER THEREOF AND THE COMPANY WILL HAVE FULFILLED ONE OF
ITS OBLIGATIONS UNDER THE REGISTRATION RIGHTS AGREEMENT. HOLDERS OF NOTES WHO DO
NOT TENDER THEIR NOTES GENERALLY WILL NOT HAVE ANY FURTHER REGISTRATION RIGHTS
UNDER THE REGISTRATION RIGHTS AGREEMENT OR OTHERWISE. SEE "THE EXCHANGE
OFFER -- CONSEQUENCES OF FAILURE TO EXCHANGE."
The Exchange Notes issued pursuant to this Exchange Offer generally will be
issued in the form of Global Exchange Notes (as defined herein), which will be
deposited with, or on behalf of, The Depository Trust Company (the "Depository"
or "DTC") and registered in its name or in the name of Cede & Co., its nominee.
Beneficial interests in the Global Exchange Notes representing the Exchange
Notes will be shown on, and transfers thereof will be effected through, records
maintained by the Depository and its participants. Notwithstanding the
foregoing, Notes held in certificated form will be exchanged solely for Exchange
Notes in certificated form. After the initial issuance of the Global Exchange
Notes, Exchange Notes in certificated form will be issued in exchange for the
Global Exchange Notes only on the terms set forth in the Indentures. See
"Description of Exchange Notes -- Book-Entry, Delivery and Form."
------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE EXCHANGE NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY OF THE EXCHANGE NOTES TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
UNTIL NOVEMBER , 1996 (90 DAYS AFTER COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
<PAGE> 9
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form S-4 under the Securities Act for the
registration of the Exchange Notes offered hereby (the "Registration
Statement"). This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain items of which are contained in exhibits and schedules to the
Registration Statement as permitted by the rules and regulations of the SEC. For
further information with respect to the Company or the Exchange Notes offered
hereby, reference is made to the Registration Statement, including the exhibits
and financial statement schedules thereto, which may be inspected without charge
at the public reference facility maintained by the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies of which may be obtained from the SEC
at prescribed rates. Statements made in this Prospectus concerning the contents
of any document referred to herein are not necessarily complete. With respect to
each such document filed with the SEC as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
Such documents and other information filed by the Company can be inspected
and copied at the public reference facilities of the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549 and the regional offices of the SEC located at 7
World Trade Center, New York, New York 10048 and 500 West Madison Street, 14th
Floor, Chicago, Illinois 60661. Copies of such materials may be obtained from
the Public Reference Section of the SEC, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at its public reference facilities in New York,
New York and Chicago, Illinois at prescribed rates. The Company makes its
filings with the SEC electronically. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically, which information can be
accessed at http://www.sec.gov.
The Company and the Guarantors are not currently subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). As a result of the offering of the Exchange Notes, each of
the Company and the Guarantors will become subject to the informational
requirements of the Exchange Act. The Company will fulfill its obligations with
respect to such requirements by filing periodic reports with the Commission on
its own behalf or, in the case of the Guarantors, by including information
regarding the Guarantors in the Company's periodic reports. In addition, the
Company will send to each holder of Exchange Notes copies of annual reports and
quarterly reports containing the information required to be filed under the
Exchange Act.
So long as the Company is subject to the periodic reporting requirements of
the Exchange Act, it is required to furnish the information required to be filed
with the SEC to the Trustees and the holders of the Notes and the Exchange
Notes. The Company has agreed that, even if it is not required under the
Exchange Act to furnish such information to the SEC, it will nonetheless
continue to furnish information that would be required to be furnished by the
Company by Section 13 of the Exchange Act to the Trustees and the holders of the
Notes or Exchange Notes as if it were subject to such periodic reporting
requirements.
In addition, the Company has agreed that, for so long as any of the Notes
remain outstanding, it will make available to any prospective purchaser of the
Notes or beneficial owner of the Notes in connection with any sale thereof the
information required by Rule 144A(d)(4) under the Securities Act, until such
time as the Company has either exchanged the Notes for the Exchange Notes or
until such time as the holders thereof have disposed of such Notes pursuant to
an effective registration statement filed by the Company.
2
<PAGE> 10
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in connection with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. As used in this
Prospectus, the "Company" refers to AMF Group Inc. Unless the context requires
otherwise, references to "AMF" or "AMF Bowling Group" include the AMF worldwide
bowling businesses, including AMF Bowling, Inc., AMF Bowling Centers, Inc., the
AMF worldwide bowling centers and their subsidiaries. Unless otherwise noted,
the historical AMF financial data presented in this section include two European
bowling centers that were retained by the Sellers. For the effect on AMF of
excluding these two bowling centers, see "Notes to the Pro Forma Consolidated
Statements of Income" and "Notes to the Pro Forma Consolidated Balance Sheet,"
included elsewhere herein.
The financial information presented below includes operating results
expressed in terms of EBITDA, which represents net income before net interest
expense, income taxes, depreciation and amortization, and other net income or
net expenses. EBITDA information is included as supplemental information herein
because the Company understands that such information is used by certain
investors as one measure of an issuer's historical ability to service debt.
EBITDA is not intended to represent, and should not be considered more
meaningful than, or an alternative to measures of, performance determined in
accordance with generally accepted accounting principles.
THE COMPANY
AMF
AMF is the largest owner and operator of commercial bowling centers in the
United States and worldwide. In addition, AMF is one of the world's leading
manufacturers of bowling center equipment, accounting for, management believes,
approximately 41% of the world's installed base of such equipment. With over 50
years of industry leadership, AMF is among the oldest and most established names
in bowling. AMF is principally engaged in two businesses which, historically,
have been operated independently: (i) the ownership and operation of 205
domestic bowling centers and 80 international bowling centers as of April 30,
1996; and (ii) the design, manufacture and sale of bowling center equipment,
including automatic pinspotters, automatic scoring equipment, bowling pins,
lanes, ball returns and certain spare and replacement parts, and the resale of
allied products such as bowling balls, bags, shoes and certain other spare and
replacement parts. For the year ended December 31, 1995, on a consolidated
basis, AMF had pro forma revenue and Adjusted Pro Forma EBITDA (as defined
herein; see page 14) of $562.6 million and $167.7 million, respectively, for a
margin of 29.8%. AMF's large-scale bowling center operations, its low-cost
manufacturing operations, and its management incentive compensation system,
which encourages revenue growth and aggressive cost management, all contribute
to AMF's operating results.
For the year ended December 31, 1995 and the three months ended March 31,
1996, on a pro forma combined basis, AMF had a net loss of $17.8 million and
$3.8 million, respectively, a deficiency of earnings to fixed charges of $7.8
million and $1.4 million, respectively, an interest coverage ratio of 1.59x and
1.53x, respectively, and a percentage of revenues represented by interest
expense of 18.1% and 19.4%, respectively.
AMF Group Holdings Inc. ("Holdings") and its wholly owned subsidiary, AMF
Group Inc. (the "Company"), are newly formed Delaware corporations which were
organized by GS Capital Partners II, L.P. and other investment funds
(collectively, "GSCP") affiliated with Goldman, Sachs & Co. ("Goldman Sachs") to
effect the acquisition of AMF (the "Acquisition"). The Acquisition was completed
on May 1, 1996. A chart illustrating the corporate structure of AMF and its
parent holding companies appears on page 45.
3
<PAGE> 11
Bowling is the largest indoor participation sport in the U.S. today, with
over 75 million people (approximately 28% of the U.S. population) bowling at
least once each year. Bowlers represent a broad cross-section of the population,
and according to an industry source, nine out of 10 Americans have bowled at
least once in their lives. Bowling is both a competitive sport and a
recreational activity, resulting in two distinct groups of bowlers: league
bowlers and open play bowlers. League bowling is offered to bowlers who register
in leagues and commit to participate on a scheduled basis -- generally once a
week for a period of 30 to 40 weeks. This base of league bowlers provides a
recurring predictable revenue and earnings stream. Open play bowling is designed
for the casual bowler who bowls on an unscheduled basis subject to lane
availability. Open play bowlers and league bowlers differ in terms of customer
profiles. Open play bowlers are often families and/or social groups and tend to
be more discerning than league bowlers with respect to the appearance and
breadth of amenities offered by a particular bowling center.
BOWLING CENTER OPERATIONS
AMF is the largest owner and operator of commercial bowling centers in the
United States and worldwide, with (as of April 30, 1996) 205 domestic centers in
35 states, and 80 international centers (78 of which were included in the
Acquisition), in Australia, Europe (United Kingdom, France, Spain, and
Switzerland), Asia (Hong Kong, Japan and China), Mexico and Canada. Both the
domestic and international bowling center industries are highly fragmented.
According to an industry source, there were approximately 6,400 commercial
bowling centers in the U.S. as of January 1996, with the top six operators
(including AMF) accounting for less than 8% of the total number of commercial
centers. The United States bowling center industry consists of two relatively
large bowling center operators, AMF and Brunswick Corporation ("Brunswick")
(which has approximately 115 bowling centers in the U.S.), four medium-sized
chains, which together account for approximately 144 bowling centers, and over
5,900 bowling centers owned by single-center operators or small-chain operators,
the vast majority of which are owned by single-center operators. Small-chain
operators typically own four or fewer centers. In other countries, management
estimates that there are typically a small number of operators with more than a
few centers and a large number of operators with only a single center.
For the year ended December 31, 1995, AMF's bowling center operations had
revenue and EBITDA of $292.3 million and $91.3 million, respectively, for an
EBITDA margin of 31.2% (before certain non-recurring costs of $2.3 million
relating to the acquisition of Fair Lanes, Inc. ("Fair Lanes"), a bowling center
owner/operator). AMF's bowling center operations accounted for 51.7% and 54.4%
of AMF's combined revenue and EBITDA, respectively, for 1995. Operating income
for bowling center operations was $50.2 million in 1995, representing 40.4% of
AMF's combined operating income for the year. For the quarter ended March 31,
1996, AMF's bowling center operations had revenue and EBITDA of $83.1 million
and $31.8 million, respectively, for an EBITDA margin of 38.3%. Operating income
for bowling center operations was $21.0 million for the first quarter of 1996,
representing 75.3% of AMF's combined operating income for the quarter.
AMF's large number of centers, their geographic clustering and their size
advantage (an average of 35 lanes per AMF domestic center versus an industry
average of 20 lanes) provide it with both additional revenue opportunities and
economies of scale which allow it significant cost savings. These revenue
opportunities include: (i) scheduling flexibility which improves lane
utilization; (ii) the ability to support an expanded food and beverage
operation; and (iii) increased concourse space for amusement games, billiards
and pro shops. Cost savings resulting from the economies of scale include: (i)
the ability to spread operating and corporate overhead costs over a larger
revenue base; and (ii) attractive pricing terms from certain of AMF's suppliers.
Internationally, AMF is also the largest owner and operator of commercial
bowling centers, and management believes that AMF's centers are, on average,
larger than those of its competitors. As with its domestic operations, this
greater number of centers, their geographic clustering, and their size advantage
result in additional revenue opportunities and economies of scale.
4
<PAGE> 12
In contrast to the single-center and small-chain operators who, in
management's view, are generally less willing to invest in capital improvements,
AMF conducts an ongoing modernization and maintenance program that results in
its centers having upgraded physical plants and generally new and attractive
appearances. Management believes that its historical spending level of 3.7% of
bowling center revenue is adequate to cover all modernization and maintenance
capital expenditures. Management estimates that only 2.0% of bowling center
revenue is required for maintenance capital expenditures alone. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Capital Expenditures."
The Fair Lanes Acquisition
On January 10, 1995, AMF assumed operational control of Fair Lanes. Several
key factors led AMF to purchase the Fair Lanes bowling centers. These bowling
centers were generally well-located and grouped in areas where AMF had little
market presence. AMF also believed that it could make meaningful operating
improvements in these centers and that this acquisition would allow AMF to take
further advantage of its significant economies of scale. Within 70 days of
assuming operational control, AMF integrated 99 of Fair Lanes' 106 bowling
centers into AMF's then existing base of 107 domestic bowling centers. The other
seven Fair Lanes centers were ultimately closed.
The opportunity for AMF to acquire Fair Lanes was precipitated by a period
of deteriorating operating results for Fair Lanes beginning in late 1992. AMF's
management believes that Fair Lanes' financial distress was caused by poor
corporate decisions that resulted in lower revenue and higher operating costs.
Fair Lanes filed for protection under Chapter 11 of the Bankruptcy Code in June
1994. A plan of reorganization was approved by the creditors and confirmed by
the Bankruptcy Court in September 1994. In September 1994, the stockholders of
AMF at that time (the "Sellers") acquired a majority of the common stock of Fair
Lanes as part of Fair Lanes' plan of reorganization, and acquired the remaining
common stock by February 1995.
Fair Lanes was purchased for approximately $105.0 million, including stock
and notes acquired. During 1995, $0.6 million was spent on replacing lanes in
the Fair Lanes centers, and AMF estimates that $0.6 million will be spent again
in both 1996 and 1997 for the same purpose.
Upon assuming operational control, AMF implemented a number of cost-saving
measures, organizational changes, and revenue enhancement initiatives, resulting
in significant improvements in the operating performance of the Fair Lanes
centers. AMF closed the Fair Lanes corporate offices, thereby eliminating 41
management and staff positions, and added only 14 employees to the existing AMF
corporate headquarters. AMF also reduced employee headcount and wage scales at
all levels of the Fair Lanes organization. In addition, the Fair Lanes centers
were folded into AMF's cluster/region organizational structure, and all managers
were included in AMF's incentive compensation system.
Management also decentralized marketing for the Fair Lanes centers, moving
it to the bowling center level, and significantly reduced advertising and
promotion expenses. Marketing was improved through sales calls, bowling parties
and tournaments. Depending on the needs of each specific center, AMF invested in
modernization and maintenance at approximately 90% of the Fair Lanes centers by
adding bumpers (bumper guards, often used by children, which prevent gutter
balls), synthetic lanes, new bowling equipment, carpet, signage and/or other
facility improvements. Open play pricing at the Fair Lanes centers was
subsequently increased to be more in line with AMF levels. However, AMF did not
increase Fair Lanes' league pricing for the 1995 to 1996 season as the leagues
were already committed. AMF has since raised league prices by an average of
6.0%, which will take effect in June 1996.
The initiatives described above resulted in significant profit improvements
at Fair Lanes centers. For the year ended December 31, 1994 (before AMF assumed
control), Fair Lanes had revenue of $98.3 million and EBITDA of $4.9 million
from its 106 centers. For the year ended December 31, 1995 (after AMF assumed
control), the 99 continuing Fair Lanes centers had revenue of $90.7
5
<PAGE> 13
million and EBITDA of $28.0 million (before certain non-recurring costs of $2.3
million). The key drivers of this improvement were decreases in corporate,
payroll and marketing expenses as well as price increases and improved
marketing. The purchase price of approximately $105.0 million (including stock
and notes acquired) represents a multiple of 3.8 times Fair Lanes 1995 EBITDA of
$28.0 million (before certain non-recurring costs of $2.3 million). See Note (h)
to "Selected Combined Financial Data."
COMPETITIVE STRENGTHS (BOWLING CENTER OPERATIONS)
AMF attributes its leading position in worldwide bowling center operations
to the following factors:
- - SIGNIFICANT ECONOMIES OF SCALE. AMF's large number of centers, their
geographic clustering and their size advantage provide it with both additional
revenue opportunities and economies of scale which allow it significant cost
savings.
- - UPGRADED, MODERN FACILITIES. AMF's bowling centers have upgraded physical
plants and generally new and attractive appearances, which aid AMF in
retaining its existing league bowlers and in attracting open play bowlers as
well as new league bowlers.
- - ABILITY TO ACQUIRE AND INTEGRATE NEW BOWLING CENTERS. AMF has a track record
of acquiring bowling centers at attractive prices and integrating and
enhancing these acquired operations within a short period of time after the
purchase.
- - GEOGRAPHICALLY DIVERSE PORTFOLIO OF CENTERS. AMF benefits from a
geographically diverse portfolio of bowling centers both throughout the United
States and across many countries, which has historically stabilized AMF's
operating results and has partially mitigated the effect of economic,
political and weather-related events, which may be either seasonal, regional
or country-specific.
- - EXPERIENCED, MOTIVATED, INFORMED MANAGEMENT TEAM. AMF's bowling center,
cluster and regional managers are experienced, are motivated by an attractive
incentive compensation program to increase bowler participation and to produce
strong revenue and EBITDA performance, and benefit from the use of detailed
management information systems.
Although the Company is not aware of any material competitive weakness of
its bowling center operations taken as a whole, in some local markets the
Company's bowling centers may not be as modern or as well maintained as one or
more competing centers.
STRATEGIES (BOWLING CENTER OPERATIONS)
AMF intends to pursue the following strategies to further strengthen its
position and increase sales and profits in its bowling center operations:
- - PURSUE FURTHER DOMESTIC ACQUISITIONS. AMF will seek to acquire some of the
approximately 5,900 domestic bowling centers owned by single-center and
small-chain operators, capitalizing on AMF's proven ability to integrate and
enhance acquired operations. The Company will have the ability to borrow,
under certain conditions, up to $100.0 million, and, subject to satisfying a
financial test, up to an additional $50.0 million, for acquisitions.
- - MAINTAIN AND GROW LEAGUE PARTICIPATION. AMF intends to continue to conduct
marketing and promotional programs directed at maintaining existing league
participation and attracting new league bowlers.
- - ATTRACT OPEN PLAY BOWLERS. Through its bright, clean, attractive facilities
with expanded amenities, AMF will continue to seek to attract additional open
play bowlers, including families and social groups.
6
<PAGE> 14
- - EXPAND INTERNATIONAL BOWLING CENTER OPERATIONS. AMF expects to focus on
growing its portfolio of bowling centers in potential high-growth
international markets, including China and selected markets in Europe, as well
as in certain more mature markets, such as Australia.
- - IMPROVE ANCILLARY REVENUE. Management believes that better layout and active
management and maintenance of amusement games, and the addition of billiards
in selected centers, can increase ancillary revenue.
There can be no assurance that AMF will be able to maintain these
competitive strengths or implement these strategies successfully. See "Risk
Factors."
MANUFACTURING
AMF is one of the world's leading manufacturers of bowling center
equipment, and management believes that AMF, together with Brunswick, accounts
for approximately 89% of the world's installed base of bowling center equipment.
Management believes that AMF alone accounts for approximately 41% of the world's
installed base of bowling center equipment and is a supplier to an estimated
10,000 bowling centers in over 50 countries. AMF designs, manufactures and sells
bowling center equipment, including automatic pinspotters, automatic scoring
equipment, bowling pins, lanes, ball returns, and certain spare and replacement
parts, and resells allied products such as bowling balls, bags, shoes and
certain other spare and replacement parts.
AMF's manufacturing business had revenue of $272.6 million and EBITDA of
$74.5 million for a 27.3% EBITDA margin for the year ended December 31, 1995.
AMF's manufacturing business accounted for 48.3% and 45.6% of AMF's combined
revenue and EBITDA, respectively, for 1995. Operating income for manufacturing
was $74.2 million (after taking into account $1.5 million in eliminations) for
1995, representing 59.6% of AMF's combined operating income for the year. For
the quarter ended March 31, 1996, AMF's manufacturing business had revenue and
EBITDA of $40.2 million and $7.1 million, respectively, for an EBITDA margin of
17.6%, a significant decline from the first quarter of 1995 due primarily to
reduced sales of New Center Packages (as defined below). Operating income for
manufacturing was $6.9 million (after taking into account $0.3 million in
eliminations) for the first quarter of 1996, representing 24.7% of AMF's
combined operating income for the quarter. See "Management's Discussion and
Analysis of Financial Condition and Results of
Operations -- Manufacturing -- First Quarter 1995 to First Quarter 1996."
AMF's manufacturing business consists of two categories: (i) replacement
and spare parts and supplies, resale products, and major modernization equipment
(collectively, "Replacement and Modernization" products); and (ii) equipment
necessary to outfit a new bowling center or expand an existing bowling center
("New Center Packages" or "NCPs"). Each New Center Package includes a
pinspotter, and the vast majority also include all of the other equipment needed
to outfit one new bowling lane.
The large installed base of AMF equipment, along with AMF's direct sales
force and extensive distributor network, has historically generated a stable
base of recurring revenue from sales of Replacement and Modernization products.
For the year ended December 31, 1995, Replacement and Modernization products
accounted for 21.2% and 16.5% of AMF's combined revenue and EBITDA,
respectively.
AMF targets the sale of Replacement and Modernization products to mechanics
and operators of existing bowling centers worldwide. These products include both
proprietary and more standard spare and replacement parts for existing AMF
equipment, supplies such as pins and shoes, resale items such as balls, and
major modernization equipment, such as automatic scoring. Some of these
products, such as bowling pins, should be replaced on approximately an annual
basis to maintain a center, while certain less frequent investments in other
equipment are necessary to modernize a center and are often required to maintain
the customer base.
7
<PAGE> 15
Sales of New Center Packages are made primarily to local market developers
and entrepreneurs who are constructing bowling centers in emerging market
countries. In such emerging markets, the bowling industry tends to develop
concurrently with the increase of disposable income and the growth of a middle
class, which together create a greater demand for leisure activities such as
bowling. At such times, the economics of constructing and operating bowling
centers can become very attractive, with investment pay-back periods of less
than 24 months. For the year ended December 31, 1995, sales of New Center
Packages generated 27.0% and 29.0% of AMF's combined revenue and EBITDA,
respectively.
Recent New Center Package revenue growth has resulted primarily from
increased orders from Taiwan, Korea and China, where the construction of new
bowling centers has increased dramatically in recent years. Most recently, NCP
sales to Taiwan and Korea have substantially declined as the bowling industry
has matured in these markets. Over the next several years, AMF expects to
benefit from increases in demand from selected international markets, including
continued growth in China and growth in Indonesia, India, Malaysia, Poland, and
other selected markets in Asia, Europe and South America. However, there can be
no assurance that such growth will materialize.
AMF and Brunswick are the only full-line manufacturers of Replacement and
Modernization products that compete on a global basis. AMF's primary competitors
for Replacement and Modernization sales (other than Brunswick) are much smaller
companies that tend to offer a narrower range of products and are often
regionally focused. AMF's primary competitor for worldwide sales of NCPs
historically has been Brunswick. More recently, however, AMF has also competed,
primarily in China and Korea, with DACOS Bowling International ("DACOS"), a
Korea-based manufacturer.
COMPETITIVE STRENGTHS (MANUFACTURING)
AMF attributes its position as a leading bowling equipment manufacturer to
the following factors:
- - LARGE SHARE OF THE INSTALLED BASE OF BOWLING CENTER EQUIPMENT. AMF's large
share of the installed base of bowling center equipment helps establish AMF's
industry reputation, supports AMF's sales efforts through its large number of
existing customer relationships and aids AMF with regard to continued sales of
Replacement and Modernization products.
- - STRONG DIRECT SALES FORCE AND EXTENSIVE DISTRIBUTOR NETWORK. AMF's direct
sales network provides AMF greater control over the sale of its products.
Through this network, AMF develops long-term sales relationships with bowling
center operators and mechanics both domestically and internationally. AMF's
extensive distributor network complements the direct sales effort by providing
sales coverage in selected international markets.
- - LOW-COST MANUFACTURER. Management believes that AMF is generally a low-cost
producer of equipment for both the Replacement and Modernization and New
Center Package categories.
- - SUPERIOR PRODUCTS. AMF positions its products as the highest quality, most
technologically advanced products in the industry, allowing AMF generally to
charge premium prices.
- - MOTIVATED AND EXPERIENCED MANAGEMENT TEAM. AMF's manufacturing management team
is experienced and is motivated by an attractive incentive compensation
program to produce strong revenue and EBITDA performance.
AMF is not aware of any material competitive weakness of its manufacturing
operations as compared to its competitors. Until 1996, AMF was at a disadvantage
in competing in certain Asian markets because AMF was later than its competitors
in setting up local sales offices in such markets. Management believes that this
disadvantage has been reduced by the recent establishment of local offices in
Beijing, Shanghai and Guangzhou.
8
<PAGE> 16
STRATEGIES (MANUFACTURING)
AMF intends to pursue the following strategies to further enhance its
position and increase sales and profits in manufacturing:
- - EXPAND LEADING POSITION IN REPLACEMENT AND MODERNIZATION SALES. As the
worldwide base of bowling equipment grows, management believes that AMF's
strong direct sales force, its extensive distributor network and its high
quality products will allow AMF to increase its sales of Replacement and
Modernization products.
- - GROW NEW CENTER PACKAGE SALES. AMF's recognized brand name, its
technologically advanced products and its strong sales force should continue
to position AMF to take advantage of increasing international New Center
Package demand in parts of Asia and other possible high-growth regions.
- - MAINTAIN LOW-COST MANUFACTURING POSITION. AMF expects to continue to maintain
its low-cost manufacturing position through taking further advantage of
manufacturing efficiencies, continuous improvement programs and its low-cost
non-union work force.
- - MAINTAIN PRODUCT SUPERIORITY. AMF expects to continue to maintain its
technological lead through its research efforts and continued development of
new, more advanced products.
There can be no assurance that AMF will be able to maintain these
competitive strengths or implement these strategies successfully. See "Risk
Factors."
Management's Growth Strategies
Management plans to pursue a variety of potential growth opportunities that
AMF's prior owners elected not to pursue to any significant degree. These
opportunities include (i) acquiring selected domestic single-center and small
chain bowling center operations, (ii) constructing new bowling centers in
high-growth markets and (iii) more aggressively expanding New Center Package
sales efforts in developing markets. Management believes that the Acquisition
Facility (as defined herein) of up to $100.0 million, and, subject to the
Company's satisfying a financial test, up to an additional $50.0 million,
contemplated by the New Bank Credit Agreement (as defined herein), will allow
the Company to finance future acquisitions of bowling centers over the next
several years.
If the Company finances future acquisitions or the construction of new
bowling centers through the Acquisition Facility, additional Senior Debt will be
incurred and the Company's overall leverage may increase (depending on the
amount of additional equity capital, if any, obtained concurrently), which may
affect the Company's ability to service its debt, including the Exchange Notes
and the Notes. Although there is currently $100 million available under the
Acquisition Facility, any actual borrowing is subject to various financial tests
under the New Bank Credit Agreement and the Indentures, including that the
amount borrowed under the Acquisition Facility shall not exceed 3.5 times the
Deemed EBITDA (as defined herein) of the business to be acquired or the newly
constructed bowling center. See "Description of Senior Debt."
In addition, the bowling center and manufacturing businesses have
historically been operated completely independently. Management believes that it
can achieve improved operating results through greater communication and
coordination between the bowling center and manufacturing operations.
THE ACQUISITION
Pursuant to a Stock Purchase Agreement dated February 16, 1996 (as amended,
the "Stock Purchase Agreement") between Holdings and the Sellers, on May 1,
1996, Holdings acquired AMF through a stock purchase by the Company's
subsidiaries of all the outstanding stock of the separate domestic and foreign
corporations that constitute substantially all of AMF and through the purchase
of the assets of AMF's bowling center operations in Spain and Switzerland. The
Company did not acquire the assets of two bowling centers located in Madrid,
Spain and Geneva, Switzerland (both
9
<PAGE> 17
of which were retained by the Sellers). Accordingly, as a result of the
Acquisition, the Company owns or operates all 205 of AMF's domestic bowling
centers and 78 of AMF's 80 international bowling centers. The purchase price for
the Acquisition was $1.325 billion, subject to certain post-closing adjustments,
less approximately $2.0 million representing debt of AMF which remained in place
following the closing of the Acquisition (the "Closing"). Any post-closing
adjustment payment due to the Sellers will be made by the Company.
On April 11, 1996, Holdings and the Sellers entered into a letter agreement
(the "Letter Agreement") amending the Stock Purchase Agreement. Under the terms
of the Letter Agreement, certain of the Sellers (the "Covenantors") have agreed
to make certain payments to Holdings if the net income before interest, taxes,
depreciation, amortization, and certain non-cash, extraordinary, non-recurring
and non-operating items ("Cash Flow") of AMF Bowling, Inc., the entity that
principally operates AMF's bowling manufacturing business, does not achieve
certain agreed upon Cash Flow objectives during the period from May 1, 1996
through June 30, 1997. See "The Acquisition -- Purchase Price; Adjustments."
The following table sets forth the sources and uses of funds related to the
Acquisition:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
SOURCES OF FUNDS
Senior Debt(a)................................................ $ 517.0
10 7/8% Senior Subordinated Notes............................. 250.0
12 1/4% Senior Subordinated Discount Notes.................... 250.0
--------
Total Debt............................................... 1,017.0
Equity(b)..................................................... 391.0
Cash.......................................................... 1.7
--------
Total............................................... $ 1,409.7
========
USES OF FUNDS
Purchase Price(a)............................................. $ 1,325.0
Purchase Price Adjustments(c)................................. 14.1
Transaction Costs(b).......................................... 70.6
--------
Total............................................... $ 1,409.7
========
</TABLE>
- ---------------
(a) Includes an existing mortgage payable by AMF in the amount of approximately
$2.0 million as of April 30, 1996. All other debt of AMF was extinguished at
or prior to the completion of the Acquisition.
(b) Includes warrants to purchase approximately 2.2% of the fully diluted common
stock of Holdings' parent company issued upon the closing of the Acquisition
to the Sellers' financial advisor in lieu of a cash fee. Such warrants have
been valued for accounting purposes at approximately $8.7 million.
(c) Includes assumed purchase price adjustments resulting in a payment to
Sellers of $14.1 million based on AMF's March 31, 1996 balance sheet. The
actual purchase price adjustments may differ. Although the actual purchase
price adjustments have not yet been finalized, the Company believes that
they will not exceed $13.4 million. See "Notes to the Pro Forma Consolidated
Balance Sheet."
The senior debt portion of the financing for the Acquisition was provided
pursuant to a credit agreement (the "New Bank Credit Agreement") with a group of
lenders. In connection with such financing, Goldman Sachs acted as Syndication
Agent, Goldman Sachs and Citicorp Securities, Inc. acted as Arrangers, and
Citibank, N.A. is acting as administrative agent. See "Description of Senior
Debt."
10
<PAGE> 18
RECENT DEVELOPMENTS
SECOND QUARTER 1996 RESULTS
The results for the six months ended June 30, 1996 reflect the pro forma
results of operations as if the Acquisition had occurred on January 1, 1996, and
reflect adjustments for (i) two bowling centers not purchased from the Sellers,
(ii) increased depreciation and amortization from purchase accounting
adjustments to record goodwill and fixed assets at fair value and (iii) the
one-time charge for special bonuses and payments made in April 1996 for $44.0
million, which payments were funded by the Sellers prior to the Acquisition.
Total revenue decreased by $57.7 million, or 19.5%, to $237.5 million for
the six-month period ended June 30, 1996, from $295.2 million for the six-month
period ended June 30, 1995. Of this decrease, $4.8 million was due to a 3.2%
drop in Bowling Centers revenue to $146.3 million for the six-month period ended
June 30, 1996, from $151.1 for the six-month period ended June 30, 1995. Bowling
Centers revenue for 1995 included up to seven more centers than in 1996. The
remaining decrease in total revenue was due to a 37.3% drop in Bowling Products
(formerly referred to as "Manufacturing") sales to $90.3 million for the six
months ended June 30, 1996, from $144.1 for the six-month period ended June 30,
1995. The decline in Bowling Products revenue products segment was primarily due
to lower NCP sales in the first half of 1996 versus the first half of 1995.
Operating income decreased by $38.5 million, to $31.0 million for the six
months ended June 30, 1996, from $68.5 million for the six months ended June 30,
1995. The decrease in operating profit was primarily due to a decrease in the
Bowling Products operating profits on NCPs, and an increase of $15.7 million for
depreciation and amortization resulting from purchase accounting adjustments to
record goodwill and to record fixed assets at fair value.
For the six months ended June 30, 1996 (on a pro forma basis), and the six
months ended June 30, 1995 (on an actual basis), the Company had a net loss of
$9.9 million and net income of $53.9 million, respectively, a deficiency of
earnings to fixed charges of $14.3 million and a ratio of earnings to fixed
charges of 6.53x, respectively, an interest coverage ratio of 1.36x and 11.38x,
respectively, and a percentage of revenues represented by interest expense of
20.4% and 2.6%, respectively.
Total EBITDA decreased by $21.5 million, or 24.5%, to $66.1 million for the
six months ended June 30, 1996, from $87.6 million for the six months ended June
30, 1995. The difference was primarily due to lower NCP sales. Bowling Centers
EBITDA was slightly higher than in the previous year.
The Company does not believe that the decline in operating results for the
first half of 1996, compared to the first half of 1995, will materially affect
its ability to service its debt.
PENDING TRANSACTIONS
Since completing the Acquisition, the Company has entered into letters of
intent with a number of sellers to purchase bowling centers, including the
Bowling Corporation of America centers. The total purchase price is expected to
be approximately $104.0 million, subject to purchase price adjustments. Certain
of the transactions are subject to a number of conditions, including the
negotiation of definitive agreements and receipt of regulatory approvals. There
is no assurance that any of the pending acquisitions will be consummated. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RISK FACTORS
The Exchange Notes offered hereby involve a high degree of risk. See "Risk
Factors" commencing on page 25.
11
<PAGE> 19
SUMMARY COMBINED FINANCIAL DATA
(DOLLARS IN MILLIONS, EXCEPT AVERAGE PRICE PER GAME)
The following data, insofar as it relates to each of the years 1993, 1994
and 1995, have been derived from audited financial statements, including the
combined balance sheets at December 31, 1994 and 1995 and the related combined
statements of income and of cash flows for the years ended December 31, 1993,
1994 and 1995 and notes thereto appearing elsewhere herein.
The combined financial data for the years ended December 31, 1991 and 1992
and for the three-month periods ended March 31, 1995 and 1996 have been derived
from unaudited combined financial statements.
The historical combined financial data of AMF presented below should be
read in conjunction with the combined financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus. The summary pro forma data
below should be read in conjunction with the unaudited pro forma consolidated
financial statements of the Company and notes thereto included elsewhere in this
Prospectus.
The financial information presented below includes operating results
expressed in terms of EBITDA, which represents net income before net interest
expense, income taxes, depreciation and amortization, and other net income or
net expenses. EBITDA information is included as supplemental information herein
because the Company understands that such information is used by certain
investors as one measure of an issuer's historical ability to service debt.
EBITDA is not intended to represent and should not be considered more meaningful
than, or an alternative to, net income, cash flow or other measures of
performance determined in accordance with generally accepted accounting
principles.
12
<PAGE> 20
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------- ---------------------------
1995 1996
1991 1992 1993 1994(A) 1995 PRO FORMA 1995 1996 PRO FORMA
------ ------ ------ ------- ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total operating revenue........ $355.9 $391.2 $427.6 $517.8 $564.9 $ 562.6 $156.9 $123.3 $ 122.7
Cost of sales.................. 114.2 132.1 153.2 196.0 183.9 183.6 48.2 30.7 30.6
----- ----- ----- ----- ----- ----- ----- ----- -----
Gross profit................... 241.7 259.1 274.4 321.8 381.0 379.0 108.7 92.6 92.1
Bowling center operations
expenses...................... 103.1 103.1 108.5 120.9 170.6 169.1 44.1 42.0 41.7
Selling, general and admin.
expenses...................... 38.1 43.2 41.9 51.4 46.9 46.6 13.7 11.7 11.4
Depreciation and
amortization.................. 28.3 25.5 21.4 24.8 39.1 67.0 9.2 11.0 16.4
----- ----- ----- ----- ----- ----- ----- ----- -----
Operating income............... 72.2 87.3 102.6 124.7 124.4 96.3 41.7 27.9 22.6
Interest expense, net.......... 9.9 6.4 4.1 6.9 13.5 102.1 3.3 3.4 23.8
Other income (expense), net.... 0.2 (1.4) (1.0) (2.0) (2.0) (2.0) (0.9) (0.2) (0.2)
----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before income
taxes......................... 62.5 79.5 97.5 115.8 108.9 (7.8) 37.5 24.3 (1.4)
Provision for income taxes..... 13.4 15.4 15.1 16.5 12.1 10.0 3.3 2.7 2.4
----- ----- ----- ----- ----- ----- ----- ----- -----
Net income (loss).............. $ 49.1 $ 64.1 $ 82.4 $ 99.3 $ 96.8 $ (17.8) $ 34.2 $ 21.6 $ (3.8)
===== ===== ===== ===== ===== ===== ===== ===== =====
Ratio of earnings to fixed
charges (b)................... 4.7x 7.1x 11.0x 10.3x 6.1x -- 8.1x 5.5x --
BALANCE SHEET DATA (AT END OF
PERIOD):
Total assets................... $244.1 $231.1 $228.2 $410.2 $400.4 $1,480.4 $413.9 $400.9 $1,502.2
Total debt..................... 112.4 98.0 75.7 186.1 167.4 1,017.0 176.1 161.1 1,017.8
Stockholders' equity........... 76.9 75.8 88.6 132.4 161.5 383.7 158.9 173.5 390.4
Net working capital
("NWC")(c).................... 20.6 15.6 18.9 16.9 29.4 29.4 26.2 31.1 31.4
OTHER DATA:
BOWLING CENTER OPERATIONS:
Number of centers (at end of
period)....................... 196 197 190 293 285 283 -- -- --
Number of lanes (at end of
period)....................... 5,981 5,988 5,896 9,586 9,471 9,443 -- -- --
Lineage(d)..................... 26.4 26.6 25.9 26.0(i) 24.2(k) 24.2(k) -- -- --
Average price per game
("APPG")...................... $ 2.21 $ 2.21 $ 2.17 $ 2.20(i) $ 2.19(k) $ 2.19(k) -- -- --
Fixed exch. rate APPG(e)....... 2.09 2.11 2.15 2.19(j) 2.19(k 2.19(k) -- -- --
Bowling revenue................ $127.1 $128.5 $120.8 $140.3 $182.9 $ 181.4 $ 54.2 $ 52.2 $ 51.8
Food and beverage revenue...... 42.6 43.3 40.8 49.8 69.4 68.8 20.6 20.1 20.0
Ancillary revenue.............. 30.5 32.7 31.0 35.3 40.0 39.8 11.0 10.8 10.7
----- ----- ----- ----- ----- ----- ----- ----- -----
Total revenue.................. $200.2 $204.5 $192.6 $225.4 $292.3 $ 290.0 $ 85.8 $ 83.1 $ 82.5
EBITDA(f)...................... 66.9 68.3 56.9 68.9 89.0 88.5 30.2 31.8 31.6
EBITDA margin(g)............... 33.4% 33.4% 29.5% 30.6% 30.4% 30.5% 35.2% 38.3% 38.3%
MANUFACTURING:
Total NCPs sold................ 1,896 2,210 3,577 4,941 4,437 4,437 1,485 415 415
NCP revenue.................... N/A N/A $122.6 $170.5 $152.6 $ 152.6 $ 45.1 $ 16.8 $ 16.8
Replacement and Modernization
rev........................... N/A N/A 112.4 121.9 120.0 120.0 26.0 23.4 23.4
----- ----- ----- ----- ----- ----- -----
Total revenue.................. $155.7 $186.7 $235.0 $292.4 $272.6 $ 272.6 $ 71.1 $ 40.2 $ 40.2
EBITDA......................... 33.6 44.5 67.1 80.6 74.5 74.8 20.6 7.1 7.4
EBITDA margin.................. 21.6% 23.8% 28.6% 27.6% 27.3% 27.4% 29.0% 17.6% 18.4%
COMBINED:
EBITDA......................... $100.5 $112.8 $124.0 $149.5 $163.5 $ 163.3 $ 50.8 $ 38.9 $ 39.0
EBITDA margin.................. 28.2% 28.8% 29.0% 28.9% 28.9% 29.0% 32.4% 31.6% 31.8%
Adjusted Pro Forma EBITDA(h)... -- -- -- -- -- $ 167.7 -- -- --
Cash interest exp.............. $ 13.3 $ 7.4 $ 4.0 $ 4.3 $ 5.9 67.0 0.9 0.5 $ 16.7
Total interest exp............. 12.0 7.9 5.0 7.4 15.7 102.9 3.7 3.8 25.5
Pro forma cash taxes paid...... -- -- -- -- -- 12.5 -- -- 2.7
Modern. and Maintenance Cap.
Ex. ("MMCapEx")(i)............ 8.6 8.3 9.0 11.4 13.2 13.2 3.2 3.0 3.0
Expansion capital
expenditures.................. 7.0 3.8 5.7 6.4 16.9 16.9 1.1 1.4 1.4
----- ----- ----- ----- ----- ----- ----- ----- -----
Total capital expenditures..... $ 15.6 $ 12.1 $ 14.7 $ 17.8 $ 30.1 $ 30.1 $ 4.3 $ 4.4 $ 4.4
===== ===== ===== ===== ===== ===== ===== ===== =====
Incr. (Decr.) in NWC ("Chg.
NWC")......................... N/A (5.0) 3.3 (2.0) 12.5 12.5 N/A 1.7 2.0
PRO FORMA RATIO DATA:
EBITDA/cash interest exp................................................... 2.44x 2.33x
(EBITDA -- MMCapEx)/cash interest exp. .................................... 2.24 2.16
(EBITDA -- MMCapEx -- Chg. NWC)/cash interest exp. ........................ 2.05 2.04
EBITDA/total interest exp. ................................................ 1.59x 1.53x
(EBITDA -- MMCapEx)/total interest exp. ................................... 1.46 1.41
(EBITDA -- MMCapEx -- Chg. NWC)/total interest exp. ....................... 1.34 1.33
Total debt/EBITDA.......................................................... 6.23x 6.52x
</TABLE>
13
<PAGE> 21
- ---------------
(a) Includes results of Fair Lanes, acquired on September 29, 1994.
(b) The ratios of earnings to fixed charges are computed by dividing earnings by
the fixed charges. Earnings consist of net income to which has been added
fixed charges and income taxes. Fixed charges consist of interest expense,
amortization of debt issuance costs, and the portion of rent expense
considered to represent interest. Earnings were inadequate to cover fixed
charges on a pro forma basis for the year ended December 31, 1995 and the
three months ended March 31, 1996 by $7.8 million and $1.4 million,
respectively.
(c) Defined as accounts and notes receivable (excluding affiliated receivables),
net of allowance for doubtful accounts, inventories and prepaid expenses and
other current assets less accounts payable, excluding book overdrafts and
affiliated payables, and accrued expenses, excluding league deposits.
(d) Defined as worldwide average number of games bowled per lane per day.
(e) Defined as the result of dividing worldwide bowling revenue for each period
presented (as translated into U.S. dollars by using weighted average foreign
currency exchange rates used to translate 1995 revenue) by the total number
of games bowled worldwide. The effect is to fix the exchange rates at the
1995 levels for purposes of comparability in examining changes in average
price per game without the effect of changes in foreign currency exchange
rates.
(f) EBITDA represents net income before net interest expense, income taxes,
depreciation and amortization, and other income (expense), net. EBITDA is
not intended to represent and should not be considered more meaningful
than, or an alternative to, other measures of performance in accordance
with generally accepted accounting principles. EBITDA data is included
because the Company understands that such information is used by certain
investors as one measure of an issuer's historical ability to service debt.
(g) EBITDA margin represents the percentage ratio of EBITDA to total operating
revenue.
(h) The following adjustments have been made to EBITDA as reflected in the Pro
Forma Statement of Income for the year ended December 31, 1995 as presented
in the Pro Forma Financial Statements appearing elsewhere in this
Prospectus:
In connection with AMF's acquisition of Fair Lanes, AMF formalized a
strategic integration plan to terminate and relocate certain Fair Lanes
employees, close the Fair Lanes corporate offices and close seven bowling
centers. In connection with AMF's accounting for the Fair Lanes acquisition,
AMF accounted for certain severance, relocation and incremental exit costs
associated with the closure of the seven bowling centers as acquisition date
liabilities. Also as part of the acquisition, AMF incurred certain
non-recurring costs associated with the integration of Fair Lanes into AMF.
These specifically identifiable, non-recurring integration costs are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Non-recurring liability of $0.3, workers compensation of $0.2 and other costs of
$0.1................................................................................ $ 0.6
Costs incurred to convert the liquor licenses held by Fair Lanes to AMF............... 0.1
Real estate assessments of $0.1 and personal property, real estate and sales tax
penalties and interest of $0.2 incurred due to delinquency in payments by Fair
Lanes............................................................................... 0.3
Cost of maintaining duplicate Fair Lanes corporate office facilities, which were
closed pursuant to a formal plan to close down the Fair Lanes corporate offices
(does not include severance and relocation costs recorded as part of the Fair Lanes
purchase price allocation): personnel costs of $0.3, professional fees of $0.1,
travel and meals of $0.1 and office expenses of $0.1................................ 0.6
Costs incurred by AMF relating to the integration of Fair Lanes into AMF, principally
incremental travel of $0.1, consultants of $0.1 and moving of $0.1.................. 0.3
Exit costs to close down the seven aforementioned facilities in excess of amounts
accrued in connection with AMF's policy of estimating exit costs at the date of
acquisition of $0.1, and the present value of future lease payments for closed
centers of $0.2..................................................................... 0.3
Other pre-acquisition costs not recorded as purchase date liabilities................. 0.1
------
Total................................................................................. $ 2.3
------
</TABLE>
Management currently expects that no further integration costs with respect
to Fair Lanes will be incurred.
During 1995, AMF management prepared a formal strategic assessment of its
global operations, resulting in changes in management personnel, the
development of a new bowling centers identity program and the consolidation
of European offices. In connection therewith, AMF incurred certain
non-recurring, incremental costs as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Recruitment fees for new international management................................... $ 0.069
Costs relating to bowling centers identity program.................................. 0.026
Incremental costs of temporary country manager in Australia......................... 0.135
Redundancy and relocation costs of $0.035 and legal costs of $0.023 incurred to
restructure Australian operations................................................. 0.058
Severance and legal costs incurred in Spain of $0.043 and Switzerland of $0.015..... 0.058
Salaries and benefits for a product licensing position which was eliminated......... 0.098
Severance and recruitment costs incurred in connection with consolidating three
European offices into one central office in London................................ 0.280
----
$ 0.724
----
</TABLE>
14
<PAGE> 22
<TABLE>
<S> <C>
During 1995, AMF incurred certain non-recurring costs in connection with the
following:
Non-compete and consulting agreement in connection with the replacement of
management of manufacturing....................................................... $ 1.400
Costs associated with AMF agreeing to share in cost of settling a supplier's
warranty obligation............................................................... 0.210
Legal expenses for settled National Labor Relations Board matter.................... 0.071
Incremental costs, including legal and other costs, incurred by AMF to establish a
direct sales office due to the termination of AMF's Korean distributor............ 0.814
Reversals of legal reserves after favorable settlement of National Labor Relations
Board matter...................................................................... (1.103)
----
$ 1.392
----
Total Adjustments to Pro Forma EBITDA............................................... $ 4.416
====
</TABLE>
(i) Defined as capital expenditures for existing product lines and existing
businesses for manufacturing, and capital expenditures for modernizing and
maintaining bowling centers for bowling center operations.
(j) Includes results of Fair Lanes, acquired on September 29, 1994. The figures
for lineage, average price per game and fixed exchange rate average price
per game for AMF, excluding Fair Lanes, are 26.3, $2.25 and $2.23,
respectively.
(k) Includes results of Fair Lanes, acquired on September 29, 1994. The figures
for lineage, average price per game and fixed exchange rate average price
per game for AMF, excluding Fair Lanes, are 25.5, $2.33 and $2.33,
respectively.
15
<PAGE> 23
THE NOTE OFFERING
THE NOTES..................... The Notes were sold by the Company on March 21,
1996, and were subsequently resold to qualified
institutional buyers pursuant to Rule 144A
under the Securities Act, to institutional
investors that are accredited investors in a
manner exempt from registration under the
Securities Act and to certain persons in
transactions outside the United States in
reliance on Regulation S under the Securities
Act (the "Note Offering").
REGISTRATION RIGHTS
AGREEMENT................... In connection with the Note Offering, the
Company entered into the Registration Rights
Agreement, which grants holders ("Holders") of
the Notes certain exchange and registration
rights. The Exchange Offer is intended to
satisfy such exchange and registration rights,
which generally terminate upon the consummation
of the Exchange Offer.
THE EXCHANGE OFFER
SECURITIES OFFERED............ $250,000,000 aggregate principal amount of
10 7/8% Series B Senior Subordinated Notes due
March 15, 2006.
$452,000,000 aggregate principal amount of
12 1/4% Series B Senior Subordinated Discount
Notes due March 15, 2006.
THE EXCHANGE OFFER............ $1,000 principal amount of the Exchange Senior
Subordinated Notes in exchange for
each $1,000 principal amount of Senior
Subordinated Notes and $1,000 principal amount
of the Exchange Senior Subordinated Discount
Notes in exchange for each $1,000 principal
amount of Senior Subordinated Discount Notes.
As of the date hereof, $250,000,000 aggregate
principal amount of Senior Subordinated Notes
and $452,000,000 aggregate principal amount of
Senior Subordinated Discount Notes are
outstanding. The Company will issue the
Exchange Notes to holders on or promptly after
the Expiration Date.
Based on an interpretation by the staff of the
SEC set forth in no-action letters issued to
third parties, the Company believes that
Exchange Notes issued pursuant to the Exchange
Offer in exchange for Notes may be offered for
resale, resold and otherwise transferred by any
Holder thereof (other than any such Holder
which is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities
Act) without compliance with the registration
and prospectus delivery provisions of the
Securities Act, provided that such Exchange
Notes are acquired in the ordinary course of
such holder's business and that such holder
does not intend to participate and has no
arrangement or understanding with any person to
participate in the distribution of such
Exchange Notes.
Each broker-dealer that receives Exchange Notes
for its own account pursuant to the Exchange
Offer must acknowledge that it will deliver a
prospectus in connection with any resale of
such Exchange Notes. The Letters of Transmittal
state
16
<PAGE> 24
that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus,
as it may be amended or supplemented from time
to time, may be used by a broker-dealer in
connection with resales of Exchange Notes
received in exchange for Notes where such Notes
were acquired by such broker-dealer as a result
of market-making activities or other trading
activities. The Company has agreed that for a
period of 180 days after the Expiration Date,
it will make this Prospectus available to any
broker-dealer for use in connection with any
such resale.
Any Holder who tenders in the Exchange Offer
with the intention to participate, or for the
purpose of participating, in a distribution of
the Exchange Notes could not rely on the
position of the staff of the SEC enunciated in
Exxon Capital Holdings Corporation (available
April 13, 1989), Morgan Stanley & Co., Inc.
(available June 5, 1991) or similar no-action
letters and, in the absence of an exemption
therefrom, must comply with the registration
and prospectus delivery requirements of the
Securities Act in connection with the resale of
the Exchange Notes. Failure to comply with such
requirements in such instance may result in
such Holder incurring liability under the
Securities Act for which the Holder is not
indemnified by the Company.
In any state where the Exchange Offer does not
fall under a statutory exemption to the blue
sky rules, the Company has filed the
appropriate registrations and notices, and has
made the appropriate requests, to permit the
Exchange Offer to be made in such state.
EXPIRATION DATE............... 5:00 p.m., New York City time, on September ,
1996, unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange
Offer is extended.
INTEREST ON THE EXCHANGE NOTES
AND THE NOTES............... The Exchange Senior Subordinated Notes will
bear interest from March 21, 1996, the date of
issuance of the Notes that are tendered in
exchange for the Exchange Notes (or the most
recent Interest Payment Date (as defined below
in the Summary of Terms of Exchange Notes) to
which interest on such Notes has been paid).
Accordingly, Holders of Senior Subordinated
Notes that are accepted for exchange will not
receive interest on the Senior Subordinated
Notes that is accrued but unpaid at the time of
tender, but such interest will be payable on
the first Interest Payment Date after the
Expiration Date.
The Exchange Senior Subordinated Discount Notes
will not bear interest prior to March 15, 2001.
Thereafter, interest will be payable in cash
semi-annually on March 15 and September 15 of
each year, commencing on September 15, 2001.
17
<PAGE> 25
CONDITIONS TO THE
EXCHANGE OFFER.............. Notwithstanding any other term of the Exchange
Offer, the Company shall not be required to
accept for exchange, or to exchange Exchange
Notes for, any Notes, and may terminate or
amend the Exchange Offer as provided herein
before the acceptance of such Notes, if: (a)
any law, statute, rule, regulation or
interpretation by the staff of the SEC is
proposed, adopted or enacted, which, in the
reasonable judgment of the Company, might
materially impair the ability of the Company to
proceed with the Exchange Offer or materially
impair the contemplated benefits of the
Exchange Offer to the Company; or (b) any
governmental approval has not been obtained,
which approval the Company shall, in its
reasonable judgment, deem necessary for the
consummation of the Exchange Offer as
contemplated hereby. See "The Exchange
Offer -- Conditions."
PROCEDURES FOR
TENDERING NOTES............. Each Holder of Notes wishing to accept the
Exchange Offer must complete, sign and date the
relevant accompanying Letter of Transmittal, or
a facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with
the Notes and any other required documentation
to the relevant Exchange Agent at the address
set forth in the Letter of Transmittal. The
blue Letter of Transmittal should be used to
tender Senior Subordinated Notes and the yellow
Letter of Transmittal should be used to tender
Senior Subordinated Discount Notes. By
executing the Letter of Transmittal, each
Holder will represent to the Company that,
among other things, the Holder or the person
receiving such Exchange Notes, whether or not
such person is the Holder, is acquiring the
Exchange Notes in the ordinary course of
business and that neither the Holder nor any
such other person has any arrangement or
understanding with any person to participate in
the distribution of such Exchange Notes. In
lieu of physical delivery of the certificates
representing Notes, tendering Holders may
transfer Notes pursuant to the procedure for
book-entry transfer as set forth under "The
Exchange Offer -- Procedures for Tendering."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS........... Any beneficial owner whose Notes are registered
in the name of a broker, dealer, commercial
bank, trust company or other nominee and who
wishes to tender should contact such registered
Holder promptly and instruct such registered
Holder to tender on such beneficial owner's
behalf. If such beneficial owner wishes to
tender on such owner's own behalf, such owner
must, prior to completing and executing the
Letter of Transmittal and delivering its Notes,
either make appropriate arrangements to
register ownership of the Notes in such owner's
name or obtain a properly completed bond
18
<PAGE> 26
power from the registered holder. The transfer
of registered ownership may take considerable
time.
GUARANTEED DELIVERY
PROCEDURES.................. Holders of Notes who wish to tender their Notes
and whose Notes are not immediately available
or who cannot deliver their Notes, the Letter
of Transmittal or any other documents required
by the Letter of Transmittal to the Exchange
Agent (or comply with the procedures for
book-entry transfer) prior to the Expiration
Date must tender their Notes according to the
guaranteed delivery procedures set forth in
"The "Exchange Offer -- Guaranteed Delivery
Procedures."
WITHDRAWAL RIGHTS............. Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the
Expiration Date pursuant to the procedures
described under "The Exchange
Offer -- Withdrawals of Tenders."
ACCEPTANCE OF NOTES AND
DELIVERY OF EXCHANGE NOTES... The Company will accept for exchange any and
all Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date. The Exchange
Notes issued pursuant to the Exchange Offer
will be delivered promptly following the
Expiration Date. See "The Exchange
Offer -- Terms of the Exchange Offer."
FEDERAL INCOME TAX
CONSEQUENCES................ The issuance of the Exchange Notes to Holders
of the Notes pursuant to the terms set forth in
this Prospectus will not constitute an exchange
for federal income tax purposes. Consequently,
no gain or loss would be recognized by Holders
of the Notes upon receipt of the Exchange
Notes. See "Certain Federal Income Tax
Consequences of the Exchange Offer."
EFFECT ON HOLDERS OF NOTES.... As a result of the making of this Exchange
Offer, the Company will have fulfilled certain
of its obligations under the Registration
Rights Agreement, and Holders of Notes who do
not tender their Notes will generally not have
any further registration rights under the
Registration Rights Agreement or otherwise.
Such Holders will continue to hold the
untendered Notes and will be entitled to all
the rights and will be subject to all the
limitations applicable thereto under the
Indentures, except to the extent such rights or
limitations, by their terms, terminate or cease
to have further effectiveness as a result of
the Exchange Offer. All untendered Notes will
continue to be subject to certain restrictions
on transfer. Accordingly, if any Notes are
tendered and accepted in the Exchange Offer,
the trading market for the untendered Notes
could be adversely affected.
EXCHANGE AGENTS............... IBJ Schroder Bank & Trust Company (with respect
to the Senior Subordinated Notes) and American
Bank National Association (with respect to the
Senior Subordinated Discount Notes).
19
<PAGE> 27
SUMMARY OF TERMS OF EXCHANGE NOTES
The form and terms of the Exchange Notes are the same as the form and terms
of the Notes (which they replace) except that (i) the Exchange Notes have been
registered under the Securities Act of 1933, as amended (the "Securities Act")
and, therefore, will not bear legends restricting the transfer thereof and (ii)
the Holders of Exchange Notes generally will not be entitled to further
registration rights under the Registration Rights Agreement of the Company dated
as of March 21, 1996 (the "Registration Rights Agreement"), which rights
generally will be satisfied when the Exchange Offer is consummated. The Exchange
Notes will evidence the same debt as the Notes and will be entitled to the
benefits of the Indentures. See "Description of Exchange Notes."
THE COMPANY................... AMF Group Inc.
SECURITIES OFFERED............ $250.0 million principal amount of 10 7/8%
Series B Senior Subordinated Notes due 2006
(the "Exchange Senior Subordinated Notes") and
$452.0 million principal amount of 12 1/4%
Series B Senior Subordinated Discount Notes due
2006 (the "Exchange Senior Subordinated
Discount Notes" and, collectively with the
Exchange Senior Subordinated Notes, the
"Exchange Notes").
YIELD TO MATURITY............. 10 7/8%, in the case of the Exchange Senior
Subordinated Notes, and 12 1/4%, in the case of
the Exchange Senior Subordinated Discount
Notes, calculated on a semiannual
bond-equivalent basis from March 21, 1996.
INTEREST PAYMENT DATES........ Cash interest will accrue on the Exchange
Senior Subordinated Notes from March 21, 1996
and will be payable on each March 15 and
September 15, commencing September 15, 1996. No
interest will accrue on the Exchange Senior
Subordinated Discount Notes prior to March 15,
2001. Thereafter, interest will be payable on
each March 15 and September 15, commencing
September 15, 2001. The Exchange Senior
Subordinated Discount Notes will bear original
issue discount, and the Holders of the Exchange
Senior Subordinated Discount Notes (including
cash basis holders) will be required to include
such original issue discount in gross income
for federal income tax purposes, as interest,
on a constant yield to maturity basis in
advance of the receipt of cash payments of such
interest.
On a pro forma basis for the year ended
December 31, 1995, and the three months ended
March 31, 1996, Holdings had a deficiency of
earnings to fixed charges of $7.8 million and
$1.4 million, respectively. Although the
Company believes it will be able to meet its
obligations under the Exchange Notes, there is
no assurance that there will be adequate cash
available to make interest payments under the
Exchange Notes when they become due.
MATURITY DATE................. March 15, 2006.
OPTIONAL REDEMPTION........... The Exchange Notes will be redeemable, at the
option of the Company, on one or more
occasions, at any time on or after March 15,
2001, at the redemption prices set forth
herein, together with accrued interest, if any,
to the redemption date. Prior to March 15,
1999, up to $100 million in aggregate principal
amount of Exchange Senior Subordinated Notes
20
<PAGE> 28
will be redeemable at the option of the
Company, on one or more occasions, from the net
proceeds of public or private sales of common
stock of, or contributions to the common equity
capital of, the Company, at a price of 110.875%
of the principal amount of the Exchange Senior
Subordinated Notes, together with accrued and
unpaid interest, if any, to the date of
redemption; provided that at least $150 million
in aggregate principal amount of Exchange
Senior Subordinated Notes remains outstanding
immediately after such redemption. In addition,
prior to March 15, 1999, the Exchange Senior
Subordinated Discount Notes will be redeemable
at the option of the Company, on one or more
occasions, from the net proceeds of public or
private sales of common stock of, or
contributions to the common equity capital of,
the Company, at a price of 112.250% of the
Accreted Value of the Senior Subordinated
Discount Notes; provided that at least $150
million in Accreted Value of Exchange Senior
Subordinated Discount Notes remains outstanding
immediately after such redemption. The
selection of Exchange Notes to be redeemed
pursuant to the options described in this
paragraph would be pro rata, by lot or by such
method as the applicable Trustee deems fair and
appropriate.
Upon the occurrence of a Change of Control,
each Holder of Exchange Notes may require the
Company to repurchase all or a portion of such
Holder's Exchange Notes at 101% of the
aggregate principal amount of the Exchange
Senior Subordinated Notes and 101% of the
Accreted Value of the Exchange Senior
Subordinated Discount Notes, as applicable,
together with accrued and unpaid interest, if
any, to the date of repurchase. There can be no
assurance that the Company will have sufficient
funds, or will obtain the requisite consent of
the Lenders under the New Bank Credit
Agreement, to satisfy the Change of Control
repurchase requirement if such requirement
arises. See "Description of Exchange Notes."
MANDATORY SINKING FUND........ None.
GUARANTEES.................... The Company's payment obligations under the
Exchange Notes will be jointly and severally
guaranteed on a senior subordinated basis (the
"Senior Subordinated Guarantees") by Holdings,
by each of the Company's direct and indirect
domestic subsidiaries and by any other
Subsidiaries of the Company that act as
guarantors under the New Bank Credit Agreement
(collectively, the "Guarantors"). The Senior
Subordinated Guarantees will be subordinated to
the guarantees of Senior Debt issued by the
Guarantors under the New Bank Credit Agreement.
See "Description of Exchange Notes -- Senior
Subordinated Guarantees."
RANKING....................... The Exchange Notes will be general, unsecured
obligations of the Company, will be
subordinated in right of payment to all Senior
Debt (as defined herein) of the Company, will
rank pari passu with all senior subordinated
debt of the Company
21
<PAGE> 29
and will be senior in right of payment to all
future subordinated debt, if any, of the
Company. The claims of the Holders of the
Exchange Notes will be subordinated to the
Senior Debt, which, as of May 1, 1996, was
approximately $517.0 million, $515.0 million of
which consisted of fully secured borrowings
under the New Bank Credit Agreement. In
addition, the Exchange Notes will be
effectively subordinated to all indebtedness
and other liabilities (including trade payables
and capital lease obligations) of the Company's
subsidiaries that are not Guarantors and
through which the Company will conduct a
portion of its operations. See "Capitalization"
and "Description of Exchange Notes --
Subordination."
The Notes are not currently, and the Exchange
Notes upon issuance are not expected to be,
senior in priority to any outstanding
indebtedness of the Company or its
subsidiaries. The Company has no current plan
or intention to incur any indebtedness to which
the Notes or the Exchange Notes would be senior
in priority. The Senior Subordinated Notes, the
Senior Subordinated Discount Notes, the
Exchange Senior Subordinated Notes and the
Exchange Senior Subordinated Discount Notes all
rank pari passu with one another.
FORM AND DENOMINATION......... The Exchange Notes will be fully registered as
to principal and interest in minimum
denominations of $1,000 and integral multiples
thereof. The Exchange Notes will be initially
issued in the form of one or more global notes
and deposited with a custodian for and
registered in the name of a nominee of The
Depository Trust Company. Exchange Notes will
not be issued in certificated, fully registered
form, except in the circumstances provided for
in the Indentures. See "Description of Exchange
Notes -- Book-Entry, Delivery and Form."
CERTAIN COVENANTS............. The Indenture governing the Exchange Senior
Subordinated Notes (the "Senior Subordinated
Note Indenture") and the Indenture governing
the Exchange Senior Subordinated Discount Notes
(the "Senior Subordinated Discount Exchange
Note Indenture" and, together with the Senior
Subordinated Note Indenture, the "Indentures")
contain certain covenants that, among other
things, limit the ability of the Company and
its Restricted Subsidiaries (as defined herein)
to incur additional indebtedness and issue
Disqualified Stock (as defined herein), pay
dividends or distributions or make investments
or make certain other Restricted Payments (as
defined herein), enter into certain
transactions with affiliates, dispose of
certain assets, incur liens securing pari passu
and subordinated indebtedness of the Company
and engage in mergers and consolidations. See
"Description of Exchange Notes."
ORIGINAL ISSUE DISCOUNT....... For federal income tax purposes, each Exchange
Senior Subordinated Discount Note will be
considered to have been issued with "original
issue discount" equal to the difference between
the issue price of the Senior Subordinated
Discount
22
<PAGE> 30
Note for which it is exchanged and the sum of
all cash payments (whether denominated as
principal or interest) to be made on such
Senior Subordinated Discount Note. Each Holder
of an Exchange Senior Subordinated Discount
Note must include in gross income for federal
income tax purposes the sum of the daily
portions of such original issue discount for
each day during each taxable year in which the
Exchange Senior Subordinated Discount Note is
held, even though no interest payments will be
received prior to September 15, 2001. See
"Description of Certain Federal Income Tax
Consequences of an Investment in the Exchange
Notes."
EXCHANGE OFFER;
REGISTRATION RIGHTS......... If the Holders of an aggregate of at least $1.0
million in principal amount or Accreted Value
of Transfer Restricted Securities (as defined
herein) notify the Company within the specified
time period that (A) they are prohibited by law
or SEC policy from participating in the
Exchange Offer, (B) they may not resell
Exchange Notes acquired in the Exchange Offer
to the public without delivering a prospectus
and the prospectus contained in the Exchange
Offer Registration Statement is not appropriate
or available for such resales or (C) they are
broker-dealers and hold Notes acquired directly
from the Company or an affiliate of the
Company, then the Company and the Guarantors
will be required to provide a shelf
registration statement (the "Shelf Registration
Statement") to cover resales of the Notes by
the Holders thereof. Notwithstanding the
foregoing, at any time after consummation of
the Exchange Offer, the Company and the
Guarantors may allow the Shelf Registration
Statement to cease to be effective and usable
if (i) the Board of Directors of the Company
determines in good faith that such action is in
the best interests of the Company, and the
Company notifies the Holders within a certain
period of time after the Board of Directors
makes such determination or (ii) the prospectus
contained in the Shelf Registration Statement
contains an untrue statement of a material fact
or omits to state a material fact necessary in
order to make the statements therein, in the
light of the circumstances under which they
were made, not misleading; provided that the
period referred to in the Registration Rights
Agreement during which the Shelf Registration
Statement is required to be effective and
usable will be extended by the number of days
during which such registration statement was
not effective or usable pursuant to the
foregoing provisions.
If (i) the Company and the Guarantors fail to
cause the Exchange Offer Registration Statement
to become effective within 90 days after the
date of its initial filing with the SEC, or
(ii) the Company and the Guarantors are
obligated to provide a Shelf Registration
Statement and such Shelf Registration Statement
is not filed within 30 days, or declared
effective within 90 days, of the date on which
the Company
23
<PAGE> 31
became so obligated, or (iii) the Company and
the Guarantors fail to consummate the Exchange
Offer within 30 days of the date on which the
Exchange Offer Registration Statement was
required to be declared effective by the SEC or
(iv) subject to the last sentence of the
preceding paragraph, the Shelf Registration
Statement or the Exchange Offer Registration
Statement is declared effective but shall
thereafter cease to be effective or usable in
connection with resales of the Notes for the
periods specified in the Registration Rights
Agreement (each such event referred to in
clauses (i) through (iv) above a "Registration
Default"), then the Company shall pay to each
Holder of Transfer Restricted Securities, with
respect to the first 90-day period following
such Registration Default, liquidated damages
("Liquidated Damages") in an amount equal to
$0.05 per week per $1,000 in principal amount
or Accreted Value, as applicable, of Transfer
Restricted Securities held by such Holder. The
amount of such Liquidated Damages will increase
by an additional $0.05 per week per $1,000 in
principal amount or Accreted Value, as
applicable, of Transfer Restricted Securities
held by such Holders for each subsequent 90-day
period until such Registration Default has been
cured, up to a maximum of $0.50 per week.
Following the cure of all Registration
Defaults, the accrual of all Liquidated Damages
will cease.
24
<PAGE> 32
RISK FACTORS
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
The Company is, and will continue to be, highly leveraged as a result of
the substantial indebtedness it has incurred in connection with the Acquisition,
and intends to incur to finance acquisitions and expand its operations. As of
March 31, 1996, after giving pro forma effect to the Acquisition and the related
financing transactions, including the Note Offering, the Company would have had
total indebtedness of $1.017 billion and stockholders' equity of $390.4 million,
resulting in a ratio of debt to total capitalization of approximately 72%. After
giving pro forma effect to such transactions, earnings would not have been
sufficient to cover fixed charges by $7.8 million for the year ended December
31, 1995 and by $1.4 million for the three months ended March 31, 1996. Although
the Company believes it will be able to meet its debt obligations, there is no
assurance that there will be adequate cash available to make interest payments
under the Company's indebtedness when they become due. Pro forma interest
expense for fiscal 1995 would have been $102.9 million, of which $68.9 million
would have been cash interest expense. The Company may incur additional
indebtedness in the future, subject to limitations imposed by the Indentures and
the New Bank Credit Agreement. See "Capitalization" and "Pro Forma Consolidated
Financial Statements."
The Company's ability to make scheduled payments of principal of, or to pay
interest on, or to refinance its indebtedness (including the Exchange Notes)
depends on its future performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors beyond its control. Based upon the current level of operations and
anticipated growth, management of the Company believes that available cash flow,
together with available borrowings under the New Bank Credit Agreement and other
sources of liquidity, will be adequate to meet the Company's anticipated future
requirements for working capital, capital expenditures and scheduled payments of
principal of and interest on its Senior Debt, and interest on the Exchange
Notes. However, a portion of the principal payments at maturity on the Exchange
Notes may require refinancing. There can be no assurance that the Company's
business will generate sufficient cash flow from operations or that future
borrowings will be available in an amount sufficient to enable the Company to
service its indebtedness, including the Exchange Notes, or make necessary
capital expenditures, or that any refinancing would be available on commercially
reasonable terms or at all. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
The degree to which the Company is now leveraged could have important
consequences to holders of the Exchange Notes, including, but not limited to,
the following: (i) a substantial portion of the Company's cash flow from
operations will be required to be dedicated to debt service and will not be
available for other purposes; (ii) the Company's ability to obtain additional
financing in the future could be limited; (iii) certain of the Company's
borrowings are at variable rates of interest, which could result in higher
interest expense in the event of increases in interest rates; and (iv) the
Indentures and the New Bank Credit Agreement contain financial and restrictive
covenants that limit the ability of the Company to, among other things, borrow
additional funds, dispose of assets or pay cash dividends. Failure by the
Company to comply with such covenants could result in an event of default which,
if not cured or waived, could have a material adverse effect on the Company. In
addition, the degree to which the Company is leveraged could prevent it from
repurchasing all Exchange Notes tendered to it upon the occurrence of a Change
of Control. See "Description of Exchange Notes" and "Description of Senior
Debt."
A principal component of the Company's strategy for future growth is the
acquisition of additional bowling centers, which the Company expects to finance
with the Acquisition Facility under the New Bank Credit Agreement. Although $100
million is currently available under the Acquisition Facility, any actual
borrowing must meet certain financial tests under the New Bank Credit Agreement
and the Indentures. The Company's leverage may adversely affect its ability to
meet these tests, and, as a result, to obtain such financing.
25
<PAGE> 33
SUBORDINATION; ASSET ENCUMBRANCES
The Exchange Notes will be subordinated in right of payment to all existing
and future Senior Debt, including the principal of (and premium, if any) and
interest on and all other amounts due on or payable in connection with Senior
Debt. At March 31, 1996, on a pro forma basis after giving effect to the
Acquisition and the related financing transactions, there would have been
outstanding approximately $517.0 million of Senior Debt, $515.0 million of which
would have been fully secured borrowings under the New Bank Credit Agreement. In
addition, the Exchange Notes will be effectively subordinated to all
indebtedness and other liabilities (including trade payables and capital lease
obligations) of the Company's subsidiaries that are not Guarantors, which as of
March 31, 1996 aggregated $7.8 million on a pro forma basis. By reason of such
subordination, in the event of the insolvency, liquidation, reorganization,
dissolution or other winding-up of the Company or upon a default in payment with
respect to, or the acceleration of, any Senior Debt, the holders of such Senior
Debt and any other creditors who are holders of Senior Debt and creditors of
subsidiaries that are not Guarantors must be paid in full before the Holders of
the Exchange Notes may be paid. If the Company incurs any additional pari passu
debt, the holders of such debt would be entitled to share ratably with the
Holders of the Exchange Notes in any proceeds distributed in connection with any
insolvency, liquidation, reorganization, dissolution or other winding-up of the
Company. This may have the effect of reducing the amount of proceeds paid to
Holders of the Exchange Notes. In addition, no payments may be made with respect
to the principal of (and premium, if any) or interest or Liquidated Damages, if
any, on the Exchange Notes if a payment default exists with respect to Senior
Debt and, under certain circumstances, no payments may be made with respect to
the principal of (and premium, if any) or interest or Liquidated Damages, if
any, on the Exchange Notes for a period of up to 179 days if a non-payment
default exists with respect to Senior Debt. In addition, the Indentures permit
subsidiaries of the Company to incur debt provided certain conditions are met.
Any debt incurred by a subsidiary of the Company that is not a Guarantor will be
structurally senior to the Exchange Notes. See "Description of Exchange Notes."
Holdings and the Company have granted to the lenders under the New Bank
Credit Agreement security interests in all of the capital stock of the Company
and substantially all of the current and future assets of the Company, including
a pledge of all of the issued and outstanding shares of capital stock of certain
of the Company's subsidiaries. In addition, the Guarantors have granted to such
lenders security interests in all of the current and future assets of the
Guarantors (other than 35% of the outstanding capital stock of any foreign
subsidiary of any Guarantor). In the event of a default on secured indebtedness,
including the guarantees with respect to the New Bank Credit Agreement (whether
as a result of the failure to comply with a payment or other covenant, a cross-
default, or otherwise), the parties granted such security interests will have a
prior secured claim on the capital stock of the Company and the assets of the
Company and the Guarantors. If such parties should attempt to foreclose on their
collateral, the Company's financial condition and the value of the Exchange
Notes will be materially adversely affected. In the event of a foreclosure on
the collateral consisting of the Company's stock, unless the purchaser of such
stock were an affiliate of Goldman Sachs, a Change of Control would occur, with
the consequences set forth below under "-- Payment Upon Change of Control." See
"Description of Senior Debt."
HOLDING COMPANY STRUCTURE
The Company conducts all of its business through subsidiaries and has no
operations of its own. The Company is dependent on the cash flow of its
subsidiaries and distributions thereof from its subsidiaries to the Company in
order to meet its debt service obligations. It is not expected that Holdings
will have any assets other than the common stock of the Company.
As a result of the holding company structure of the Company, the Holders of
the Exchange Notes are structurally junior to all creditors of the subsidiaries
that are not Guarantors, except to the extent that the Company or a Guarantor is
itself recognized as a creditor of such subsidiary, in which case the claims of
the Company or such Guarantor would still be subordinate to any security
26
<PAGE> 34
in the assets of such subsidiary and any indebtedness of such subsidiary senior
to that held by the Company or a Guarantor. In the event of the insolvency,
liquidation, reorganization, dissolution or other winding-up of the subsidiaries
that are not Guarantors, the Company will not receive funds available to pay to
the Holders of the Exchange Notes in respect of the Exchange Notes until after
the payment in full of the claims of the creditors of the subsidiaries. As of
March 31, 1996, on a pro forma basis after giving effect to the Acquisition and
related financing transactions, the aggregate amount of indebtedness and other
obligations of the subsidiaries that are not Guarantors (including trade
payables and capital lease obligations) would have been approximately $7.8
million. See Note 6 to the Consolidated Financial Statements of AMF Group
Holdings Inc.
DEPENDENCE ON KEY PERSONNEL
The Company's business is managed by a small number of key executive
officers: Douglas J. Stanard, Robert L. Morin, Stephen E. Hare, Michael P.
Bardaro and William L. Flexon. The loss of the services of certain of these
executives could have an adverse impact on AMF. There can be no assurance that
the services of such personnel will continue to be made available to the
Company. The Company does not maintain key-person insurance with respect to its
executive officers.
CONTROL BY GSCP; CERTAIN PAYMENTS TO GOLDMAN, SACHS & CO.
Goldman, Sachs & Co. ("Goldman Sachs") and its affiliates have certain
interests in the Acquisition and in the Company. Richard A. Friedman and Terence
M. O'Toole, each of whom is a general partner of Goldman Sachs, and Peter M.
Sacerdote, who is a limited partner of Goldman Sachs, are directors of the
Company. GSCP and The Goldman Sachs Group, L.P. ("The Goldman Sachs Group"),
which has a 99% interest in Goldman Sachs, together beneficially own a majority
of the outstanding voting equity of Holdings' parent company; thus Goldman Sachs
will be deemed to be an "affiliate" of the Company. See "Ownership of Capital
Stock." Goldman Sachs received an underwriting discount of approximately $19.0
million in connection with its purchase and resale of the Notes. Goldman Sachs
also served as financial advisor to the sellers of AMF in connection with the
Acquisition and received certain fees and had expenses reimbursed in connection
therewith as described herein. Moreover, Goldman Sachs acted as co-arranger and
underwriter in connection with the New Bank Credit Agreement and received
certain fees and had expenses reimbursed in connection therewith. Goldman Sachs
also received certain cash fees from the Company in connection with the
Acquisition. See "Certain Transactions."
As a result of its ownership of a majority of the outstanding voting equity
of Holdings' parent company, GSCP controls Holdings and the Company and has the
ability to elect all of their directors, appoint new management and approve any
action requiring the approval of Holdings' or the Company's stockholders,
including adopting amendments to the Company's Certificate of Incorporation and
approving mergers or sales of substantially all of the Company's assets, in each
case subject to the restrictions contained in the stockholders' agreement among
GSCP and the other stockholders of Holdings' parent company (see "Ownership of
Capital Stock -- Stockholders Agreement") and subject to whatever contractual
restrictions apply to the Company. There can be no assurance that the interests
of GSCP will not conflict with the interests of the Holders of the Exchange
Notes. See "Management," "Ownership of Capital Stock" and "Certain
Transactions."
PAYMENT UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Exchange Notes
may require the Company to repurchase all or a portion of such Holder's Exchange
Notes at 101% of the principal amount of the Exchange Senior Subordinated Notes
and 101% of the Accreted Value of the Exchange Senior Subordinated Discount
Notes, as applicable, together with accrued and unpaid interest, if any, and
Liquidated Damages, if any, to the date of repurchase. The Indentures require
that prior to such a repurchase, the Company must either repay all outstanding
indebtedness under the New Bank Credit Agreement or obtain any required consent
to such repurchase. If a Change of
27
<PAGE> 35
Control were to occur, the Company may not have the financial resources to repay
all of its obligations under the New Bank Credit Agreement, the Indentures and
the other indebtedness that would become payable upon the occurrence of such
Change of Control. See "Description of Exchange Notes -- Repurchase at the
Option of Holders."
BOWLING INDUSTRY CHARACTERISTICS
Bowling Center Operations. In the United States, the operation of bowling
centers is a mature industry characterized by slightly declining lineage offset
by increasing average price per game. According to an industry source, average
industry lineage has declined by approximately 2.0% annually from 1988 to 1995.
Total lineage, according to an industry source, has declined despite an average
annual increase of 1.3% in the total number of people bowling since 1987. This
trend is largely a result of a shift in the customer base from league
participants to more open play bowlers, resulting in more people bowling, but
bowling less frequently. Bowling center operators have offset the decrease in
overall lineage by increasing prices and creating additional sources of
ancillary income. Contrary to the overall lineage trend in the industry, AMF's
domestic lineage has remained relatively stable in recent years due to AMF's
ability to better maintain existing league bowlers and attract new open play
bowlers, while increasing prices. Internationally, although trends vary by
country, certain of the international markets in which AMF operates have
experienced increasing competition as they have transitioned from newly
developed to more mature markets, resulting in declining lineage. AMF has offset
these lineage declines through higher prices. There can be no assurance that AMF
will be able to maintain lineage or increase prices in the future.
In addition, bowling faces competition from alternative sport and
recreational activities. The continued success of AMF's bowling operations is
subject to consumers' continued interest in recreational bowling, the
availability and cost of other recreational and entertainment alternatives and
the amount of leisure time as well as various other social and economic factors
over which AMF has no control. There can be no assurance that bowling will
continue its current popularity or that AMF will continue to compete effectively
in the industry. See "Business -- Industry Overview."
Bowling Equipment Manufacturing. The bowling equipment industry has been
characterized by relatively stable sales of Replacement and Modernization
products to the installed base of equipment operators, and more varied results
in sales of New Center Packages for newly constructed bowling centers. Periods
of rapid growth in New Center Package sales for newly constructed bowling
centers have occurred as the sport has become popular in particular countries
and the economics of constructing and operating a bowling center have become
attractive to local developers and entrepreneurs. Continued growth in AMF's sale
of New Center Packages depends on similar bowling growth patterns developing in
other, emerging markets, such as China, India and Indonesia, and on AMF's
ability to successfully predict the timing and location of such future
international expansion and to successfully exploit new demand. There can be no
assurance that such future international expansion will occur or that, if it
does occur, AMF will be able to successfully compete in such emerging markets.
Sales of New Center Packages for the first quarter of 1996 declined
substantially from the corresponding period in 1995, reflecting the maturing
bowling markets in Taiwan and Korea. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Backlog; Recent NCP Sales."
FOREIGN OPERATIONS
The Company's foreign operations are subject to the usual risks inherent in
operating abroad, including, but not limited to, risks with respect to currency
exchange rates, economic and political destabilization, other disruption of
markets, restrictive laws and actions by foreign governments (such as
restrictions on transfer of funds, export duties and quotas, foreign customs and
tariffs and unexpected changes in regulatory environments), difficulty in
obtaining distribution and support, nationalization, the laws and policies of
the United States affecting trade, foreign investment and loans, and foreign tax
laws. There can be no assurance that these factors will not have a material
28
<PAGE> 36
adverse impact on the Company's ability to increase or maintain its foreign
sales or on its results of operations. For the year ended December 31, 1995, a
substantial portion of AMF's revenue and EBITDA, including substantially all of
the revenue and EBITDA derived from sales of New Center Packages, were from
foreign operations. See "Summary Combined Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- International Operations" and "-- Backlog; Recent NCP Sales."
The Company's ability to service its indebtedness will be dependent, in
part, on its ability to utilize the cash flow generated by its foreign
operations. In general, U.S. federal and international tax laws provide that
income of international subsidiaries is subject to tax only in the local
jurisdiction and is not subject to U.S. federal income tax unless, and only to
the extent that, such income is distributed as a dividend to the U.S. parent
company. The Company has not determined whether to cause its international
subsidiaries to pay dividends to the Company or to cause the net income of such
subsidiaries to be retained abroad. The Company may make loans to its foreign
subsidiaries, and, in that event, payments by the Company's foreign subsidiaries
to the Company on such intercompany loans may result in the repatriation of a
substantial portion of the cash flow of such subsidiaries without the payment of
taxes abroad. In addition, certain of the Company's subsidiaries may make
royalty payments to the Company. There can be no assurance, however, that the
interest payments on such intercompany loans or such royalty payments will not
be recharacterized as dividends, which could have adverse tax consequences to
the Company.
On December 28, 1995, the State Council of China announced the reform and
adjustment of its policy towards foreign invested joint ventures in China. With
effect from April 1, 1996, joint ventures importing capital equipment, including
bowling equipment, are required to pay customs duty and Value Added Tax ("VAT")
on such equipment, though certain grandfather rule exemptions will apply. For
bowling equipment, the current customs duty rate is 50%, while the VAT rate is
17%. Prior to the change in import duty policy, the joint ventures were exempt
from customs duty and VAT on most imported capital equipment, including bowling
equipment. As a grandfather concession, foreign investment enterprises approved
to set up prior to April 1, 1996, with a total investment of less than US$30
million may have until December 31, 1996 to import capital equipment duty free.
Accordingly, there is a risk that the change in import duty policy in China may
adversely affect the sale of NCP units to China. Based on the information
available to the Company, the Company believes that its competitors will be
similarly affected by the new import policy. The Company thus believes that the
new policy will not put it at a competitive disadvantage with respect to its
competitors.
LACK OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Notes are currently owned by a relatively small number of beneficial
owners. The Notes have not been registered under the Securities Act and will be
subject to restrictions on transferability to the extent that they are not
exchanged for the Exchange Notes. The Exchange Notes will constitute a new issue
of securities with no established trading market. Although the Exchange Notes
will generally be permitted to be resold or otherwise transferred by Holders who
are not affiliates of the Company without compliance with the registration
requirements under the Securities Act, the Company does not intend to list the
Exchange Notes on any national securities exchange or to seek the admission
thereof to trading in the National Association of Securities Dealers Automated
Quotation System. The Company has been advised by Goldman Sachs that it
presently intends to make a market in the Exchange Notes. However, Goldman Sachs
is not obligated to do so and any market-making activity with respect to the
Exchange Notes may be discontinued at any time without notice. In addition, such
market-making activity will be subject to the limits imposed by the Securities
Act and the Exchange Act. Accordingly, no assurance can be given that an active
public or other market will develop for the Exchange Notes or as to the
liquidity of or the trading market for the Exchange Notes.
29
<PAGE> 37
If such a market were to develop, the Exchange Notes could trade at prices
that may be higher or lower than the initial offering price of the Notes
depending on many factors, including prevailing interest rates, the Company's
operating results and the market for similar securities.
Goldman Sachs may be deemed to be an affiliate of the Company and, as such,
may be required to deliver a "market-maker" prospectus in connection with its
market-making activities in the Exchange Notes. Pursuant to the Registration
Rights Agreement, the Company agreed to file and maintain a registration
statement that would allow Goldman Sachs to engage in market-making transactions
in the Exchange Notes. The registration statement will remain effective for as
long as Goldman Sachs may be required to deliver a prospectus in connection with
secondary transactions in the Exchange Notes.
Notwithstanding the foregoing, at any time after consummation of the
Exchange Offer, the Company and the Guarantors may allow such market-maker
prospectus to cease to be effective and usable if (i) the Board of Directors of
the Company determines in good faith that such action is in the best interests
of the Company, and the Company notifies the Holders within a certain period of
time after the Board of Directors makes such determination or (ii) such
prospectus contains an untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The Company has
agreed to bear substantially all the costs and expenses related to such
registration statement.
ORIGINAL ISSUE DISCOUNT CONSEQUENCES
The Senior Subordinated Discount Notes were, and the Exchange Senior
Subordinated Discount Notes will be, issued at a substantial discount from their
principal amount. Consequently, the purchasers of the Senior Subordinated
Discount Notes and, subsequently, the Exchange Senior Subordinated Discount
Notes generally will be required to include amounts in gross income for federal
income tax purposes in advance of receipt of the cash payments to which the
income is attributable. See "Description of Certain Federal Income Tax
Consequences of an Investment in the Exchange Notes" for a more detailed
discussion of the federal income tax consequences to the holders of the Exchange
Senior Subordinated Discount Notes of the purchase, ownership and disposition of
the Exchange Senior Subordinated Discount Notes.
If a bankruptcy case is commenced by or against the Company under the
United States Bankruptcy Code after the issuance of the Exchange Senior
Subordinated Discount Notes, the claim of a Holder of Exchange Senior
Subordinated Discount Notes with respect to the principal amount thereof may be
limited to an amount equal to the sum of (i) the issue price and (ii) that
portion of the original issue discount which is not deemed to constitute
"unmatured interest" for purposes of the United States Bankruptcy Code. Any
original issue discount that was not amortized as of any such bankruptcy filing
would constitute "unmatured interest."
The initial payment of interest on the Exchange Senior Subordinated
Discount Notes is required to be made on September 15, 2001. The Exchange Senior
Subordinated Discount Notes, therefore, are not a suitable investment for
investors seeking current income prior to that date.
FRAUDULENT CONVEYANCE
Management of the Company believes that the indebtedness represented by the
Exchange Notes and the Guarantees is being incurred for proper purposes and in
good faith, and that, based on present forecasts, asset valuations and other
financial information, after the issuance of the Exchange Notes, the Company
will be solvent, will have sufficient capital for carrying on its business and
will be able to pay its debts as they mature. See "-- Substantial Leverage;
Ability to Service Indebtedness." Notwithstanding management's belief, however,
if a court of competent jurisdiction in a suit by an unpaid creditor or a
representative of creditors (such as a trustee in bankruptcy or a
debtor-in-possession) were to find that, at the time of the incurrence of such
indebtedness, the Company or the Guarantors were insolvent, were rendered
insolvent by reason of such incurrence, were engaged in a business or
transaction for which its remaining assets constituted unreasonably
30
<PAGE> 38
small capital, intended to incur, or believed that they would incur, debts
beyond their ability to pay such debts as they matured, or intended to hinder,
delay or defraud their creditors, and that the indebtedness was incurred for
less than reasonably equivalent value, then such court could, among other
things, (a) void all or a portion of the Company's or the Guarantors'
obligations to the Holders of the Exchange Notes, the effect of which would be
that the Holders of the Exchange Notes may not be repaid in full and/or (b)
subordinate the Company's or the Guarantors' obligations to the Holders of the
Exchange Notes to other existing and future indebtedness of the Company to a
greater extent than would otherwise be the case, the effect of which would be to
entitle such other creditors to be paid in full before any payment could be made
on the Exchange Notes or the Guarantees.
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Exchange Agents
of such Notes, a properly completed and duly executed Letter of Transmittal and
all other required documents. Therefore, holders of the Notes desiring to tender
such Notes in exchange for Exchange Notes should allow sufficient time to ensure
timely delivery. The Company is under no duty to give notification of defects or
irregularities with respect to the tenders of Notes for exchange. Notes that are
not tendered or are tendered but not accepted will, following the consummation
of the Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof and, upon consummation of the Exchange Offer, the registration
rights under the Registration Rights Agreement generally will terminate. In
addition, any holder of Notes who tenders in the Exchange Offer for the purpose
of participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale. Each broker-dealer that receives Exchange Notes for
its own account in exchange for Notes, where such Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. To the extent that Notes are tendered
and accepted in the Exchange Offer, the trading market for untendered and
tendered but unaccepted Notes could be adversely affected. See "The Exchange
Offer."
RESTRICTIONS ON TRANSFER
The Notes were offered and sold by the Company in a private offering exempt
from registration pursuant to the Securities Act and have been resold pursuant
to Rule 144A and Regulation S under the Securities Act. As a result, the Notes
may not be reoffered or resold by purchasers except pursuant to an effective
registration statement under the Securities Act, or pursuant to an applicable
exemption from such registration, and the Notes are legended to restrict
transfer as aforesaid. Each Holder (other than any Holder who is an affiliate or
promoter of the Company) who duly exchanges Notes for Exchange Notes in the
Exchange Offer will receive Exchange Notes that are freely transferable under
the Securities Act. Holders of Notes who participate in the Exchange Offer
should be aware, however, that if they accept the Exchange Offer for the purpose
of engaging in a distribution, the Exchange Notes may not be publicly reoffered
or resold without complying with the registration and prospectus delivery
requirements of the Securities Act. As a result, each Holder of Notes accepting
the Exchange Offer will be deemed to have represented, by its acceptance of the
Exchange Offer, that it acquired the Exchange Notes in the ordinary course of
business and that it is not engaged in, and does not intend to engage in, a
distribution of the Exchange Notes. If existing SEC interpretations permitting
free transferability of the Exchange Notes following the Exchange Offer are
changed prior to consummation of the Exchange Offer, the Company will use its
best efforts to register the Notes for resale under the Securities Act. See
"Prospectus Summary -- The Exchange Offer" and "Description of Exchange
Notes -- Registration Rights."
31
<PAGE> 39
The Notes currently may be sold pursuant to the restrictions set forth in
Rule 144A or Regulation S, or pursuant to another available exemption under the
Securities Act, without registration under the Securities Act. To the extent
that Notes are tendered and accepted in the Exchange Offer, the trading market
for the untendered and tendered but unaccepted Notes could be adversely
affected.
32
<PAGE> 40
THE EXCHANGE OFFER
The following discussion sets forth or summarizes what the Company believes
are the material terms of the Exchange Offer, including those set forth in the
Letters of Transmittal distributed with this Prospectus. This summary is
qualified in its entirety by reference to the full text of the documents
underlying the Exchange Offer, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part, and are incorporated
by reference herein.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Notes were sold by the Company on March 21, 1996, and were subsequently
resold to qualified institutional buyers pursuant to Rule 144A under the
Securities Act, to institutional investors that are accredited investors in a
manner exempt from registration under the Securities Act and to certain persons
in transactions outside the United States in reliance on Regulation S under the
Securities Act. In connection with the Note Offering, the Company entered into
the Registration Rights Agreement, which requires, among other things, that
promptly following the completion of the Acquisition, the Company and the
Guarantors (i) file with the SEC a registration statement under the Securities
Act with respect to an issue of new notes of the Company identical in all
material respects to the Notes, (ii) use their best efforts to cause such
registration statement to become effective under the Securities Act and (iii)
upon the effectiveness of that registration statement, offer to the Holders of
the Notes the opportunity to exchange their Notes for a like principal amount of
Exchange Notes, which would be issued without a restrictive legend and may be
reoffered and resold by the holder without restrictions or limitations under the
Securities Act (other than any such holder that is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act). A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The term "Holder" with respect to
the Exchange Offer means any person in whose name the Notes are registered on
the books of the Company or any other person who has obtained a properly
completed bond power from the registered holder.
Because the Exchange Offer is for any and all Notes, the number of Notes
tendered and exchanged in the Exchange Offer will reduce the principal amount of
Notes outstanding. Following the consummation of the Exchange Offer, Holders of
the Notes who did not tender their Notes generally will not have any further
registration rights under the Registration Rights Agreement, and such Notes will
continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of the market for such Notes could be adversely affected. The Notes
are currently eligible for sale pursuant to Rule 144A through the PORTAL System
of the National Association of Securities Dealers, Inc. Because the Company
anticipates that most holders of Notes will elect to exchange such Notes for
Exchange Notes due to the absence of restrictions on the resale of Exchange
Notes under the Securities Act, the Company anticipates that the liquidity of
the market for any Notes remaining after the consummation of the Exchange Offer
may be substantially limited.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Notes
validly tendered and not withdrawn prior to 5:00 p.m. New York City time, on the
Expiration Date. The Company will issue $1,000 principal amount of Exchange
Senior Subordinated Notes in exchange for each $1,000 principal amount of
outstanding Senior Subordinated Notes accepted in the Exchange Offer, and $1,000
principal amount of Exchange Senior Subordinated Discount Notes in exchange for
each $1,000 principal amount of outstanding Senior Subordinated Discount Notes
accepted in the Exchange Offer. Holders may tender some or all of their Notes
pursuant to the Exchange Offer. However, Notes may be tendered only in integral
multiples of $1,000.
33
<PAGE> 41
The form and terms of the Exchange Notes are the same as the form and terms
of the Notes except that (i) the Exchange Notes have been registered under the
Securities Act and hence will not bear legends restricting the transfer thereof
and (ii) the holders of the Exchange Notes generally will not be entitled to
certain rights under the Registration Rights Agreement, which rights generally
will terminate upon consummation of the Exchange Offer. The Exchange Notes will
evidence the same debt as the Notes and will be entitled to the benefits of the
Indentures.
Holders of Notes do not have any appraisal or dissenters' rights under the
General Corporation Law of Delaware or the Indentures in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the SEC thereunder, including Rule 14e-1 thereunder.
The Company shall be deemed to have accepted validly tendered Notes when,
as and if the Company has given oral or written notice thereof to the Exchange
Agents. The Exchange Agents will act as agents for the tendering Holders for the
purpose of receiving the Exchange Notes from the Company.
If any tendered Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted Notes will be returned, without
expense, to the tendering Holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Notes in the Exchange Offer will not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Notes pursuant to
the Exchange Offer. The Company will pay all charges and expenses, other than
transfer taxes in certain circumstances, in connection with the Exchange Offer.
See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
September , 1996, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
To extend the Exchange Offer, the Company will notify the Exchange Agents
of any extension by oral or written notice, followed by a public announcement
thereof no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
The Company reserves the right, in its reasonable judgment, (i) to delay
accepting any Notes, to extend the Exchange Offer or to terminate the Exchange
Offer if any of the conditions set forth below under "-- Conditions" shall not
have been satisfied, by giving oral or written notice of such delay, extension
or termination to the Exchange Agents or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by a public announcement
thereof. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered Holders, and, depending upon the significance of the amendment and
the manner of disclosure to the registered Holders, the Company will extend the
Exchange Offer for a period of five to ten business days if the Exchange Offer
would otherwise expire during such five to ten business-day period.
If the Company does not consummate the Exchange Offer, or, in lieu thereof,
the Company does not file and cause to become effective a resale shelf
registration for the Notes within the time periods set forth herein, liquidated
damages will accrue and be payable on the Notes either temporarily or
permanently. See "Description of Exchange Notes -- Registration Rights;
Liquidated Damages."
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, the Company shall have no
34
<PAGE> 42
obligation to publish, advertise or otherwise communicate any such public
announcement, other than by making a timely release to the Dow Jones News
Service.
INTEREST ON EXCHANGE NOTES
The Exchange Senior Subordinated Notes will bear interest from March 21,
1996, the date of issuance of the Notes that are tendered in exchange for the
Exchange Notes (or the most recent Interest Payment Date to which interest on
such Notes has been paid). Accordingly, holders of Senior Subordinated Notes
that are accepted for exchange will not receive interest that is accrued but
unpaid on the Senior Subordinated Notes at the time of tender, but such interest
will be payable on the first Interest Payment Date after the Expiration Date.
Interest on the Exchange Senior Subordinated Notes will be payable semiannually
on each March 15 and September 15, commencing on September 15, 1996.
The Exchange Senior Subordinated Discount Notes will not bear interest
prior to March 15, 2001. Thereafter, interest will be payable in cash
semi-annually on March 15 and September 15 of each year, commencing on September
15, 2001.
PROCEDURES FOR TENDERING
Only a Holder of Notes may tender such Notes in the Exchange Offer. To
tender in the Exchange Offer, a Holder must complete, sign and date the relevant
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Notes
and any other required documents, to the Exchange Agent so as to be received by
the Exchange Agent at the address set forth below prior to 5:00 p.m., New York
City time, on the Expiration Date. The blue Letter of Transmittal must be used
to tender Senior Subordinated Notes and the yellow Letter of Transmittal must be
used to tender Senior Subordinated Discount Notes. Delivery of the Notes may be
made by book-entry transfer in accordance with the procedures described below.
Confirmation of such book-entry transfer must be received by the relevant
Exchange Agent prior to the Expiration Date.
By executing the Letter of Transmittal, each Holder will make to the
Company the representation set forth below in the second paragraph under the
heading "-- Resale of Exchange Notes."
The tender by a Holder and the acceptance thereof by the Company will
constitute an agreement between such Holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE
HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered Holder promptly and instruct such registered
Holder to tender on such beneficial owner's behalf.
Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Notes tendered pursuant thereto are tendered (i) by a registered
Holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for
35
<PAGE> 43
the account of an Eligible Institution. In the event that signatures on a Letter
of Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Notes listed therein, such Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered Holder
as such registered Holder's name appears on such Notes with the signature
thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
The Company understands that each Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Notes at the Depository for the purpose of facilitating the Exchange Offer,
and subject to the establishment thereof, any financial institution that is a
participant in the Depository's system may make book-entry delivery of the Notes
by causing the Depository to transfer such Notes into the relevant Exchange
Agent's account with respect to the Notes in accordance with the Depository's
procedures for such transfer. Although delivery of the Notes may be effected
through book-entry transfer into the Exchange Agent's account at the Depository,
an appropriate Letter of Transmittal properly completed and duly executed with
any required signature guarantee and all other required documents must in each
case be transmitted to and received or confirmed by the Exchange Agent at its
address set forth below on or prior to the Expiration Date, or, if the
guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures. Delivery of documents to the
Depository does not constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Notes not properly tendered or any Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in the Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Notes must be cured within such
time as the Company shall determine. Although the Company intends to notify
Holders of defects or irregularities with respect to tenders of Notes, none of
the Company, the Exchange Agents or any other person shall incur any liability
for failure to give such notification. Tenders of Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Notes received by the Exchange Agents that are not properly tendered and as
to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agents to the tendering Holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available, (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the
36
<PAGE> 44
relevant Exchange Agent or (iii) who cannot complete the procedures for
book-entry transfer, prior to the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the relevant Exchange Agent receives
from such Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the Holder, the certificate
number(s) of such Notes and the principal amount of Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within three
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof), together with the certificates(s)
representing the Notes (or a confirmation of book-entry transfer of such
Notes into the Exchange Agent's account at the Depository) and any other
documents required by the Letter of Transmittal, will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Notes in proper form for transfer (or a confirmation of book-entry transfer
of such Notes into the Exchange Agent's account at the Depository) and all
other documents required by the Letter of Transmittal, are received by the
relevant Exchange Agent within three New York Stock Exchange trading days
after the Expiration Date.
Upon request to the relevant Exchange Agent, a Notice of Guaranteed
Delivery will be sent to Holders who wish to tender their Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWALS OF TENDERS
Except as otherwise provided herein, tenders of Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Notes in the Exchange Offer, a written or facsimile
transmission notice of withdrawal must be received by the relevant Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Notes to be withdrawn (the "Depositor"), (ii)
identify the Notes to be withdrawn (including the certificate number(s) and
principal amount of such Notes, or, in the case of notes transferred by
book-entry transfer, the name and number of the account at the Depository to be
credited), (iii) be signed by the Holder in the same manner as the original
signature on the Letter of Transmittal by which such Notes were tendered
(including any required signature guarantees) or be accompanied by documents of
transfer sufficient to have the Trustee with respect to the Notes register the
transfer of such Notes into the name of the person withdrawing the tender and
(iv) specify the name in which any such Notes are to be registered, if different
from that of the Depositor. All questions as to the validity, form and
eligibility (including time or receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties. Any
Notes so withdrawn will be deemed not to have been validly tendered for purposes
of the Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Notes so withdrawn are validly retendered. Any Notes which have been
tendered but which are not accepted for exchange will be returned to the Holder
thereof without cost to such Holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
Notes may be retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
37
<PAGE> 45
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to exchange Exchange Notes for, any
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Notes, if:
(a) any law, statute, rule, regulation or interpretation by the staff
of the SEC is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(b) any governmental approval has not been obtained, which approval
the Company shall, in its reasonable judgment, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable judgment that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Notes and
return all tendered Notes to the tendering Holders, (ii) extend the Exchange
Offer and retain all Notes tendered prior to the expiration of the Exchange
Offer, subject, however, to the rights of Holders to withdraw such Notes (see
"-- Withdrawals of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Notes which have
not been withdrawn. If such waiver constitutes a material change to the Exchange
Offer, the Company will promptly disclose such waiver by means of a prospectus
supplement that will be distributed to the registered Holders, and, depending
upon the significance of the waiver and the manner of disclosure to the
registered Holders, the Company will extend the Exchange Offer for a period of
five to ten business days if the Exchange Offer would otherwise expire during
such five to ten business-day period.
EXCHANGE AGENTS
IBJ Schroder Bank & Trust Company will act as Exchange Agent for the
Exchange Offer with respect to the Senior Subordinated Notes (the "Senior
Subordinated Note Exchange Agent"). American Bank National Association will act
as Exchange Agent for the Exchange Offer with respect to the Senior Subordinated
Discount Notes (the "Senior Subordinated Discount Note Exchange Agent" and
collectively with the Senior Subordinated Note Exchange Agent, the "Exchange
Agents").
Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal for the Senior Subordinated
Notes and requests for copies of Notice of Guaranteed Delivery should be
directed to the Senior Subordinated Note Exchange Agent, addressed as follows:
By Registered or Certified Mail, Overnight Mail or Courier Service or in
Person by Hand:
IBJ Schroder Bank & Trust Company
One State Street, Level SC-1
New York, NY 10004
Attention: Corporate Trust Administration
By Facsimile:
(212) 858-2156
Questions and requests for assistance, requests for additional copies of
this Prospectus as of the Letter of Transmittal for the Senior Subordinated
Discount Notes and requests for copies of the
38
<PAGE> 46
Notice of Guaranteed Delivery should be directed to the Senior Subordinated
Discount Note Exchange Agent, addressed as follows:
By Registered or Certified Mail, Overnight Mail or Courier Service or in
Person by Hand:
American Bank National Association
101 E. Fifth Avenue
St. Paul, MN 51101-1860
Attention: Corporate Trust Administration
By Facsimile:
(612) 229-6415
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone, facsimile or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agents reasonable and customary fees for their services and will
reimburse them for their reasonable out-of-pocket expenses in connection
therewith and pay other registration expenses, including fees and expenses of
the Trustees, filing fees, blue sky fees and printing and distribution expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Notes pursuant to the Exchange Offer. If, however, certificates
representing the Exchange Notes or the Notes for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered Holder of the Notes tendered, or if
tendered Notes are registered in the name of any person other than the person
signing the Letter of Transmittal, or if a transfer tax is imposed for any
reason other than the exchange of the Notes pursuant to the Exchange Offer, then
the amount of any such transfer taxes (whether imposed on the registered Holder
or any other person) will be payable by the tendering Holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Notes, which is the aggregate principal amount in the case of the Senior
Subordinated Notes and is the aggregate Accreted Value (which increases daily)
in the case of the Senior Subordinated Discount Notes, as reflected in the
Company's accounting records on the date of exchange. Accordingly, no gain or
loss for accounting purposes will be recognized in connection with the Exchange
Offer. The expenses of the Exchange Offer will be amortized over the term of the
Exchange Notes.
RESALE OF EXCHANGE NOTES
Based on an interpretation by the staff of the SEC set forth in no-action
letters issued to third parties, the Company believes that Exchange Notes issued
pursuant to the Exchange Offer in exchange for Notes may be offered for resale,
resold and otherwise transferred by any Holder of such Exchange Notes (other
than any such Holder which is an "affiliate" of the Company within the meaning
of Rule 405 under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such Holder's business and
such Holder does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of such
Exchange Notes. Any Holder who tenders in the Exchange Offer with the intention
to participate, or for the purpose of participating, in a distribution of the
Exchange Notes
39
<PAGE> 47
may not rely on the position of the staff of the SEC enunciated in Exxon Capital
Holdings Corporation (available April 13, 1989) and Morgan Stanley & Co.,
Incorporated (available June 5, 1991), or similar no-action letters, but rather
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. In addition, any such
resale transaction should be covered by an effective registration statement
containing the selling security holders information required by Item 507 of
Regulation S-K of the Securities Act. Each broker-dealer that receives Exchange
Notes for its own account in exchange for Notes, where such Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities, may be a statutory underwriter and must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes.
By tendering in the Exchange Offer, each Holder will represent to the
Company that, among other things, (i) the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, whether or not such person is a Holder,
(ii) neither the Holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes and (iii) the Holder and such other person acknowledge that if
they participate in the Exchange Offer for the purpose of distributing the
Exchange Notes (a) they must, in the absence of an exemption therefrom, comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale of the Exchange Notes and cannot rely on the
no-action letters referenced above and (b) failure to comply with such
requirements in such instance could result in such Holder incurring liability
under the Securities Act for which such Holder is not indemnified by the
Company. Further, by tendering in the Exchange Offer, each Holder that may be
deemed an "affiliate" (as defined under Rule 405 of the Securities Act) of the
Company will represent to the Company that such Holder understands and
acknowledges that the Exchange Notes may not be offered for resale, resold or
otherwise transferred by that Holder without registration under the Securities
Act or an exemption therefrom.
As set forth above, affiliates of the Company are not entitled to rely on
the foregoing interpretations of the staff of the SEC with respect to resales of
the Exchange Notes without compliance with the registration and prospectus
delivery requirements of the Securities Act. In connection with the Note
Offering, the Company entered into the Registration Rights Agreement pursuant to
which the Company agreed to file and maintain, subject to certain limitations, a
registration statement that would allow Goldman Sachs to engage in market-making
transactions with respect to the Notes or the Exchange Notes. The Company has
agreed to bear all registration expenses incurred under such agreement,
including printing and distribution expenses, reasonable fees of counsel, blue
sky fees and expenses, reasonable fees of independent accountants in connection
with the preparation of comfort letters, and SEC and the National Association of
Securities Dealers, Inc. filing fees and expenses.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this Exchange Offer, the Company will have
fulfilled one of its obligations under the Registration Rights Agreement, and
Holders of Notes who do not tender their Notes generally will not have any
further registration rights under the Registration Rights Agreement or
otherwise. Accordingly, any Holder of Notes that does not exchange that Holder's
Notes for Exchange Notes will continue to hold the untendered Notes and will be
entitled to all the rights and limitations applicable thereto under the
Indentures, except to the extent that such rights or limitations, by their
terms, terminate or cease to have further effectiveness as a result of the
Exchange Offer.
The Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Notes may be
resold only (i) to the Company (upon redemption thereof or otherwise), (ii)
pursuant to an effective registration statement under the Securities Act, (iii)
so long as the Notes are eligible for resale pursuant to Rule 144A, to a
qualified
40
<PAGE> 48
institutional buyer within the meaning of Rule 144A under the Securities Act in
a transaction meeting the requirements of Rule 144A, (iv) outside the United
States to a foreign person pursuant to the exemption from the registration
requirements of the Securities Act provided by Regulation S thereunder, (v)
pursuant to an exemption from registration under the Securities Act provided by
Rule 144 thereunder (if available) or (vi) to an institutional accredited
investor in a transaction exempt from the registration requirements of the
Securities Act, in each case in accordance with any applicable securities laws
of any state of the United States. See "Risk Factors -- Restrictions on
Transfer."
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Notes are urged to consult
their financial and tax advisors in making their own decision on what action to
take.
The Company may in the future seek to acquire untendered Notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. The Company has no present plans to acquire any Notes that are not
tendered in the Exchange Offer or to file a registration statement to permit
resales of any untendered Notes.
In any state where the Exchange Offer does not fall under a statutory
exemption to the blue sky rules, the Company has filed the appropriate
registrations and notices, and has made the appropriate requests, to permit the
Exchange Offer to be made in such state.
41
<PAGE> 49
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OF THE EXCHANGE OFFER
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, judicial
authority and administrative rulings and practice. There can be no assurance
that the Internal Revenue Service (the "IRS") will not take a contrary view, and
no ruling from the IRS has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter or
modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to Holders. Certain Holders of the Notes (including insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign corporations and persons who are not citizens or residents of the United
States) may be subject to special rules not discussed below. Each Holder of a
Note should consult his, her or its own tax advisor as to the particular tax
consequences of exchanging such Holder's Notes for Exchange Notes, including the
applicability and effect of any state, local or foreign tax laws.
The issuance of the Exchange Notes to Holders of the Notes pursuant to the
terms set forth in this Prospectus will not constitute an exchange for federal
income tax purposes. Consequently, no gain or loss would be recognized by
Holders of the Notes upon receipt of the Exchange Notes, and ownership of the
Exchange Notes will be considered a continuation of ownership of the Notes. For
purposes of determining gain or loss upon the subsequent sale or exchange of the
Exchange Notes, a Holder's basis in the Exchange Notes should be the same as
such Holder's basis in the Notes exchanged therefor. A Holder's holding period
for the Exchange Notes should include the Holder's holding period for the Notes
exchanged therefor. The issue price, original issue discount inclusion and other
tax characteristics of the Exchange Notes should be identical to the issue
price, original issue discount inclusion and other tax characteristics of the
Notes exchanged therefor.
See also "Description of Certain Federal Income Tax Consequences of an
Investment in the Exchange Notes."
42
<PAGE> 50
THE ACQUISITION
The Acquisition occurred on May 1, 1996, pursuant to a Stock Purchase
Agreement dated February 16, 1996 (the "Stock Purchase Agreement") between
Holdings and the then current stockholders of AMF (the "Sellers"), which
provided for the acquisition of AMF through a stock purchase by the Company's
subsidiaries of all the outstanding stock (the "Stock") of the separate domestic
and foreign corporations that constitute substantially all of AMF and through
the purchase of the assets (the "Purchased Assets") of AMF's bowling center
operations in Spain and Switzerland. The Company did not acquire the assets of
two bowling centers located, respectively, in Madrid, Spain and Geneva,
Switzerland (both of which were retained by the Sellers). Accordingly, as a
result of the Acquisition, the Company owns or operates all 205 of AMF's
domestic bowling centers and 78 of AMF's 80 international bowling centers.
Douglas J. Stanard, the Chief Operating Officer of the Company, is the only
Seller currently affiliated with the Company or Goldman Sachs. Mr. Stanard's
interest in AMF prior to the Acquisition was less than 1% of the outstanding
equity of AMF at that time.
The corporate structure of AMF at its parent holding companies is
illustrated by the chart on page 45.
The following discussion summarizes the terms relating to the Acquisition
that the Company believes are material to an investor in the Notes or the
Exchange Notes. This summary is qualified in its entirety by reference to the
full text of the agreements underlying this discussion, copies of which are
filed as exhibits to the Registration Statement of which this Prospectus is a
part, and are incorporated by reference herein.
PURCHASE PRICE; ADJUSTMENTS
The Company's subsidiaries purchased the Stock and Purchased Assets for a
cash purchase price of $1.325 billion less approximately $2.0 million
representing debt of AMF which remained in place following the Closing. In
addition, the purchase price is subject to certain post-Closing adjustments as
follows: (i) the purchase price will be increased dollar-for-dollar by the
amount by which AMF's working capital (as defined in the Stock Purchase
Agreement; see Note (f) to the Pro Forma Consolidated Balance Sheet) as of the
Closing (the "Closing Working Capital") is greater than approximately $28.3
million, and will be decreased dollar-for-dollar by the amount, if any, by which
the Closing Working Capital is less than $28.3 million (the "Closing Working
Capital Adjustment"); (ii) the purchase price will be increased
dollar-for-dollar by the amount by which $5.0 million exceeds the principal
amount of the outstanding obligations as of the Closing (giving effect to the
Acquisition) under AMF's Stock Performance Plans, and will be decreased
dollar-for-dollar by the amount, if any, by which the principal amount of such
outstanding obligations as of the Closing (giving effect to the Acquisition)
exceeds $5.0 million (the "Stock Performance Plan Adjustment"); and (iii) the
purchase price was increased by $5.4 million based upon the Closing Date
Adjustment (as defined in the Stock Purchase Agreement). The Company believes
that as of the Closing all obligations under all of AMF's Stock Performance
Plans were cancelled and, assuming there are no such obligations, there will be
a purchase price adjustment of $10.4 million in favor of the Sellers, subject to
any further adjustment resulting from the Closing Working Capital Adjustment.
Amounts due with respect to post-closing adjustments bear interest from and
including the Closing Date through the day prior to payment. Any post-closing
adjustment payment due to Sellers will be made by the Company, and is not
expected to affect the Company's ability to service its debt.
On April 11, 1996, Holdings and the Sellers entered into a letter agreement
(the "Letter Agreement") amending the Stock Purchase Agreement. Under the terms
of the Letter Agreement, certain of the Sellers (the "Covenantors") have agreed
to make certain payments to Holdings if the net income before interest, taxes,
depreciation, amortization, and certain non-cash, extraordinary, non-recurring
and non-operating items ("Cash Flow") of AMF Bowling, Inc., the entity that
43
<PAGE> 51
principally operates AMF's bowling manufacturing business, does not achieve a
minimum level during the period from May 1, 1996 through June 30, 1997. The
Covenantors will pay to Holdings the excess, if any, of (i) $95 million (reduced
(or increased) by any positive (or negative) Cash Flow between April 1, 1996 and
April 30, 1996) (as adjusted, the "Maximum Shortfall") over (ii) the Cash Flow
from the operation of AMF Bowling, Inc. during the period commencing on May 1,
1996 and ending June 30, 1997. To the extent that the Cash Flow shortfall
exceeds one-third of the Maximum Shortfall, the amount the Covenantors will be
required to pay to Holdings will be limited to one-third of the Maximum
Shortfall, plus 50% of any additional shortfall but, in any case, not in excess
of 50% of the Maximum Shortfall. The shortfall is also tested as of December 31,
1996, when audited financial statements are available, based on an interim
objective, and any shortfall at that time is to be paid by the Covenantors to
Holdings, subject to adjustment following calculation of the Cash Flow for the
full period from May 1, 1996 through June 30, 1997, if such earlier payment is
not equal to the aggregate amount that would have been due with respect to the
full period. The Letter Agreement further provides that, following the end of
the full period, any disputes over any amounts paid pursuant to the terms
described above will be subject to binding arbitration. For purposes of
determining Cash Flow under the Letter Agreement, selling, general and
administrative expenses are to be assumed to be fixed at a projected level
regardless of whether the actual amount is greater or lower than such fixed
level, and Cash Flow does not include revenues recognized or expenses incurred
other than in the ordinary course of the operation of AMF Bowling, Inc. Under
the Letter Agreement, Cash Flow is to be adjusted to exclude intercompany
transfers and transactions and the effect of divestitures or acquisitions of
operating businesses.
The following table sets forth the sources and uses of funds related to the
Acquisition:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
SOURCES OF FUNDS
Senior Debt(a).................................................. $ 517.0
10 7/8% Senior Subordinated Notes............................... 250.0
12 1/4% Senior Subordinated Discount Notes...................... 250.0
--------
Total Debt.................................................... 1,017.0
Equity(b)....................................................... 391.0
Cash............................................................ 1.7
--------
Total...................................................... $ 1,409.7
========
USES OF FUNDS
Purchase Price(a)............................................... $ 1,325.0
Purchase Price Adjustments(c)................................... 14.1
Transaction Costs(b)............................................ 70.6
--------
Total...................................................... $ 1,409.7
========
</TABLE>
- ---------------
(a) Includes an existing mortgage payable by AMF in the amount of approximately
$2.0 million as of April 30, 1996. All other debt of AMF was extinguished at
or prior to the completion of the Acquisition.
(b) Includes warrants to purchase approximately 2.2% of the fully diluted common
stock of Holdings' parent company issued upon the closing of the Acquisition
to the Sellers' financial advisor in lieu of a cash fee. Such warrants have
been valued for accounting purposes at approximately $8.7 million.
(c) Includes assumed purchase price adjustments resulting in a payment to
Sellers of $14.1 million based on AMF's March 31, 1996 balance sheet. The
actual purchase price adjustments may differ. Although the actual purchase
price adjustments have not yet been finalized, the Company believes that
they will not exceed $13.4 million. See "Notes to the Pro Forma Consolidated
Balance Sheet."
44
<PAGE> 52
ORGANIZATIONAL STRUCTURE
Except as otherwise noted, all subsidiaries are 100% owned.
[ORGANIZATIONAL CHART]
AMF Holdings Inc.
AMF Group Holdings Inc.*
AMF Group Inc.
AMF Bowling Holdings, Inc.*
AMF Bowling, Inc.*
AMF Bowling Centers Holdings Inc.*
AMF Worldwide Bowling Centers Holdings Inc.*
AMF Bowling Centers Switzerland Inc.*
AMF Bowling Centers (Aust) Int'l, Inc. (Australia)*
AMF Bowling Centers (Canada) Int'l, Inc. (Canada)*
AMF Bowling Centers (Hong Kong) Int'l, Inc. (Hong Kong)*
AMF Bowling Centers Int'l, Inc. (Japan)*
AMF BCO-UK One, Inc.*
AMF Bowling (27%)
Worthing North Properties, Limited
AMF BCO-UK Two, Inc.*
AMF Bowling (73%)
Worthing North Properties, Limited
AMF BCO-France One, Inc.*
AMF Bowling de Paris SNC (1%)
AMF Bowling de Lyon (1%)
AMF BCO-France One, Inc.*
AMF Bowling France SNC (27%)
AMF Bowling de Paris SNC (99%)
AMF Bowling de Lyon (99%)
AMF BCO-France Two, Inc.*
AMF Bowling France SNC (73%)
AMF Bowling de Paris SNC (99%)
AMF Bowling de Lyon (99%)
AMF Bowling Centers Spain Inc.*
AMF Bowling Mexico Holding, Inc.*
Operadora Mexicana de Boliches, SA (15%)
Promotora de Boliches, SA de C.V. (15%)
AMF Bowling Mexico Holding, Inc.*
Boliches AMF y Compania (79%)
Operadora Mexicana de Boliches, SA (85%)
Promotora de Boliches, SA de C.V. (85%)
Inmuebles Obispado, SA
Promotora de Boliches, SA de C.V. (15%)
AMF Bowling Mexico Holding, Inc.*
Boliches AMF y Compania (79%)
Operadora Mexicana de Boliches, SA (85%)
Promotora de Boliches, SA de C.V. (85%)
Inmuebles Obispado, SA
Inmuebles Minerva, SA
Boliches Mexicanos, SA
Boliches AMF, Inc.*
Boliches AMF y Compania
Operadora Mexicana de Boliches, SA (85%)
Promotora de Boliches, SA de C.V. (85%)
Inmuebles Obispado, SA
Inmuebles Minerva, SA
Boliches Mexicanos, SA
AMF BCO-China, Inc.*
AMF Bowling Centers (China) Company (21%)
AMF Garden Hotel Bowling Center Company
AMF Bowling Centers China, Inc.*
AMF Bowling Centers (China) Company (79%)
AMF Garden Hotel Bowling Center Company
AMF Bowling Centers, Inc.*
Bush River Corporation*
AMF Beverage Company of Oregon, Inc.*
King Louie Lenexa, Inc.
AMF Beverage Company of W. Va., Inc.*
- ---------------
*Guarantor
45
<PAGE> 53
REPRESENTATIONS AND WARRANTIES; INDEMNITY
Generally, the Sellers did not provide indemnities to Holdings in
connection with the Acquisition. However, representations and warranties of
Sellers that survived the Closing are that (i) the Sellers will deliver to
Holdings good title to the Stock and the Purchased Assets free and clear of any
liens, claims, charges, security interests, options or other legal or equitable
encumbrances or restrictions, and all of the outstanding stock of the
corporations that constitute AMF is owned beneficially and of record by the
Sellers, and is validly issued, fully-paid and non-assessable; and (ii) each of
the corporations that constitute AMF was at the time of the Acquisition and has
been historically an "S corporation" (within the meaning of Section 1361(a) of
the Code) for each of such corporation's entire existence, and no action has
been or will be taken to terminate, and no condition exists which could result
in the termination of, such election prior to the Closing. The representations
and warranties in clause (i) above survive the Closing indefinitely, and the
representations and warranties in clause (ii) above survive the Closing until
the expiration of the relevant statute of limitations (including any extensions
thereof) or, if later, until the resolution of any disputes arising during such
period, in each case applicable to the income tax return (the "Applicable
Return") of each AMF entity for the period ending on the date of the Closing.
If any of the corporations that constitute AMF are found to have failed to
make a valid election to become an S corporation, or to have otherwise lost its
status as an S corporation, such corporation could be liable for taxes on income
for the periods in which S corporation status was not in effect. In addition,
loss of S corporation status could invalidate the step-up in the tax basis of
certain of AMF's assets that would otherwise result from the Acquisition,
causing the Company (or Holdings) to pay higher taxes on future income than
would be the case if the step-up in basis were allowed.
The Sellers agreed to indemnify Holdings and its affiliates against any
liabilities incurred in connection with any breach of the representations and
warranties that survive the Closing, including but not limited to the tax
liabilities referred to in the preceding paragraph. The Sellers also agreed to
indemnify Holdings and its affiliates against any liability arising from (i) the
ownership, conduct, condition or transfer at any time of any of the businesses
or other tangible or intangible assets or operations (a) transferred to the
Sellers or their affiliates prior to the Closing or (b) owned, operated or
conducted by the Sellers or certain affiliates on or prior to the Closing and
which were not owned, operated or conducted as part of AMF's bowling center or
manufacturing businesses; and (ii) certain litigation brought against AMF by its
former Korean distributor (see "Business -- Legal Proceedings"). The
indemnification excludes claims for incidental or consequential damages or
damages for lost profits. Each of the Sellers is liable for indemnified losses
only based on their percentage stock ownership of AMF prior to the Acquisition;
provided, however, that five irrevocable trusts (the "Trusts"), which as the
owners of a controlling interest of the Stock are together the principal selling
stockholder, will be jointly and severally liable for the aggregate
indemnification obligations of the Trusts. The Trusts are required to maintain,
collectively, a $500.0 million minimum net worth (based upon fair market value)
at all times from the Closing through the date that is the fourth anniversary of
the last filed Applicable Return and a $250.0 million minimum net worth (based
upon fair market value) at all times thereafter through the date that is the
sixth anniversary of the last filed Applicable Return, subject to extension
under certain circumstances. The beneficiaries of the Trusts separately agreed
to indemnify Holdings if the minimum net worth requirements are not satisfied
and if certain other circumstances occur.
OTHER AGREEMENTS
In connection with the Acquisition, AMF entered into Trademark License
Agreements, dated February 16, 1996 (the "License Agreements"), licensing the
AMF name and related trademark rights to certain corporations owned by the
Sellers (the "Licensees"), for use in connection with the sale by Licensees of
sewing equipment, baking equipment and golf equipment. Certain of these products
currently are being marketed under the AMF name. No consideration separate from
the Acquisition was paid by the Licensees in connection with the License
Agreements, and the license is
46
<PAGE> 54
royalty-free. The term of the licenses continues indefinitely. The Licensees
have expressly assumed and indemnified AMF against all liabilities resulting
from Licensees' use of the licensed trademarks.
In addition, Holdings entered into a Non-Competition Agreement, dated
February 16, 1996 (the "Non-Competition Agreement"), with an individual
affiliated with the Sellers (the "Affiliated Party"), restricting the Affiliated
Party and certain affiliates from participating in the same or similar business
as AMF anywhere in the world for a period of five years from the Closing. The
Affiliated Party has also agreed that, during a period of three years from the
Closing, the Affiliated Party and certain affiliates will not, without the prior
written approval of Holdings, solicit any person who is a management or other
key employee of Holdings, the Company, AMF or any of their subsidiaries or
affiliates as of the date of the Non-Competition Agreement to terminate his or
her employment. In consideration of the Non-Competition Agreement, Holdings has
agreed to pay the Affiliated Party $50,000 per year during the term of the
Non-Competition Agreement.
Holdings also entered into a Consulting and Non-Competition Agreement,
dated February 16, 1996 (the "Consulting and Non-Competition Agreement") with
one of the Sellers. This Seller has agreed to provide, for a period of two years
from the Closing, such consulting services to Holdings as may be requested from
time to time by the Board of Directors and/or the Chief Executive Officer of
Holdings. The Consulting and Non-Competition Agreement also restricts this
Seller and certain affiliates from participating in the same or similar business
as AMF anywhere in the world for a period of four years from the Closing. This
Seller also agreed that, during a period of three years from the Closing, the
Seller and certain affiliates will not, without the prior written approval of
Holdings, solicit any person who is a management or other key employee of
Holdings, the Company, AMF or any of their subsidiaries or affiliates as of the
date of the Consulting and Non-Competition Agreement to terminate his or her
employment. Holdings has agreed to pay this Seller $100,000 per year during the
two-year period that the Seller will provide consulting services.
47
<PAGE> 55
CAPITALIZATION
The following table sets forth the capitalization, as of March 31, 1996, of
AMF on a historical basis and of the Company on a pro forma basis to reflect the
sale of the Notes, the initial borrowings under the New Bank Credit Agreement
and the Acquisition. See "Pro Forma Consolidated Financial Statements."
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED
---------- ----------- -----------
<S> <C> <C> <C>
(IN MILLIONS)
Cash and cash equivalents............................... $ 12.8 $ 16.0 $ 28.8
====== ======== ========
Debt:
Working Capital Facility(a)........................... $ -- $ -- $ --
Acquisition Facility(a)............................... -- -- --
Term Loans............................................ -- 515.0 515.0
10 7/8% Senior Subordinated Notes..................... -- 250.0 250.0
12 1/4% Senior Subordinated Discount Notes............ -- 250.8 250.8
Other debt(b)......................................... 161.2 (159.2) 2.0
------ -------- --------
Total debt......................................... 161.2 856.6 1,017.8
Total stockholders' equity.............................. 173.5 216.9 390.4
------ -------- --------
Total capitalization.................................... $334.7 $ 1,173.5 $ 1,408.2
====== ======== ========
</TABLE>
- ---------------
(a) The Company has the ability to borrow an additional $50.0 million for
general corporate purposes pursuant to a working capital facility and up to
$100.0 million, and, upon the Company's satisfying a financial test, up to
an additional $50.0 million for acquisitions pursuant to an acquisition
facility under the New Bank Credit Agreement, subject to the Company meeting
certain pro forma financial covenants and limitations imposed on the amount
borrowed for proposed acquisitions, including that the amount borrowed under
the acquisition facility shall not exceed 3.5 times the deemed EBITDA of the
business to be acquired. See "Description of Senior Debt."
(b) A mortgage having a principal amount of approximately $2.0 million as of
April 30, 1996 will remain outstanding as an obligation of AMF. All other
debt of AMF was extinguished at or prior to the completion of the
Acquisition. See "Description of Senior Debt."
48
<PAGE> 56
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following pro forma consolidated financial statements (the "Pro Forma
Financial Statements") of Holdings, which includes the Company, include the
unaudited pro forma consolidated statements of income for the year ended
December 31, 1995 and the three months ended March 31, 1996 (the "Pro Forma
Consolidated Statements of Income") and the unaudited pro forma consolidated
balance sheet as of March 31, 1996 (the "Pro Forma Consolidated Balance Sheet").
The Pro Forma Consolidated Statements of Income are based on the audited
AMF combined statement of income for the year ended December 31, 1995 and the
unaudited AMF combined statement of income for the three months ended March 31,
1996 (including pro forma income tax provisions which would have been recorded
if AMF had consisted of taxable C corporations rather than S corporations -- see
Note 8 to the Combined Financial Statements of AMF Bowling Group) and are
adjusted to give effect to the Acquisition as though it had occurred as of the
first day of the period presented. The Pro Forma Consolidated Statements of
Income reflect pro forma adjustments to (a) eliminate the effect of certain
transactions contemplated in the Stock Purchase Agreement, and (b) give effect
to the acquisition of AMF by Holdings and the related financing transactions.
Certain pro forma adjustments result from management's preliminary determination
of purchase accounting adjustments and are based upon the results of a formal
appraisal of certain assets and other available information and certain
assumptions that Holdings considers reasonable under the circumstances.
Consequently, the amounts reflected in the Pro Forma Consolidated Statements of
Income are subject to change.
The Pro Forma Consolidated Balance Sheet is based on the unaudited AMF
combined balance sheet at March 31, 1996 and is adjusted to (a) eliminate the
effect of certain transactions contemplated in the Stock Purchase Agreement, and
(b) give effect to the acquisition of AMF by Holdings and the related financing
transactions, including the application of the estimated net proceeds therefrom
as though they had occurred as of March 31, 1996. The Acquisition will be
accounted for by the purchase method of accounting, pursuant to which the
purchase price is allocated among the acquired assets and liabilities in
accordance with estimates of fair market value on the date of acquisition. The
pro forma adjustments represent Holdings' management's preliminary determination
of purchase accounting adjustments and are based upon the results of a formal
appraisal of certain assets and other available information and certain
assumptions that Holdings considers reasonable under the circumstances.
Consequently, the amounts reflected in the Pro Forma Consolidated Balance Sheet
are subject to change. A substantial portion of the excess purchase price has
been allocated to goodwill. Holdings' management believes that the net benefit
of leases in which current lease payments are below fair market value
approximates the amount reflected in the historical balance sheet as of March
31, 1996 of approximately $10.7 million. No other specific intangibles have been
identified.
The Pro Forma Financial Statements and the accompanying notes should be
read in conjunction with AMF's historical Combined Financial Statements and
related notes thereto, and Holdings' consolidated balance sheet and notes
thereto, appearing elsewhere in this Prospectus.
The Pro Forma Financial Statements do not purport to be indicative of the
Company's financial condition or the results that would have actually been
obtained had such transactions been consummated as of the assumed dates and for
the periods presented, nor are they indicative of Holdings' results of operation
or financial condition for any future period or date.
49
<PAGE> 57
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
STOCK PURCHASE
AMF AGREEMENT PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS ADJUSTMENTS HOLDINGS
------------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
Total operating revenue...................... $ 564.9 $ (2.3)(a) $ -- $ 562.6
Cost of sales................................ 183.9 (0.3)(a) -- 183.6
Bowling center operations.................... 170.6 (1.5)(a) -- 169.1
Selling, general and administrative.......... 46.9 -- (0.3)(b) 46.6
Depreciation and amortization................ 39.1 (0.1)(a) 7.7(c) 67.0
20.3(d)
------ ----- ------ ------
Total operating expenses..................... 440.5 (1.9) 27.7 466.3
------ ----- ------ ------
Operating income............................. 124.4 (0.4) (27.7) 96.3
Interest expense, net........................ (13.5) (1.4)(a) (87.2)(e) (102.1)
Other expenses, net.......................... (2.0) -- -- (2.0)
------ ----- ------ ------
Income (loss) before income taxes............ 108.9 (1.8) (114.9) (7.8)
Pro forma income tax expense (benefit)....... 40.6(f) (0.6)(g) (30.0)(g) 10.0
------ ----- ------ ------
Pro forma net income (loss).................. $ 68.3 $ (1.2) $ (84.9) $ (17.8)
====== ===== ====== ======
Ratio of earnings to fixed charges........... 6.1x --+
====== ======
OTHER DATA
CONSOLIDATED:
EBITDA(i).................................. $ 163.5 $ 163.3
EBITDA margin.............................. 28.9% 29.0%
Adjusted Pro Forma EBITDA*.................................................................. $ 167.7
Cash interest exp. ......................................................................... 67.0
Total interest exp. ........................................................................ 102.9
Pro forma cash taxes paid................................................................... 12.5
Modernization and Maintenance Cap. Ex. ("MMCapEx").......................................... 13.2
Expansion capital expenditures.............................................................. 16.9
------
Total capital expenditures.................................................................. $ 30.1
======
Incr. in Net Working Capital ("Chg. NWC")................................................... 12.5
PRO FORMA RATIO DATA:
EBITDA/cash interest exp. .................................................................. 2.44x
(EBITDA - MMCapEx)/cash interest exp. ...................................................... 2.24
(EBITDA - MMCapEx - Chg. NWC)/cash interest exp. ........................................... 2.05
EBITDA/total interest exp. ................................................................. 1.59x
(EBITDA - MMCapEx)/total interest exp. ..................................................... 1.46
(EBITDA - MMCapEx - Chg. NWC)/total interest exp. .......................................... 1.34
Total debt/EBITDA........................................................................... 6.23x
</TABLE>
- ---------------
* For total adjustments to pro forma EBITDA, see Note (h) to Selected Combined
Financial Data on page 61.
+ Earnings were inadequate to cover fixed charges on a pro forma basis by $7.8
million.
50
<PAGE> 58
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
AMF GROUP STOCK PURCHASE
AMF HOLDINGS INC. AGREEMENT PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS ADJUSTMENTS HOLDINGS(i)
------------- -------------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Total operating revenue....... $ 123.3 $ -- $ (0.6)(a) $ -- $ 122.7
Cost of sales................. 30.7 -- (0.1)(a) -- 30.6
Bowling center operations..... 42.0 -- (0.3)(a) -- 41.7
Selling, general and
administrative.............. 11.7 -- (0.2)(a) (0.1)(b) 11.4
Depreciation and
amortization................ 11.0 -- -- 0.3 (c) 16.4
5.1 (d)
------ ----- ----- ------ ------
Total operating expenses...... 95.4 -- (0.6) 5.3 100.1
------ ----- ----- ------ ------
Operating income.............. 27.9 -- -- (5.3) 22.6
Interest expense, net......... (3.4) (0.6) (0.3)(a) (20.1)(e) (23.8)
Other expenses, net........... (0.2) -- -- -- (0.2)
------ ----- ----- ------ ------
Income (loss) before income
taxes....................... 24.3 (0.6) (0.3) (25.4) (1.4)
Pro forma income tax expense
(benefit)................... 9.2(f) -- (0.1)(g) (6.7)(g) 2.4
------ ----- ----- ------ ------
Pro forma net income (loss)... $ 15.1 $ (0.6) $ (0.2) $ (18.7) $ (3.8)
====== ===== ===== ====== ======
Ratio of earnings to fixed
charges..................... 5.5x --*
====== ======
OTHER DATA
CONSOLIDATED:
EBITDA(h)................... $ 38.9 $ 39.0
EBITDA margin............... 31.6% 31.8%
Cash interest exp. ............................................................................. 16.7
Total interest exp. ............................................................................ 25.5
Pro forma cash taxes paid....................................................................... 2.7
Modernization and Maintenance Cap. Ex. ("MMCapEx").............................................. 3.0
Expansion capital expenditures.................................................................. 1.4
------
Total capital expenditures...................................................................... $ 4.4
======
Incr. in Net Working Capital ("Chg. NWC")....................................................... 2.0
PRO FORMA RATIO DATA:
EBITDA/cash interest exp........................................................................ 2.33x
(EBITDA - MMCapEx)/cash interest exp. .......................................................... 2.16
(EBITDA - MMCapEx - Chg. NWC)/cash interest exp. ............................................... 2.03
EBITDA/total interest exp. ..................................................................... 1.53x
(EBITDA - MMCapEx)/total interest exp. ......................................................... 1.41
(EBITDA - MMCapEx - Chg. NWC)/total interest exp. .............................................. 1.33
Total debt/EBITDA............................................................................... 6.52x
</TABLE>
- ---------------
* Earnings were inadequate to cover fixed charges on a pro forma basis by $1.4
million.
51
<PAGE> 59
NOTES TO THE PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(DOLLARS IN MILLIONS)
(a) Included in Stock Purchase Agreement Adjustments are the following:
(i) Impact of AMF transferring to Sellers, and therefore Holdings not
acquiring, certain remaining assets previously held by The Reece
Corporation, a company which was merged into AMF Bowling, Inc. in 1994 and
which operated an aircraft. Management of Holdings believes that there will
be no incremental costs offsetting this net expense reduction.
(ii) Impact of Holdings not acquiring the operations of one bowling
center in Switzerland and one bowling center in Spain.
(iii) Concurrently with the acquisition of AMF by Holdings, amounts
due from shareholders were cancelled and amounts payable to shareholders
and other related parties, including those attributable to what was
formerly The Reece Corporation, were repaid or cancelled. If Holdings had
acquired AMF effective January 1, 1995, reported interest income levels
would have been lower.
(b) Reflects management fees charged to AMF by an affiliate of the prior
owners, net of incremental future corporate costs to be incurred by Holdings as
follows:
<TABLE>
<CAPTION>
YEAR THREE MONTHS
ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
<S> <C> <C>
Management fee charged to AMF.......................... $ 2.3 $0.6
Less: Estimate of incremental future corporate costs... (2.0) (0.5)
----- ----
Decrease to selling, general and administrative
expenses............................................. $ 0.3 $0.1
===== ====
</TABLE>
Estimated future corporate costs principally reflect senior management
personnel, corporate staff positions for services provided by the prior owners
and costs associated with public reporting requirements.
(c) Reflects an increase in depreciation and amortization expense resulting
from the allocation of the purchase price to fixed assets and a change in the
method of depreciation. The historical carrying amounts of fixed assets of AMF
will be increased by approximately $274.3 to reflect these assets at their fair
value at the date of the Acquisition. The amount of the pro forma adjustment for
increased depreciation expense of fixed assets is $7.7 for the year ended
December 31, 1995 and $0.3 for the three months ended March 31, 1996, and was
determined using the straight-line method over the estimated lives of the assets
acquired. AMF principally used the double declining balance method, which
generated a higher depreciation charge than the straight line method, which will
be used by Holdings.
(d) Reflects amortization of goodwill by Holdings as a result of the
allocation of the excess of the purchase price over identified tangible and
intangible net assets acquired of AMF. The excess purchase price of $812.3 is
being amortized over 40 years.
52
<PAGE> 60
(e) Reflects net incremental interest expense associated with the issuance
of the following securities and transactions:
<TABLE>
<CAPTION>
YEAR THREE MONTHS
ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
<S> <C> <C>
Senior Debt scheduled to be outstanding during the year
at an assumed weighted average interest rate of
7.985%............................................... $ 39.6 $ 9.9
$250 million Senior Subordinated Notes at a rate of
10.875%.............................................. 27.2 6.8
$250 million Accreted Value of Senior Subordinated
Discount Notes at a rate of 12.25%................... 31.6 7.7
Recording of amortization expense for deferred
financing costs related to the issuance of the above
securities........................................... 4.3 1.1
------ -----
Total new interest................................... 102.7 25.5
Less: interest on existing debt to be retired........ (15.5) (5.4)
------ -----
Net increase in interest expense..................... $ 87.2 $ 20.1
====== =====
</TABLE>
If actual interest rates on the Senior Debt are higher or lower by 1/8%
than the rates assumed above, then total annual interest expense would increase
or decrease by $1.2 for the year ended December 31, 1995 and $0.3 for the three
months ended March 31, 1996.
(f) Reflects the pro forma income tax provision that would have been
provided had AMF consisted of taxable C corporations, rather than S
corporations -- see Note 8 to the Combined Financial Statements of AMF Bowling
Group.
(g) Reflects the pro forma income tax provision (benefit) associated with
pro forma adjustments. After giving effect to the Acquisition and the related
financing, the pro forma income tax provision will include the following
components:
<TABLE>
<CAPTION>
YEAR THREE MONTHS
ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
<S> <C> <C>
Pre-tax loss at 35%.................................... $ (2.7) $ (0.7)
Impact of disallowance of a portion of High Yield Debt
Obligation interest.................................. 0.2 0.1
Impact of nondeductibility of goodwill allocated to
foreign operations and states not recognizing
domestic 338(h)(10) elections........................ 1.9 0.5
Loss for which no benefit can be recognized............ -- 0.1
State income taxes (no federal benefit assumed)........ 0.8 0.1
Foreign taxes.......................................... 10.0 2.3
Foreign tax credits.................................... (0.3) --
Other.................................................. 0.1 --
------ -----
Pro forma income tax provision after giving effect to
the Acquisition and Offering......................... $ 10.0 $ 2.4
Pro forma income tax provision applicable to historical
financial statements (see Note (f)).................. (40.6) (9.2)
------ -----
Total adjustment to pro forma income tax provision..... $(30.6) $ (6.8)
====== =====
Adjustment allocated to:
Stock Purchase Agreement Adjustments................. $ (0.6) $ (0.1)
Pro Forma Adjustments................................ (30.0) (6.7)
------ -----
Total adjustment to pro forma income tax provision..... $(30.6) $ (6.8)
====== =====
</TABLE>
53
<PAGE> 61
(h) EBITDA represents net income before net interest expense, income taxes,
depreciation and amortization, and other income (expense), net. EBITDA is not
intended to represent and should not be considered more meaningful than, or an
alternative to, measures of performance in accordance with generally accepted
accounting principles. EBITDA data is included because the Company understands
that such information is used by certain investors as one measure of an issuer's
historical ability to service debt.
(i) On April 29 and April 30, 1996, AMF paid bonuses and special payments
to employees, former employees and former directors in the aggregate amount of
$37.8 million in recognition of their services. These payments were fully funded
by a capital contribution from the Sellers of $30.0 million and $7.8 million of
cash which was not distributed prior to the Acquisition. Additionally, on April
30, 1996 AMF made payments of $3.1 million related to the Stock Performance
Plan. These payments were paid just prior to the closing of the Acquisition of
AMF by the Company and will be reflected in the predecessor company's financial
statements.
54
<PAGE> 62
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
AMF GROUP STOCK PURCHASE
AMF HOLDINGS INC. AGREEMENT PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS ADJUSTMENTS HOLDINGS
---------- -------------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...... $ 12.8 $606.4 $ 1.7(a) $ (1.7)(b) $ 28.8
(600.0)(b)
9.6 (b)
Accounts and notes receivable,
net......................... 31.1 -- (0.1)(a) -- 31.0
Accounts receivable --
affiliates.................. 12.0 -- (12.0)(a) -- --
Inventories.................... 44.0 -- (0.2)(a) -- 43.8
Prepaid expenses and other..... 6.0 -- (0.1)(a) -- 5.9
------ ------ ------ ------- --------
Total current assets...... 105.9 606.4 (10.7) (592.1) 109.5
Notes receivable -- affiliates... 23.2 -- (23.2)(a) -- --
Property and equipment, net...... 253.5 -- (2.1)(a) 274.3 (b) 525.7
Deferred financing costs......... -- 9.6 -- 26.8 (b) 36.4
Goodwill......................... -- -- -- 812.3 (b) 812.3
Other assets..................... 18.3 -- -- -- 18.3
------ ------ ------ ------- --------
Total assets.............. $400.9 $616.0 $(36.0) $ 521.3 $1,502.2
====== ====== ====== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and book
overdrafts.................. $ 20.4 $ -- $ -- $ -- $ 20.4
Accrued expenses and deposits.. 34.6 15.8 (0.3)(a) -- 50.1
Accounts payable --
affiliates.................. -- -- -- -- --
Long-term debt, current........ 1.0 -- (0.1)(a) 37.5 (c) 38.4
Income taxes payable........... 6.0 -- (0.3)(a) -- 5.7
------ ------ ------ ------- --------
Total current
liabilities............ 62.0 15.8 (0.7) 37.5 114.6
Long-term debt................... 27.3 500.8 (0.9)(a) 452.2 (c) 979.4
Notes payable -- affiliates...... 132.9 -- -- (132.9)(c) --
Other liabilities................ 4.3 -- -- -- 4.3
Deferred income tax
liabilities.................... 0.9 -- -- 12.6 (b) 13.5
------ ------ ------ ------- --------
Total liabilities......... 227.4 516.6 (1.6) 369.4 1,111.8
------ ------ ------ ------- --------
Stockholders' equity:
Common stock................... 1.5 -- -- (1.5)(c) 0.4
0.4 (d)
Paid-in capital................ 63.8 100.0 (9.1)(a) (54.7)(d) 390.6
290.6 (d)
Retained earnings.............. 113.5 (0.6) (26.7)(a) (86.8)(d) (0.6)
Equity adjustment from foreign
currency translation........ (3.9) -- -- 3.9 (d) --
Note receivable stock
subscription................ (1.4) -- 1.4(a) -- --
------ ------ ------ ------- --------
Total stockholders' equity..... 173.5 99.4 (34.4) 151.9 390.4
------ ------ ------ ------- --------
Total liabilities and
stockholders' equity........ $400.9 $616.0 $(36.0) $ 521.3 $1,502.2
====== ====== ====== ======= ========
</TABLE>
55
<PAGE> 63
NOTES TO THE PRO FORMA CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS)
(a) Assets not acquired pursuant to the Stock Purchase Agreement and cash
adjustments include the following:
(i) Impact of AMF transferring to Sellers, and therefore Holdings not
acquiring, certain remaining assets previously held by The Reece Corporation, a
company which was merged into AMF Bowling, Inc. in 1994 and which operated an
aircraft. Management of Holdings believes that there will be no incremental cost
offsetting this net expense reduction.
(ii) Impact of Holdings not acquiring the operations of one bowling center
in Switzerland and one bowling center in Spain.
(iii) Notes receivable due from affiliates, including those attributable to
what was formerly The Reece Corporation, accounts payable to affiliates and
notes payable to affiliates, together with certain other outstanding debt
obligations are being repaid.
(b) Reflects the impact of the acquisition of AMF by Holdings and the
preliminary allocation of the purchase price to the acquired fixed and
intangible assets at their fair market value. The pro forma adjustments
represent management's preliminary determination of purchase accounting
adjustments and are based upon the results of a formal appraisal of certain
assets and other available information and certain assumptions that Holdings
considers reasonable under the circumstances. Consequently, the amounts
reflected in the Pro Forma Consolidated Balance Sheet are subject to change.
The purchase cost and preliminary allocation to the acquired assets and
liabilities are as follows:
<TABLE>
<S> <C>
Initial purchase price per Stock Purchase Agreement.......................... $1,325.0
Add: Purchase Price Adjustments discussed in Note (e)........................ 14.1
Add: Transaction Costs including the non-cash value of warrants issued by AMF
Holdings Inc. to Seller's financial advisors valued at approximately
$8.7....................................................................... 70.6
--------
Total Acquisition Cost............................................. $1,409.7
========
Funded by:
Cash.............................................................................. $ 1.7
Equity............................................................................ 391.0
Debt (including the proceeds from the sale of the Notes of $500.0 million)........ 1,015.0
Existing indebtedness............................................................. 2.0
--------
Total sources of funds............................................................ $1,409.7
========
Acquisition cost.................................................................. $1,409.7
Less: Repayment of existing indebtedness at Closing............................... 158.2
Less: Assumption of existing indebtedness at Closing.............................. 2.0
Less: Adjusted net assets acquired ($173.5 of AMF historical net assets, less the
impact of Stock Purchase Agreement Adjustments of $34.4)........................ 139.1
--------
Excess of purchase cost over historical net assets acquired....................... $1,110.4
========
Allocated as follows:
Fixed assets...................................................................... $ 274.3
Deferred financing costs.......................................................... 36.4
Deferred tax liabilities*......................................................... (12.6)
Goodwill.......................................................................... 812.3
--------
$1,110.4
========
</TABLE>
- ---------------
* Pursuant to the Stock Purchase Agreement, Holdings and the Sellers have agreed
to jointly elect under Internal Revenue Code Section 338(h)(10) to treat the
stock acquisitions of AMF Bowling, Inc. and AMF Bowling Centers, Inc. as
purchases of assets for U.S. income tax purposes. This tax treatment will
result in substantial conformity in the bases of assets and liabilities for
tax and financial reporting purposes with respect to these two entities. The
purchase price allocated to these two entities represents approximately 80% of
the purchase price for the Acquisition.
56
<PAGE> 64
(c) Reflects the following transactions associated with the borrowing of the
Senior Debt and the following transactions:
<TABLE>
<S> <C>
$515.0 of Senior Debt......................................... $ 515.0
-----
Less: Existing debt to be retired........................ (159.2)
-----
Net increase in outstanding debt.................... $ 355.8
=====
</TABLE>
Of the resulting $515.0 of new debt, $38.2 is current. Approximately $2.0
(including a current portion of $0.2) of long-term debt outstanding prior to
Closing was not repaid. All other existing debt of AMF was extinguished at or
prior to the completion of the Acquisition.
(d) Adjustments to stockholders' equity include the following:
(i) Elimination of AMF historical stockholders' equity less net assets not
acquired pursuant to the Stock Purchase Agreement:
<TABLE>
<CAPTION>
STOCK PURCHASE
AGREEMENT
HISTORICAL ADJUSTMENTS NET
---------- -------------- ------
<S> <C> <C> <C>
Common Stock.................................. $ 1.5 $ -- $ 1.5
Paid-in capital............................... 63.8 (9.1) 54.7
Retained earnings............................. 113.5 (26.7) 86.8
Deferred translation.......................... (3.9) -- (3.9)
Note receivable stock subscription............ (1.4) 1.4 --
------ ------ ------
Historical stockholders' equity............. $173.5 $(34.4) $139.1
====== ====== ======
</TABLE>
(ii) Holdings was capitalized by Holdings' parent, AMF Holdings Inc., with
(a) $382.3 of Common Stock consisting of 38,225,000 shares with a par value of
$0.01 per share and (b) the value of non-cash warrants issued by AMF Holdings
Inc. to the Sellers' financial advisor of $8.7 which is being accounted for as a
contribution to Holdings' equity at Closing.
(e) The Stock Purchase Agreement specifies that the purchase price is subject to
certain post-Closing adjustments, as follows:
(i) the purchase price will be increased dollar-for-dollar by the amount by
which AMF's Closing Working Capital, as defined, as of the Closing is greater
than approximately $28.3, and will be decreased dollar-for-dollar by the amount
by which AMF's Closing Working Capital is less than $28.3; (ii) the purchase
price will be increased dollar-for-dollar by the amount by which $5.0 exceeds
the principal amount of the outstanding obligations as of the Closing (giving
effect to the Acquisition) under AMF's Stock Performance Plans, and will be
decreased dollar-for-dollar by the amount by which such principal amount exceeds
$5.0; and (iii) if the Closing occurred on or before April 8, 1996, the purchase
price would be increased by $10.0, and if the Closing occurred after April 8,
1996, the purchase price would be increased by $10.0, less $0.2 for each day
elapsed between April 8, 1996 and the date of the Closing, resulting in an
increase of $5.0 if the Closing occurred on May 3, 1996. Because the Closing
occurred on May 1, 1996, the adjustment described in clause (iii) will result in
a purchase price increase of $5.4 million. The Company believes that as of the
Closing all obligations under all of AMF's Stock Performance Plans were
cancelled and, assuming there are no such obligations, there will be a purchase
price adjustment of $10.4 million in favor of the Sellers, subject to any
further adjustment based on Closing Working Capital. Although the actual
purchase price adjustments have not been finalized, the Company believes that
they will not exceed $13.4 million. Amounts due with respect to post-closing
adjustments bear interest from and including the Closing Date through payment.
57
<PAGE> 65
As of the March 31, 1996 balance sheet, the Closing Working Capital
Adjustment, the Stock Performance Plan Adjustment and the Closing Date
Adjustment would have the effect of increasing the purchase price as
follows:
(i) Closing Working Capital Adjustment:
Closing Working Capital at March 31, 1996:
<TABLE>
<S> <C>
Current assets, less (i) $12.0 of accounts receivable -- affiliates
and (ii) as adjusted for impact of Stock Purchase Agreement
adjustments of $1.3................................................ $ 94.9
Current liabilities, less (i) repayment of the current portion of
long-term debt using Acquisition proceeds; and (ii) as adjusted for
impact of Stock Purchase Agreement adjustments of $0.7............. (60.4)
Payments to be made under a consulting contract with a former employee
which was terminated concurrent with the Closing................... (0.3)
Long-term portion of non-compete...................................... (2.2)
------
Net Closing Working Capital per balance sheet......................... 32.0
------
Less Minimum Closing Working Capital.................................. (28.3)
------
Increase in purchase price for excess Closing Working Capital........... $ 3.7
======
(ii) Stock Performance Plan Adjustment:
Negotiated balance...................................................... $ 5.0
Less: principal amount of Stock Performance Plan obligations accrued
immediately prior to Closing.......................................... --
------
Increase in purchase price for Stock Performance Plan Adjustment........ $ 5.0
======
(iii) Closing Date Adjustment........................................... $ 5.4
======
Total increase in purchase price........................................ $ 14.1
======
</TABLE>
The Closing Working Capital adjustment has been determined based upon the
AMF historical combined balance sheet as of March 31, 1996. The above
components of the Closing Working Capital adjustment will change to the
extent that the components of Closing Working Capital have changed at
Closing, which is subject to the results of the audit of the Company's
balance sheet as of the Closing Date. The Stock Performance Plan Adjustment
is based on the actual principal amount of outstanding obligations of the
Stock Performance Plans at Closing. The Closing Date Adjustment is based
upon the actual Closing Date of May 1, 1996. Although the actual Closing
Working Capital adjustment has not been finalized, the Company believes that
it will not exceed $3.0 million.
58
<PAGE> 66
SELECTED COMBINED FINANCIAL DATA
(DOLLARS IN MILLIONS, EXCEPT AVERAGE PRICE PER GAME DATA)
The following data, insofar as it relates to each of the years 1993, 1994
and 1995 have been derived from audited financial statements, including the
combined balance sheets at December 31, 1994 and 1995 and the related combined
statements of income and of cash flows for the years ended December 31, 1993,
1994 and 1995 and notes thereto appearing elsewhere herein.
The combined financial data for the years ended 1991 and 1992 and the
three-month periods ended March 31, 1995 and 1996 have been derived from
unaudited combined financial statements.
The historical combined financial data of AMF presented below should be
read in conjunction with the combined financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus. The summary pro forma data
below should be read in conjunction with the unaudited pro forma consolidated
financial statements of the Company and notes thereto included elsewhere in this
Prospectus.
The financial information presented below includes operating results
expressed in terms of EBITDA, which represents net income before net interest
expense, income taxes, depreciation and amortization, and other net income or
net expenses. EBITDA information is included as supplemental information herein
because the Company understands that such information is used by certain
investors as one measure of an issuer's historical ability to service debt.
EBITDA is not intended to represent and should not be considered more meaningful
than, or an alternative to, net income, cash flow or other measures of
performance determined in accordance with generally accepted accounting
principles.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------------
1995 1996
1991 1992 1993 1994(a) 1995 PRO FORMA 1995 1996 PRO FORMA
------ ------ ------ ------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total operating revenue... $355.9 $391.2 $427.6 $517.8 $564.9 $ 562.6 $156.9 $123.3 $ 122.7
Cost of sales............. 114.2 132.1 153.2 196.0 183.9 183.6 48.2 30.7 30.6
------ ------ ------ ------ ------ -------- ------ ------ --------
Gross profit.............. 241.7 259.1 274.4 321.8 381.0 379.0 108.7 92.6 92.1
Bowling center operations
expenses................ 103.1 103.1 108.5 120.9 170.6 169.1 44.1 42.0 41.7
Selling, general and
administrative
expenses................ 38.1 43.2 41.9 51.4 46.9 46.6 13.7 11.7 11.4
Depreciation and
amortization............ 28.3 25.5 21.4 24.8 39.1 67.0 9.2 11.0 16.4
------ ------ ------ ------ ------ -------- ------ ------ --------
Operating income.......... 72.2 87.3 102.6 124.7 124.4 96.3 41.7 27.9 22.6
Interest expense, net..... 9.9 6.4 4.1 6.9 13.5 102.1 3.3 3.4 23.8
Other income (expense),
net..................... 0.2 (1.4) (1.0) (2.0) (2.0) (2.0) (0.9) (0.2) (0.2)
Income (loss) before
income taxes............ 62.5 79.5 97.5 115.8 108.9 (7.8) 37.5 24.3 (1.4)
Provision for income
taxes................... 13.4 15.4 15.1 16.5 12.1 10.0 3.3 2.7 2.4
------ ------ ------ ------ ------ -------- ------ ------ --------
Net income (loss)......... $ 49.1 $ 64.1 $ 82.4 $ 99.3 $ 96.8 $ (17.8) $ 34.2 $ 21.6 $ (3.8)
====== ====== ====== ====== ====== ======== ====== ====== ========
Ratio of earnings to fixed
charges(b).............. 4.7x 7.1x 11.0x 10.3x 6.1x -- 8.1x 5.5x --
</TABLE>
59
<PAGE> 67
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------------
1995 1996
1991 1992 1993 1994(A) 1995 PRO FORMA 1995 1996 PRO FORMA
------ ------ ------ ------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
(AT END OF PERIOD):
Total assets.............. $244.1 $231.1 $228.2 $410.2 $400.4 $1,480.4 $413.9 $400.9 $1,502.2
Total debt................ 112.4 98.0 75.7 186.1 167.4 1,017.0 176.1 161.1 1,017.8
Stockholders' equity...... 76.9 75.8 88.6 132.4 161.5 383.7 158.9 173.5 390.4
Net working capital
("NWC")(c).............. 20.6 15.6 18.9 16.9 29.4 29.4 26.2 31.1 31.4
OTHER DATA:
BOWLING CENTER
OPERATIONS:
Number of centers
(at end of period)...... 196 197 190 293 285 283 -- -- --
Number of lanes
(at end of period)...... 5,981 5,988 5,896 9,586 9,471 9,443 -- -- --
Lineage(d)................ 26.4 26.6 25.9 26.0(j) 24.2(k) 24.2(k) -- -- --
Average price per game
("APPG")................ $ 2.21 $ 2.21 $ 2.17 $ 2.20(j) $ 2.19(k) $ 2.19(k) -- -- --
Fixed exchange rate
APPG(e)................. 2.09 2.11 2.15 2.19(j) 2.19(k) 2.19(k) -- -- --
Bowling revenue........... $127.1 $128.5 $120.8 $140.3 $182.9 $181.4 $ 54.2 $ 52.2 $51.8
Food and beverage
revenue................. 42.6 43.3 40.8 49.8 69.4 68.8 20.6 20.1 20.0
Anciliary revenue......... 30.5 32.7 31.0 35.3 40.0 39.8 11.0 10.8 10.7
------ ------ ------ ------ ------ -------- ------ ------ --------
Total revenue............. $200.2 $204.5 $192.6 $225.4 $292.3 $290.0 $ 85.8 $ 83.1 $82.5
EBITDA(f)................. 66.9 68.3 56.9 68.9 89.0 88.5 30.2 31.8 31.6
EBITDA margin(g).......... 33.4% 33.4% 29.5% 30.6% 30.4% 30.5% 35.2% 38.3% 38.3%
MANUFACTURING:
Total NCPs sold........... 1,896 2,210 3,577 4,941 4,437 4,437 1,485 415 415
NCP revenue............... N/A N/A $122.6 $170.5 $152.6 $152.6 $ 45.1 $ 16.8 $16.8
Replacement and
Modernization revenue... N/A N/A 112.4 121.9 120.0 120.0 26.0 23.4 23.4
------ ------ ------ ------ ------ -------- ------ ------ --------
Total revenue............. $155.7 $186.7 $235.0 $292.4 $272.6 $272.6 $ 71.1 $ 40.2 $40.2
EBITDA.................... 33.6 44.5 67.1 80.6 74.5 74.8 20.6 7.1 7.4
EBITDA margin............. 21.6% 23.8% 28.6% 27.6% 27.3% 27.4% 29.0% 17.6% 18.4%
COMBINED:
EBITDA.................... $100.5 $112.8 $124.0 $149.5 $163.5 $163.3 $ 50.8 $ 38.9 $39.0
EBITDA margin............. 28.2% 28.8% 29.0% 28.9% 28.9% 29.0% 32.4% 31.6% 31.8%
Adjusted Pro Forma
EBITDA(h)............... -- -- -- -- -- $167.7 -- -- --
Cash interest exp......... $ 13.3 $ 7.4 $ 4.0 $ 4.3 $ 5.9 67.0 0.9 0.5 $16.7
Total interest exp........ 12.0 7.9 5.0 7.4 15.7 102.9 3.7 3.8 25.5
Pro forma cash taxes
paid.................... -- -- -- -- -- 12.5 -- -- 2.7
Modern. and Maintenance
Cap. Ex.
("MMCapEx")(i).......... 8.6 8.3 9.0 11.4 13.2 13.2 3.2 3.0 3.0
</TABLE>
60
<PAGE> 68
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------------
1995 1996
1991 1992 1993 1994(a) 1995 PRO FORMA 1995 1996 PRO FORMA
------ ------ ------ ------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Expansion capital
expenditures............ 7.0 3.8 5.7 6.4 16.9 16.9 1.1 1.4 1.4
------ ------ ------ ------ ------ -------- ------ ------ --------
Total capital
expenditures............ $ 15.6 $ 12.1 $ 14.7 $ 17.8 $ 30.1 $ 30.1 $ 4.3 $ 4.4 $ 4.4
====== ====== ====== ====== ====== ======== ====== ====== ========
Incr. (Decr.) in NWC
("Chg. NWC")............ N/A (5.0) 33 (2.0) 12.5 12.5 N/A 1.7 2.0
PRO FORMA RATIO DATA:
EBITDA/cash interest exp........................................... 2.44x 2.33x
(EBITDA -- MMCapEx)/cash interest exp.............................. 2.24 2.16
(EBITDA -- MMCapEx -- Chg. NWC)/cash interest exp.................. 2.05 2.04
EBITDA/total interest exp.......................................... 1.59x 1.53x
(EBITDA -- MMCapEx)/total interest exp............................. 1.46 1.41
(EBITDA -- MMCapEx -- Chg. NWC)/total interest exp................. 1.34 1.33
Total debt/EBITDA(m)............................................... 6.23x 6.52x
</TABLE>
- ---------------
(a) Includes results of Fair Lanes, acquired on September 29, 1994.
(b) The ratios of earnings to fixed charges are computed by dividing earnings by
the fixed charges. Earnings consist of net income to which has been added
fixed charges and income taxes. Fixed charges consist of interest expense,
amortization of debt issuance costs, and the portion of rent expense
considered to represent interest. Earnings were inadequate to cover fixed
charges on a pro forma basis for the year ended December 31, 1995 and the
three months ended March 31, 1996 by $7.8 million and $1.4 million,
respectively.
(c) Defined as accounts and notes receivable (excluding affiliated receivables),
net of allowance for doubtful accounts, inventories and prepaid expenses
and other current assets less accounts payable, excluding book overdrafts
and affiliated payables, and accrued expenses, excluding league deposits.
(d) Defined as worldwide average number of games bowled per lane per day.
(e) Defined as the result of dividing worldwide bowling revenue for each period
presented (as translated into U.S. dollars by using weighted average
foreign currency exchange rates used to translate 1995 revenue) by the
total number of games bowled worldwide. The effect is to fix the exchange
rates at the 1995 levels for purposes of comparability in examining changes
in average price per game without the effect of changes in foreign currency
exchange rates.
(f) EBITDA represents net income before net interest expense, income taxes,
depreciation and amortization, and other income (expense), net. EBITDA is
not intended to represent and should not be considered more meaningful
than, or an alternative to, net income, cash flow or other measures of
performance in accordance with generally accepted accounting principles.
EBITDA data is included because the Company understands that such
information is used by certain investors as one measure of an issuer's
historical ability to service debt.
(g) EBITDA margin represents the percentage ratio of EBITDA to total operating
revenue.
(h) The following adjustments have been made to EBITDA as reflected in the Pro
Forma Statement of Income for the year ended December 31, 1995 as presented
in the Pro Forma Financial Statements appearing elsewhere in this
Prospectus:
In connection with AMF's acquisition of Fair Lanes, AMF formalized a
strategic integration plan to terminate and relocate certain Fair Lanes
employees, close the Fair Lanes corporate offices and close seven bowling
centers. In connection with AMF's accounting for the Fair Lanes acquisition, AMF
accounted for certain severance, relocation and incremental exit costs
associated with the closure of the seven bowling centers as acquisition date
liabilities. Also as part of the acquisition, AMF
61
<PAGE> 69
incurred certain non-recurring costs associated with the integration of Fair
Lanes into AMF. These specifically identifiable, non-recurring integration costs
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Non-recurring liability of $0.3, workers compensation of $0.2 and other costs of $0.1............ $0.6
Costs incurred to convert the liquor licenses held by Fair Lanes to AMF.......................... 0.1
Real estate assessments of $0.1 and personal property, real estate and sales tax penalties and
interest of $0.2 incurred due to delinquency in payments by Fair Lanes......................... 0.3
Cost of maintaining duplicate Fair Lanes corporate office facilities, which were closed pursuant
to a formal plan to close down the Fair Lanes corporate offices (does not include severance and
relocation costs recorded as part of the Fair Lanes purchase price allocation): personnel costs
of $0.3, professional fees of $0.1, travel and meals of $0.1 and office expenses of $0.1....... 0.6
Costs incurred by AMF relating to the integration of Fair Lanes into AMF, principally incremental
travel of $0.1, consultants of $0.1 and moving of $0.1......................................... 0.3
Exit costs to close down the seven aforementioned facilities in excess of amounts accrued in
connection with AMF's policy of estimating exit costs at the date of acquisition of $0.1, and
the present value of future lease payments for closed centers of $0.2.......................... 0.3
Other pre-acquisition costs not recorded as purchase date liabilities............................ 0.1
------
Total............................................................................................ $2.3
------
</TABLE>
Management currently expects that no further integration costs with respect
to Fair Lanes will be incurred.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
</TABLE>
During 1995, AMF management prepared a formal strategic assessment of its
global operations, resulting in changes in management personnel, the development
of a new bowling centers identity program and the consolidation of European
offices. In connection therewith, AMF incurred certain non-recurring,
incremental costs as follows:
<TABLE>
<S> <C>
Recruitment fees for new international management....................................... $ 0.069
Costs relating to bowling centers identity program...................................... 0.026
Incremental costs of temporary country manager in Australia............................. 0.135
Redundancy and relocation costs of $0.035 and legal costs of $0.023 incurred to
restructure Australian operations..................................................... 0.058
Severance and legal costs incurred in Spain of $0.043 and in Switzerland of $0.015...... 0.058
Salaries and benefits for a product licensing position which was eliminated............. 0.098
Severance and recruitment costs incurred in connection with consolidating three European
offices into one central office in London............................................. 0.280
------
$ 0.724
------
</TABLE>
During 1995, AMF incurred certain non-recurring costs in connection with the
following:
<TABLE>
<S> <C>
Non-compete and consulting agreement in connection with the replacement of management of
manufacturing......................................................................... $ 1.400
Costs associated with AMF agreeing to share in cost of settling a supplier's warranty
obligation............................................................................ 0.210
Legal expenses for settled National Labor Relations Board matter........................ 0.071
Incremental costs, including legal and other costs, incurred by AMF to establish a
direct sales office due to the termination of AMF's Korean distributor................ 0.814
Reversals of legal reserves after favorable settlement on National Labor Relations Board
matter................................................................................ (1.103)
------
1.392
------
Total adjustments to pro forma EBITDA................................................... $ 4.416
======
</TABLE>
62
<PAGE> 70
(i) Defined as capital expenditures for existing product lines and existing
businesses for manufacturing and capital expenditures for modernizing and
maintaining bowling centers for bowling center operations.
(j) Includes results of Fair Lanes, acquired on September 29, 1994. The figures
for lineage, average price per game and fixed exchange rate average price
per game for AMF, excluding Fair Lanes, are 26.3, $2.25 and $2.23,
respectively.
(k) Includes results of Fair Lanes, acquired on September 29, 1994. The figures
for lineage, average price per game and fixed exchange rate average price
per game for AMF, excluding Fair Lanes, are 25.5, $2.33 and $2.33,
respectively.
63
<PAGE> 71
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AMF
This discussion should be read in conjunction with the information
contained in the combined financial statements and notes thereto included
elsewhere within this Prospectus. See "Prospectus Summary."
The historical AMF financial data presented in this section include the two
European bowling centers that were retained by the Sellers. For the effect on
AMF of excluding these two bowling centers, see "Notes to the Pro Forma
Consolidated Statements of Income" and "Notes to the Pro Forma Consolidated
Balance Sheet."
The financial information presented below includes operating results
expressed in terms of AMF's operating results expressed in terms of EBITDA,
which represents net income before net interest expense, income taxes,
depreciation and amortization, and other net income or net expenses. EBITDA
information is included because the Company understands that such information is
used by certain investors as one measure of an issuer's historical ability to
service debt. EBITDA is not intended to represent and should not be considered
more meaningful than, or an alternative to, other measures of performance
determined in accordance with generally accepted accounting principles.
GENERAL
AMF is principally engaged in two businesses which, historically, have been
operated independently: (i) the ownership and operation of 205 domestic bowling
centers and 80 international bowling centers (bowling center operations) as of
April 30, 1996; and (ii) the design, manufacture and sale of bowling center
equipment, including automatic pinspotters, automatic scoring equipment, bowling
pins, lanes, ball returns, and certain spare and replacement parts, and the
resale of allied products such as bowling balls, bags, shoes and certain other
spare and replacement parts (manufacturing).
To facilitate a meaningful comparison, this Management's Discussion and
Analysis of Financial Condition and Results of Operations separately discusses
results of AMF's bowling center operations and manufacturing.
The results of bowling center operations, manufacturing and the combined
group are set forth below. The two European centers that were not acquired by
the Company, while included in the data below, have no material impact on AMF's
financial statements or on the information presented in this section.
64
<PAGE> 72
AMF WORLDWIDE BOWLING CENTER OPERATIONS AND MANUFACTURING
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------ -------------------------------
1993 % 1994(a) % 1995(a) % 1995 % 1996 %
------ --- ------- --- ------- --- ------ --- ------ ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Bowling center operations(b)... $192.6 45% $225.4 44% $292.3 52% $ 85.8 55% $ 83.1 67%
Manufacturing(c)............... 235.0 55 292.4 56 272.6 48 71.1 45 40.2 33
------ --- ------ --- ------ --- ------ --- ------ ---
Combined....................... $427.6 100% $517.8 100% $564.9 100% $156.9 100% $123.3 100%
====== === ====== === ====== === ====== === ====== ===
EBITDA:
Bowling center operations(b)... $ 56.9 46% $ 68.9 46% $ 89.0 (d) 54% $ 30.2(d) 59% $ 31.8 82%
Manufacturing(c)............... 67.1 54 80.6 54 74.5 46 20.6 41 7.1 18
------ --- ------ --- ------ --- ------ --- ------ ---
Combined....................... $124.0 100% $149.5 100% $163.5 (d) 100% $ 50.8(d) 100% $ 38.9 100%
====== === ====== === ====== === ====== === ====== ===
Operating income:
Bowling center operations(b)... $ 35.9 35% $ 44.0 35% $ 50.2 (d) 40% $ 21.0(d) 50% $ 21.0 75%
Manufacturing(e)............... 66.7 65 80.7 65 74.2 60 20.7 50 6.9 25
------ --- ------ --- ------ --- ------ --- ------ ---
Combined....................... $102.6 100% $124.7 100% $124.4 (d) 100% $ 41.7(d) 100% $ 27.9 100%
====== === ====== === ====== === ====== === ====== ===
</TABLE>
- ---------------
(a) Includes results of Fair Lanes, acquired on September 29, 1994.
(b) The historical AMF financial data presented in this table include the two
European bowling centers that were retained by the Sellers. For the effect
on AMF of excluding these two bowling centers, see "Notes to the Pro Forma
Consolidated Statements of Income" and "Notes to the Pro Forma Consolidated
Balance Sheet."
(c) Not included in the above revenue is revenue generated by manufacturing
through sales to AMF's bowling center operations. This revenue, which was
eliminated in the combined results, was $8.6 million, $9.3 million and $13.9
million for the years ended December 31, 1993, 1994 and 1995, respectively,
and $4.3 million and $2.8 million for the three months ended March 31, 1995
and 1996, respectively. The EBITDA eliminated on these revenues were $4.8
million, $4.1 million and $4.0 million for the years ended December 31,
1995, 1994 and 1993, respectively, and $1.5 million and $1.0 million for the
three months ended March 31, 1995 and 1996, respectively.
(d) After $2.3 million and $1.2 million of certain non-recurring costs relating
to the Fair Lanes acquisition for the year ended December 31, 1995 and the
three months ended March 31, 1995, respectively. See Note (h) to "Selected
Combined Financial Data."
(e) Not included in operating income is income generated by manufacturing
through sales to AMF's bowling center operations. This operating income,
which was eliminated in the combined results, was $1.0 million, $0.2 million
and $1.5 million for the years ended December 31, 1993, 1994 and 1995,
respectively, and $0.5 million and $0.3 million for the three months ended
March 31, 1995 and 1996, respectively.
For 1995, bowling center operations adopted a calendar month-end;
accordingly, the bowling center operations results of operations for the year
ended December 31, 1995 include the results of domestic operations for the
period from December 26, 1994 through December 31, 1995. Total revenue for the
period from December 26, 1994 through December 31, 1994 was approximately $2.0
million.
65
<PAGE> 73
RECENT DEVELOPMENTS
Second Quarter 1996 Results
The results for the six months ended June 30, 1996 reflect the pro forma
results of operations as if the Acquisition had occurred on January 1, 1996, and
reflect adjustments for (i) two bowling centers not purchased from the Sellers,
(ii) increased depreciation and amortization from purchase accounting
adjustments to record goodwill and fixed assets at fair value and (iii) the
one-time charge for special bonuses and payments made in April 1996 for $44.0
million, which payments were funded by the Sellers prior to the Acquisition.
Total revenue decreased by $57.7 million, or 19.5%, to $237.5 million for
the six-month period ended June 30, 1996, from $295.2 million for the six-month
period ended June 30, 1995. Of this decrease, $4.8 million was due to a 3.2%
drop in Bowling Centers revenue to $146.3 million for the six-month period ended
June 30, 1996, from $151.1 for the six-month period ended June 30, 1995. Bowling
Centers revenue for 1995 included up to seven more centers than in 1996. The
remaining decrease in total revenue was due to a 37.3% drop in Bowling Products
(formerly referred to as "Manufacturing") sales to $90.3 million for the six
months ended June 30, 1996, from $144.1 for the six-month period ended June 30,
1995. The decline in Bowling Products revenue products segment was primarily due
to lower NCP sales in the first half of 1996 versus the first half of 1995.
Operating income decreased by $38.5 million, to $31.0 million for the six
months ended June 30, 1996, from $68.5 million for the six months ended June 30,
1995. The decrease in operating profit was primarily due to a decrease in the
Bowling Products operating profits on NCPs, and an increase of $15.7 million for
depreciation and amortization resulting from purchase accounting adjustments to
record goodwill and to record fixed assets at fair value.
For the six months ended June 30, 1996 (on a pro forma basis), and the six
months ended June 30, 1995 (on an actual basis), the Company had a net loss of
$9.9 million and net income of $53.9 million, respectively, a deficiency of
earnings to fixed charges of $14.3 million and a ratio of earnings to fixed
charges of 6.53x, respectively, an interest coverage ratio of 1.36x and 11.38x,
respectively, and a percentage of revenues represented by interest expense of
20.4% and 2.6%, respectively.
Total EBITDA decreased by $21.5 million, or 24.5%, to $66.1 million for the
six months ended June 30, 1996, from $87.6 million for the six months ended June
30, 1995. The difference was primarily due to lower NCP sales. Bowling Centers
EBITDA was slightly higher than in the previous year.
The Company does not believe that the decline in operating results for the
first half of 1996, compared to the first half of 1995, will materially affect
its ability to service its debt.
Pending Transactions
Since completing the Acquisition, the Company has entered into letters of
intent with a number of sellers to purchase bowling centers, including the
Bowling Corporation of America centers. The total purchase price is expected to
be approximately $104.0 million, subject to purchase price adjustments. Certain
of the transactions are subject to a number of conditions, including the
negotiation of definitive agreements and receipt of regulatory approvals. There
is no assurance that any of the pending acquisitions will be consummated.
BOWLING CENTER OPERATIONS
The combined results shown below reflect both the domestic and
international bowling center operations. The tables set forth below also present
the average price per game and lineage (average number of games bowled per lane
per day) data for AMF's combined worldwide bowling center operations. Average
price per game and lineage are key components of bowling revenue.
66
<PAGE> 74
AMF WORLDWIDE BOWLING CENTER OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1994 1995
--------------------- --------------------------------
1993 AMF(b) COMBINED(c) AMF(b) FAIR LANES COMBINED
----- ------ ----------- ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Average price per game............. $2.17 $2.25 $2.20 $2.33 $1.93 $2.19
Percentage change................ -- 3.7 % 1.4% 3.6 % -- --
Fixed exchange rate average price
per game(a)...................... $2.15 $2.23 $2.19 $2.33 $1.93 $2.19
Percentage change................ -- 3.7 % 1.9% 4.5 % -- --
Lineage............................ 25.9 26.3 26.0 25.5 22.2 24.2
Percentage change................ -- 1.5 % 1.2% (3.0)% -- --
</TABLE>
- ---------------
(a) Defined as the result of dividing worldwide bowling revenue for each period
presented (as translated into U.S. dollars by using the weighted average
foreign currency exchange rates used to translate 1995 revenue), by the
total number of games bowled worldwide. The effect is to fix the exchange
rates at the 1995 levels for purposes of comparability in examining changes
in average price per game without the effect of changes in foreign currency
exchange rates.
(b) Excludes Fair Lanes.
(c) Includes the results of Fair Lanes, acquired on September 29, 1994.
AMF's worldwide lineage has remained relatively constant over the periods
presented. Worldwide average price per game increased from $2.17 for the year
ended December 31, 1993 to $2.19 for the year ended December 31, 1995. After new
management was installed in early 1993, domestic prices were increased by 3.2%
in 1994 and 2.1% in 1995 (excluding Fair Lanes), resulting in similar increases
in revenue and little to no change in lineage. The acquisition of Fair Lanes
centers, all of which are located in the U.S. and which acquisition is included
for the fourth quarter of 1994 and for 1995, had the effect of decreasing the
average price per game, as the domestic average price per game is lower than the
international price per game.
Domestically, slight declines in league lineage have been offset by
increases in open play and tournament lineage. Lineage from league bowlers has
slowly declined over the years, as traditional night league activity has
declined, but has been partially offset by increases in day leagues, junior
leagues and senior leagues. Open play lineage has risen due to AMF's ability to
attract additional open play bowlers.
AMF DOMESTIC BOWLING CENTERS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1994 1995(d)
--------------------- --------------------------------
1993 AMF(a) COMBINED(b) AMF(a) FAIR LANES COMBINED
----- ------ ----------- ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Total revenue..................... $94.6 $96.2 $ 121.6 $99.8 $ 92.6 $192.4
EBITDA............................ 27.4 30.3 33.4 31.2 25.7(c) 56.9(c)
EBITDA margin..................... 29.0% 31.5 % 27.5% 31.3 % 27.8% 29.6
</TABLE>
- ---------------
(a) Excludes Fair Lanes operations.
(b) Includes the results of Fair Lanes, acquired on September 29, 1994.
(c) After $2.3 million of certain non-recurring costs relating to the Fair Lanes
acquisition. See Note (h) to "Selected Combined Financial Data."
(d) For 1995, domestic bowling center operations adopted a calendar month-end;
accordingly, the results of operations for the year ended December 31, 1995
include the results of operations for the period from December 26, 1994
through December 31, 1995. Total revenue for the period from December 26,
1994 through December 31, 1994 was approximately $2.0 million.
67
<PAGE> 75
AMF INTERNATIONAL BOWLING CENTERS(a)
(U.S. DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1993 1994 1995
----- ------ -----
<S> <C> <C> <C>
Total revenue................................................... $98.0 $103.8 $99.9
EBITDA.......................................................... 29.5 35.5 32.1
EBITDA margin................................................... 30.1% 34.2% 32.1%
</TABLE>
- ---------------
(a) The historical AMF financial data presented in this table include the two
European bowling centers that were retained by the Sellers. For the effect
on AMF of excluding these two bowling centers, see "Notes to the Pro Forma
Consolidated Statements of Income" and "Notes to the Pro Forma Consolidated
Balance Sheet."
First Quarter 1995 to First Quarter 1996
For the three months ended March 31, 1996, bowling center operations
revenue decreased by $2.7 million, or 3.1%, from $85.8 million for the three
months ended March 31, 1995 to $83.1 for the three months ended March 31, 1996.
For the domestic centers, total revenue decreased by $2.6 million, representing
a 4.3% decrease over first quarter 1995 revenue of $60.7 million. Of this
decrease, $1.4 million is attributable to seven Fair Lanes centers, which were
closed subsequent to March 1995. Severe weather conditions in the United States
during the first quarter of 1996 accounted for the remaining decrease. The
overall decrease in international revenue of $0.1 million was a result of
decreased lineage.
Bowling center operations worldwide gross profit decreased by $1.9 million,
or 2.4%, to $76.3 million for the three months ended March 31, 1996 from $78.2
million for the three months ended March 31, 1995. This decrease is primarily
attributable to lower revenue, partially offset by increased gross profit on
domestic food and beverage revenue as a result of cost control measures. For the
international centers, gross profit was unchanged.
Bowling center operations costs decreased by $2.1 million, or 4.8%, from
$44.1 million for the three months ended March 31, 1995 to $42.0 million for the
three months ended March 31, 1996. For the domestic centers, bowling center
operations costs decreased by $2.6 million, of which $1.0 million was related to
seven Fair Lanes centers, which were closed subsequent to March 1995. The
remaining reductions were a result of management's efforts to decrease operating
costs after weather conditions had a negative impact on revenues in 1996.
Internationally, bowling center operations costs increased by $0.5 million,
primarily due to new center operations in Japan and China.
Bowling center operations selling, general and administrative costs
decreased by $1.1 million, or 31.4%, from $3.5 million for the three months
ended March 31, 1995 to $2.4 million for the three months ended March 31, 1996.
For the domestic centers, selling, general and administrative expenses decreased
by $1.2 million, primarily due to non-recurring expenses incurred during the
three months ended March 31, 1995 resulting from the existence and subsequent
closing of the Fair Lanes corporate offices, the reduction of general liability
and workers compensation expenses and other nonrecurring costs as a result of
integrating the Fair Lanes centers into the AMF risk management program and the
closing of seven bowling centers. See "Pro Forma Consolidated Financial
Statements." This decrease was partially offset by an increase of $0.1 million
for the international centers.
Bowling center operations EBITDA increased by $1.6 million, or 5.3%, from
$30.2 million for the three months ended March 31, 1995 to $31.8 million for the
three months ended March 31, 1996 (after certain non-recurring costs of $1.2
million). (See "Pro Forma Consolidated Financial Statements.") Domestic EBITDA
and the EBITDA margin increased from $21.8 million and 35.9% in the first
quarter of 1995, to $24.1 million and 41.5 % in the first quarter of 1996. This
increase is primarily attributable to the decreases in bowling center operations
costs and selling, general and administrative costs. Internationally, bowling
center operations EBITDA and EBITDA margin de-
68
<PAGE> 76
creased from $8.4 million and 33.5% in the first quarter of 1995, to $7.7
million and 30.8% in the first quarter of 1996. This EBITDA decrease of $0.7
million and the related margin decrease were direct results of the decrease in
revenue and the increase in operating and selling, general and administrative
costs for the new centers in Japan and China. The opening of the China center
was delayed until January 1996, which resulted in additional pre-opening costs
of $0.2 million.
1994 to 1995
For the year ended December 31, 1995, bowling center operations revenue
increased by $66.9 million, or 29.7%, from $225.4 million for the year ended
December 31, 1994 to $292.3 million for the year ended December 31, 1995. Of
this increase, $3.6 million is attributable to AMF domestic centers (excluding
Fair Lanes) and $67.2 million is attributable to the addition of the Fair Lanes
centers, offset by a decrease in international revenue of $3.9 million. For the
domestic centers (excluding Fair Lanes), the total revenue increase of $3.6
million, representing a 3.7% increase over 1994 revenue of $96.2 million, was
throughout all revenue categories. The increase in bowling revenue was a result
of an increase in both the domestic centers' (excluding Fair Lanes) average
price per game and lineage. Additionally, in December 1995, management increased
domestic shoe rental prices and domestic food and beverage prices by 10.0% and
3.0%, respectively. For 1996, management plans to increase bowling prices in the
U.S. by an average of 3.4%. Unseasonably dry, hot weather in several countries
and several unusual events including the Kobe earthquake and subway gas attacks
in Japan, the economic crisis in Mexico and general strikes in France resulted
in a decline in international bowling center revenue. In particular, AMF's
centers in Mexico had a revenue decline from U.S. $15.3 million for 1994 to U.S.
$7.8 million for 1995, due to weakening of the local currency. The overall
decrease in international revenue was a result of an increase in the
international average price per game, expressed in U.S. dollars (despite the
devaluation of the Mexican peso), which was more than offset by a decrease in
international lineage. For 1996, management plans to increase bowling prices
outside the U.S. by an average of 8.4%.
Bowling center operations worldwide gross profit increased by $62.9
million, or 31.0% to $266.0 million for the year ended December 31, 1995 from
$203.1 million for the year ended December 31, 1994. Of this increase, $61.9
million, or 98.4% was attributable to the addition of acquired Fair Lanes
centers. Fair Lanes centers' cost of sales as a percentage of revenues declined
from 10.5% for the year ended December 31, 1994 to 8.5% for the year ended
December 31, 1995. This decrease in cost of sales is primarily attributable to
the immediate effects of implementing AMF cost control procedures in food and
beverage operations at the Fair Lanes centers. The remaining gross profit
increase of $1.0 million is attributable to higher prices at AMF centers
(excluding Fair Lanes) and general reductions to cost of goods sold. During the
year ended December 31, 1995, management reviewed the domestic food and beverage
operations and established more standardized menus which, management believes,
resulted in an overall lower cost of goods sold for food and beverage.
Bowling center operations costs increased by $49.5 million, or 42.3%, from
$117.0 million for 1994 to $166.5 million for 1995, of which $44.0 million, or
88.9%, was related to the inclusion of Fair Lanes. As a percentage of total
revenue, bowling center operations costs increased from 51.9% to 56.9% from 1994
to 1995, respectively. The increase was also attributable to $2.3 million of
non-recurring expenses in 1995 resulting from the existence and subsequent
closing of the Fair Lanes corporate offices, the reduction of general liability
and workers compensation expenses and other nonrecurring costs as a result of
integrating the Fair Lanes centers into the AMF risk management program and the
closing of seven bowling centers (see "Pro Forma Consolidated Financial
Statements"). Internationally, the increase in the percentage of selling,
general and administrative costs to revenue was due to the following factors.
During 1995, management assessed the international bowling center operations and
implemented changes in management personnel in Australia, France, Spain and
Switzerland. Management believes that these changes will improve the operating
results of the international centers in the future. In addition, AMF closed one
center in the
69
<PAGE> 77
United Kingdom, which was damaged by fire, and one center in Australia. As a
result, AMF incurred redundancy, relocation, severance and other costs
aggregating $0.3 million, which management has identified as non-recurring. See
"Selected Combined Financial Data."
Selling, general and administrative costs decreased by $6.5 million, or
38.2%, from $17.0 million for 1994 to $10.5 million for 1995, of which $4.6
million, or 70.7%, was related to Fair Lanes. Fair Lanes incurred $5.8 million
of selling, general and administrative costs during the three months ended
December 31, 1994 (and before management assumed operational control) compared
with costs of $1.2 million during 1995. This decrease is attributable to high
salaries, professional fees and travel costs incurred during 1994 by Fair Lanes.
The remaining decrease represents a decrease in selling, general and
administrative costs for international centers of $2.1 million and an increase
for domestic centers (excluding Fair Lanes) of $0.2 million.
EBITDA increased by $20.1 million, or 29.2%, from $68.9 million for 1994 to
$89.0 million for 1995 (after certain non-recurring costs of $2.3 million). Of
this increase, the addition of the Fair Lanes centers contributed $22.6 million
in EBITDA for 1995, after certain non-recurring costs of $2.3 million (see "Pro
Forma Consolidated Financial Statements"). Domestic EBITDA and the EBITDA margin
increased from $33.4 million and 27.5% in 1994, to $56.9 million and 29.6% in
1995. This increase is primarily attributable to the inclusion of Fair Lanes in
the fourth quarter of 1994, which experienced an EBITDA margin of 12.6% for that
quarter, compared to 27.8% for the year ended December 31, 1995. AMF did not
assume operational control of Fair Lanes until January 1995. Thus, the combined
results for AMF for 1994 are depressed due to the lower EBITDA that Fair Lanes
had historically experienced under prior management. Internationally, EBITDA and
EBITDA margin decreased from $35.5 million and 34.2% in 1994, to $32.1 million
and 32.1% in 1995. This EBITDA decrease of $3.4 million and the related margin
decline were direct results of the impact on international revenue of the
unusual events referred to above occurring in countries with historically high
margins and the increase in selling, general and administrative costs discussed
above. Additionally, AMF centers in Mexico had an EBITDA decline from U.S. $4.7
million for 1994 to U.S. $3.4 million for 1995, primarily due to the weakening
of the local currency.
1993 to 1994
AMF's worldwide revenue from bowling center operations increased by $32.8
million, or 17.0%, to $225.4 million in fiscal 1994 from $192.6 million in
fiscal 1993. Of this increase, $25.4 million, or 77.4%, resulted from the
inclusion of the Fair Lanes centers' results for the fourth quarter of 1994.
Total revenue for AMF domestic centers (excluding Fair Lanes) increased by $1.6
million, or 1.7%. Total revenue for AMF's international centers increased by
$5.8 million. Domestic AMF bowling revenue (excluding Fair Lanes) increased from
$58.1 million to $58.5 million from 1993 to 1994. This increase resulted from an
increase in both the average price per game and lineage. International bowling
revenue increased by $3.0 million, which is attributable to increases in average
price per game and lineage. Total food and beverage revenue (excluding Fair
Lanes) increased by $2.0 million following the hiring of a new food and beverage
manager in the U.S. and an emphasis by international managers to set prices and
update menus to maximize revenue. The remaining increase in worldwide revenue
(excluding Fair Lanes) of $2.0 million is attributable to increases in ancillary
revenue, which includes shoe rental and amusement game revenue.
AMF's worldwide gross profit from bowling center operations increased $29.0
million, or 16.7% to $203.1 million in fiscal 1994 from $174.1 million in fiscal
1993. Of this increase, $22.8 million, or 78.6%, is attributable to the
inclusion of the Fair Lanes centers for the fourth quarter. This increase is
also due to the above mentioned increase in bowling revenue. As there is no
direct cost of sales for bowling revenue, the increase in revenue resulted in a
corresponding increase in gross profit. The remaining increase is attributable
to food and beverage, resulting from the above mentioned increase in food and
beverage revenue.
70
<PAGE> 78
Bowling center operations expenses increased by $11.2 million, or 10.6%,
from $105.8 million for 1993 to $117.0 million for 1994, of which $14.0 million
was related to the inclusion of Fair Lanes. As a percentage of total revenue,
bowling center operations costs decreased from 54.9% to 51.9% from 1993 to 1994,
respectively. The full year effect of cost reduction measures implemented in
1993 and of bowling centers which were closed in 1993 was realized in 1994.
Selling, general and administrative costs increased by $5.7 million, or
50.4%, from $11.3 million for 1993 to $17.0 million for 1994. The increase of
$5.7 million is a result of the inclusion of Fair Lanes.
AMF's worldwide EBITDA increased by $12.0 million, or 21.1%, to $68.9
million in fiscal 1994 from $56.9 million in fiscal 1993. Of this increase,
acquired Fair Lanes centers contributed $3.1 million, or 25.8%. Although
domestic EBITDA increased from $27.4 million to $33.4 million from 1993 to 1994,
or $6.0 million, as a percentage of domestic revenue the EBITDA margin decreased
from 29.0% for 1993 to 27.5% for 1994. This decrease is primarily a result of
the inclusion of Fair Lanes during the fourth quarter of 1994, which generated
an EBITDA margin of 12.6% compared to AMF's domestic centers (excluding Fair
Lanes) which generated an EBITDA margin of 31.5%. AMF did not assume operational
control of Fair Lanes until January 1995. Thus, results for the fourth quarter
of 1994 are reflective of the lower EBITDA which Fair Lanes had historically
experienced under prior management. Internationally, EBITDA increased by $6.0
million, from $29.5 million during 1993 to $35.5 million during 1994. The EBITDA
margin increased from 30.1% during 1993 to 34.2% during 1994. This increase was
a direct result of the increase in revenue and the decrease in selling, general
and administrative expenses as a percentage of revenue discussed above.
MANUFACTURING
The two categories of AMF's manufacturing operations are (i) recurring
sales of replacement and spare parts and supplies, resale products, and major
modernization equipment ("Replacement and Modernization" products) to
established bowling centers in both mature and developing markets; and (ii)
sales of bowling equipment necessary to outfit new bowling centers or expand an
existing bowling center ("New Center Packages" or "NCPs"). Revenue and EBITDA
for Manufacturing and for the two categories are presented below.
AMF MANUFACTURING(a)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------- -------------------
1993 1994 1995 1995 1996
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
Total Manufacturing Combined
Total revenue...................... $235.0 $292.4 $272.6 $71.1 $40.2
EBITDA............................. 67.1 80.6 74.5 20.6 7.1
EBITDA margin...................... 28.6% 27.6% 27.3% 29.0% 17.6%
Replacement and Modernization
Products
Revenue............................ $112.4 $121.9 $120.0 $26.0 $23.4
EBITDA............................. 29.7 30.5 27.1 5.0 3.8
EBITDA margin...................... 26.4% 25.0% 22.6% 19.2% 16.2%
New Center Packages
Total NCPs sold.................... 3,577 4,941 4,437 1,485 415
Revenue............................ $122.6 $170.5 $152.6 $45.1 $16.8
EBITDA............................. 37.4 50.1 47.4 15.6 3.3
EBITDA margin...................... 30.5% 29.4% 31.1% 34.6% 19.6%
</TABLE>
- ---------------
(a) Excludes sales to AMF bowling centers of $8.6 million, $9.3 million and
$13.9 million for the years ended December 31, 1993, 1994 and 1995,
respectively, and $4.3 million and $2.8 million for the three months ended
March 31, 1995 and 1996, respectively. The EBITDA associated with this
revenue were $4.0 million, $4.1 million and $4.8 million for the years ended
December 31, 1993, 1994 and 1995, respectively, and $1.5 million and $1.0
million for the three months ended March 31, 1995 and 1996, respectively.
71
<PAGE> 79
Manufacturing's long-standing customer relationships, bowling centers'
predictable demand for Replacement and Modernization products, a steadily
increasing installed base and Manufacturing's ability to supply a full product
line have historically made the Replacement and Modernization category a stable
and recurring base of revenue and EBITDA. Revenue growth from 1991 to 1994 for
the NCP segment resulted primarily from increased unit sales to Taiwan and Korea
and recently to China, where the popularity of bowling and consequent demand for
new bowling centers has increased dramatically.
First Quarter 1995 to First Quarter 1996
Revenue decreased by $30.9 million, or 43.3%, from $71.1 million for the
three months ended March 31, 1995 to $40.2 million for the three months ended
March 31, 1996. This figure represents a decrease of $28.3 million or a 62.7%
decline in NCP revenue and a decrease of $2.6 million or a 10.0% decline in
Replacement and Modernization revenue. The drop in NCP revenue is due to an
overall decrease in NCP unit sales, particularly for Korea and Taiwan, partially
offset by an increase in NCP sales to China. NCP sales to Korea and Taiwan
decreased from 1,267 units for the three months ended March 31, 1995 to 76 units
for the three months ended March 31, 1996, representing a decrease of 94.0%.
This decrease was partially offset by an increase in NCP sales to China from 92
units for the three months ended March 31, 1995 to 185 units for the three
months ended March 31, 1996, representing a 101.1% increase. As a result of the
maturing state of the markets in Korea and Taiwan, management does not expect
NCP sales to these markets to return to the levels realized in 1995. NCP sales
to China are expected to continue to increase over 1995 levels. See "Backlog;
Recent NCP Sales."
The Replacement and Modernization revenue decrease was primarily a result
of a decrease in bowling ball for resale sales of $3.6 million, partially offset
by increased revenue from the sale of bumpers ($0.4 million), synthetic lanes
($0.3 million) and automatic scoring ($0.3 million). The decrease in bowling
ball for resale sales results from a new product launch, which occurred in March
during 1995, and in April during 1996.
Total gross profit decreased by $14.1 million, or 47.2%, from a gross
profit of $29.9 million for the three months ended March 31, 1995 to a gross
profit of $15.8 million for the three months ended March 31, 1996. This
represents a gross profit margin of 42.1% and 39.2% for the three months ended
March 31, 1995 and the three months ended March 31, 1996, respectively. This
decrease was primarily due to the lower level of sales. This decrease in
revenues was offset by an increased mix of NCP sales through affiliates (which
generate higher gross profit margins than sales through distributors) and
reduced engineering costs due to product releases in 1995 that were not repeated
in 1996.
Selling, general and administrative expenses decreased by $0.6 million,
from $10.2 million for the three months ended March 31, 1995 to $9.6 million for
the three months ended March 31, 1996. This decrease of $0.6 million is
primarily attributable to lower variable costs associated with a lower volume of
sales, offset in part by an increase of $0.7 million of costs associated with
international sales efforts.
EBITDA and EBITDA margin decreased from $20.6 million and 29.0%,
respectively, for the three months ended March 31, 1995 to $7.1 million and
17.5%, respectively, for the three months ended March 31, 1996, primarily due to
the substantial reduction in NCP sales. Replacement and Modernization EBITDA
decreased from $5.0 million for the three months ended March 31, 1995 to $3.8
million for the three months ended March 31, 1996. NCP EBITDA also declined from
$15.6 million for the three months ended March 31, 1995 to $3.3 million for the
three months ended March 31, 1996.
72
<PAGE> 80
1994 to 1995
Revenue decreased by $19.8 million, or 6.8%, from $292.4 million for 1994
to $272.6 million for 1995. This figure represents a decrease of $17.9 million
or a 10.5% decline in NCP revenue and a decrease of $1.9 million or a 1.6%
decline in Replacement and Modernization revenue. The drop in NCP revenue is due
to an overall decrease in NCP sales, particularly for Korea and Taiwan, offset
by an increase in NCP sales to China. From 1994 to 1995, total NCP sales to
Korea decreased by 757 units and to Taiwan decreased by 519 units, while total
NCP sales to China increased by 662 units. Additionally, there was a moderate
increase in NCP units sold to India, Thailand and Egypt of 86 units,
collectively, from 12 units during 1994 to 98 units during 1995. A significant
portion of the decrease occurred in sales to Taiwan and Korea during November
and December 1995, which had significantly lower sales than the comparable
period in 1994. Management believes that the expansion period in Taiwan and
Korea peaked during 1994. In Korea, the Company discontinued operations with its
former distributor and opened a direct sales office during 1995. Management
believes that the decreased sales to Taiwan and Korea are primarily attributable
to the result of NCP sales to Taiwan and Korea having peaked in 1994.
NCP sales in Japan were significantly affected by uncertain economic
conditions following the Kobe earthquake and the subway gas attacks, which
resulted in delayed investments in recreational activities. However, the Japan
branch increased its Replacement and Modernization revenue during the year ended
December 31, 1995 by approximately $2.4 million over the preceding year.
A net decrease in Replacement and Modernization revenue of $0.6 million was
realized by the German branch. Continued unprofitability of this branch and the
French branch prompted management to reorganize European operations. During the
year ended December 31, 1995, the general manager and controller positions in
Germany and France were consolidated into the central sales office in the United
Kingdom.
Total gross profit decreased by $3.4 million, from a gross profit of $118.4
million for 1994 to a gross profit of $115.0 million for 1995. This represents a
gross profit margin of 40.5% and 42.2% for 1994 and 1995, respectively. This
increase was partially due to the increase in margins of New Center Packages.
Additionally, total warranty costs, which aggregated approximately $2.7 million
for 1995 decreased from $5.0 million for 1994, primarily resulting from
increased quality control procedures and improved training programs for center
mechanics in the international markets. Offsetting the overall gross profit
margin increase, were $0.4 million in start-up expenses incurred at the pool cue
manufacturing plant, a $0.3 million charge relating to the acquisition of
manufacturing rights for one of the AMF's bumper bowling products and an
approximate $1.0 million increase in engineering expenses associated with AMF's
new automatic scoring products.
Selling, general and administrative expenses increased by $2.6 million from
$37.9 million for 1994 to $40.5 million for 1995. This increase of $2.6 million
is primarily attributable to non-recurring costs of $2.9 million in 1995, offset
in part by net reversals of reserves of $0.9 million. See "Selected Combined
Financial Data."
EBITDA and EBITDA margin decreased from $80.6 million and 27.6%,
respectively, for 1994 to $74.5 million and 27.3%, respectively, for 1995,
primarily due to the decreased revenue and increased selling, general and
administrative expenses discussed above. The 1995 EBITDA of $74.5 million was
depressed by the charges of $2.9 million described above, which management
believes are non-recurring. Replacement and Modernization EBITDA decreased from
$30.5 million for 1994 to $27.1 million for 1995. NCP EBITDA also declined from
$50.1 million for 1994 to $47.4 million for 1995, although the EBITDA margin
increased from 29.4% for 1994 to 31.1% for 1995.
73
<PAGE> 81
1993 to 1994
Total revenue increased by $57.4 million, or 24.4%, to $292.4 million
during 1994, from $235.0 million during 1993. Of this increase, approximately
$47.9 million, or 83.4%, was attributable to an increase in NCP units sold, with
units sold increasing by 1,364 from 3,577 units in 1993 to 4,941 units in 1994.
This increase is primarily attributable to an increase in units sold to Korea
and Taiwan, from 2,075 and 835 for 1993, respectively, to 2,202 and 1,882 for
1994, respectively. The remaining $9.5 million increase was attributable to an
increase in Replacement and Modernization sales.
The gross profit margin fell from 42.6% in 1993 to 40.3% in 1994, due to a
higher level of costs absorbed in cost of sales. Product development costs were
higher in 1994 than in 1993 due to new products under design. In 1994, total
research and development expenditures more than doubled to $3.1 million from
$1.3 million in 1993. Warranty costs were also higher in 1994 than in 1993, due
to charges associated with introducing a new pinspotter product. Total warranty
costs increased by $1.5 million to $5.0 million in 1994 from $3.5 million in
1993.
Total selling, general and administrative expenses increased by $4.9
million, or 14.8% to $37.9 million for 1994 from $33.0 million for 1993. This
represents a decrease of 1.1% in the percentage of selling, general and
administrative costs of revenue from 14.1% of revenue for 1993 to 13.0% of
revenue for 1994. Of this increase, $1.4 million was attributable to legal
reserves established for potential legal settlements, and $0.9 million was
attributable to the inclusion of a full year of expenses for PlayMaster
billiards. In addition, $1.0 million was incurred in 1994 as service, sales and
administrative personnel were hired in the Hong Kong branch in order to meet the
growing demand for bowling products.
Additional increases in costs were attributable to $0.3 million of costs
through the sponsorship of a Professional Bowling Association tournament (the
Dick Weber Classic), a $0.3 million increase in general promotional activities,
start-up expenses of $0.2 million associated with the Legendary acquisition,
increased accruals of $0.2 million for the executive incentive plans and
increased reserves of $0.4 million for bad debts at the France and Hong Kong
branches.
Total EBITDA increased by $13.5 million, or 20.1%, to $80.6 million for
1994 from $67.1 million for 1993. Of this increase, $18.3 million was primarily
attributable to the increase in gross profit, which was driven by higher sales
volumes and which was offset by the $4.9 million in additional selling, general
and administrative costs. EBITDA margin decreased from 28.6% of revenue for 1993
to 27.6% of revenue for 1994, as a result of the decrease in the gross profit
margin. NCP EBITDA increased from $37.4 million in 1993 to $50.1 million in
1994. Replacement and Modernization EBITDA remained relatively stable at $29.7
million and $30.5 million for 1993 and 1994, respectively.
DEPRECIATION AND AMORTIZATION
For the three months ended March 31, 1996, depreciation and amortization
increased by $1.8 million, or 19.6%, from $9.2 million for the three months
ended March 31, 1995 to $11.0 million for the three months ended March 31, 1996.
This increase resulted from the depreciation of (i) capital expenditures made
after March 31, 1995 to improve the quality of the Fair Lanes centers to the AMF
standard and (ii) the construction cost of Hanover Lanes, AMF's most modern
bowling center, which opened in November 1995. On a pro forma basis,
depreciation and amortization was $16.4 million for the three months ended March
31, 1996, which reflects the allocation of the purchase price to acquired fixed
and intangible assets. See "Pro Forma Consolidated Balance Sheet."
For the year ended December 31, 1995, depreciation and amortization
increased by $14.3 million, or 57.7%, from $24.8 million in 1994 to $39.1
million in 1995. This increase was primarily due to the inclusion of Fair Lanes
centers for the entire twelve months of 1995, as compared to three months during
1994.
74
<PAGE> 82
For the year ended December 31, 1994, depreciation and amortization
increased by $3.4 million, or 15.9%, from $21.4 million in 1993 to $24.8 million
in 1994. This is primarily due to the inclusion of Fair Lanes, which was
acquired on September 29, 1994.
INTEREST EXPENSE
Interest expense increased $0.1 million, or 2.7%, from $3.7 million for the
three months ended March 31, 1995 to $3.8 million for the three months ended
March 31, 1996. On a pro forma basis, interest expense was $23.8 million for the
three months ended March 31, 1996, which is a result of the Senior Debt and the
Notes incurred to finance the Acquisition.
Interest expense increased by $8.3 million, or 112.2%, from $7.4 million
for the year ended December 31, 1994 to $13.5 million for the year ended
December 31, 1995. This increase is a result of additional debt incurred in
connection with the Fair Lanes acquisition on September 29, 1994.
Interest expense increased by $2.4 million, or 48.0%, from $5.0 million in
1993 to $7.4 million in 1994. This increase was partially a result of additional
debt incurred during the last three months of 1994 in connection with the Fair
Lanes acquisition.
NET INCOME
Net income decreased by $12.6 million, or 36.8%, from $34.2 million for the
three months ended March 31, 1995 to $21.6 million for the three months ended
March 31, 1996. This decrease is primarily a result of the substantial decrease
in NCP sales during 1996 compared to the same period in 1995. On a pro forma
basis, the net loss would have been $3.8 million for the three months ended
March 31, 1996, which reflects the higher depreciation, amortization and
interest expense resulting from the Acquisition.
Net income decreased by $2.5 million, or 2.5%, from $99.3 million in 1994
to $96.8 million in 1995. This decrease was the result of higher depreciation
and amortization and interest expense in 1995 as compared to 1994.
Net income increased by $16.9 million, or 20.5%, from $82.4 million in 1993
to $99.3 million in 1994. This increase is a result of the significant increase
in manufacturing NCP revenue during 1994 as compared to 1993.
INCOME TAXES
Under the prior owners, certain of the companies within AMF elected S
corporation status under the Internal Revenue Code. As S corporations, the
companies have historically been liable for U.S. federal income taxes under
certain circumstances and liable for state income taxes in certain
jurisdictions; all other domestic income taxes were the responsibility of the
stockholders. The international branches of the S corporations and other
international entities have historically filed income tax returns and paid taxes
in their respective countries. The prior owners have historically received a tax
credit, subject to certain limitations, in their U.S. federal income tax returns
for international taxes paid by the international branches of the S corporations
and certain other international entities.
Upon consummation of the Acquisition, the domestic subsidiaries of Holdings
became taxable corporations under the Internal Revenue Code. The historical
audited financial statements (see "Index to Financial Statements") include a pro
forma tax provision for income taxes which would have been recorded if the AMF
companies had not been S corporations, based on tax laws in effect during these
periods, to give effect to the conversion of certain entities from S corporation
status to taxable corporation status.
75
<PAGE> 83
For a discussion of representations and warranties provided by the Seller
in connection with the Acquisition relating to the tax status of the S
corporations, see "The Acquisition -- Representations and Warranties;
Indemnity."
LIQUIDITY AND CAPITAL RESOURCES
If the Acquisition had been completed as of March 31, 1996, the Company
would have had an estimated balance of cash and cash equivalents of $23.2
million. The Company's primary source of liquidity is cash provided by
operations. Working capital on December 31, 1995 was $29.4 million, and on
December 31, 1994 was $16.9 million, compared to $18.9 million at December 31,
1993.
Net cash flows from operating activities decreased from $36.4 million for
the three months ended March 31, 1995 to $24.3 million for the three months
ended March 31, 1996. This decrease was primarily due to the decrease in net
income from $34.2 million for the three months ended March 31, 1995 to $21.6
million for the three months ended March 31, 1996.
Net cash flows used in investing activities were $4.5 million for the three
months ended March 31, 1995 compared to $3.6 million for the three months ended
March 31, 1996. During the three months ended March 31, 1995, capital spending
was $4.3 million and other investing cash flows used were $0.2 million. During
the three months ended March 31, 1996, capital spending was $4.4 million and
other cash flows provided by investing activities were $0.8 million.
Net cash used for financing activities was $26.1 million for the three
months ended March 31, 1995 compared to net cash used from financing activities
of $17.4 million for the three months ended March 31, 1996. During the three
months ended March 31, 1995, the Company made net payments on credit note
agreements of $10.8 million. Distributions to stockholders and capital
contributions by stockholders were $15.0 million and $6.9 million, respectively,
during the three months ended March 31, 1995. Additionally, the Company made
payments of $4.0 million for the redemption of common stock, and notes
receivable from affiliates increased by $1.3 million during the three months
ended March 31, 1995.
During the three months ended March 31, 1996, the Company had net
borrowings of $7.6 million on credit note agreements. Additionally, the Company
made payments of $9.1 million as distributions to stockholders and $15.7 million
as net payments on notes payable to stockholders.
As a result of the aforementioned, cash increased by $6.1 million for the
three months ended March 31, 1995 compared to an increase of $3.0 million for
the three months ended March 31, 1996.
Net cash flow from operating activities increased from $119.7 million for
the year ended December 31, 1994 to $124.8 million for the year ended December
31, 1995. This increase was primarily a result of the fact that although net
income decreased from $99.3 million to $96.8 million and assets and liabilities
changes which reflected a net use of cash of $5.3 million and $10.9 million for
the year ended December 31, 1994 and for the year ended December 31, 1995,
respectively, depreciation and amortization increased by $14.3 million, from
$24.8 million for the year ended December 31, 1994 to $39.1 million for the year
ended December 31, 1995.
Net cash used for investing activities decreased from $32.6 million for the
year ended December 31, 1994 to $28.3 million for the year ended December 31,
1995. During 1994, cash of $17.3 was used for the acquisition of operating
units, primarily Fair Lanes. Capital spending was $17.8 million for the year
ended December 31, 1994 compared with $30.0 million for the year ended December
31, 1995.
Net cash used for financing activities increased from $89.6 million for the
year ended December 31, 1994 to $94.7 million for the year ended December 31,
1995. During 1994, the Company made distributions to stockholders of $78.2
million, net payments on notes payable to stockholders of $8.6 million and net
payments on credit note agreements and long-term debt of $4.8 million.
Additionally, cash of $2.1 million was received as capital contributions by
stockholders.
76
<PAGE> 84
During 1995, the Company made distributions to stockholders of $71.9 million,
net payments on notes payable to stockholders of $3.8 million, net payments on
credit note agreements and long-term debt of $21.3 million and a payment for
redemption of stock of $4.0 million. Additionally, cash of $8.3 million was
received as capital contributions by stockholders.
As a result of the aforementioned, cash increased by $0.2 million for the
year ended December 31, 1994 compared to an increase of $1.6 million for the
year ended December 31, 1995.
Net cash flow from operating activities increased from $104.7 million for
the year ended December 31, 1993 to $119.7 million for the year ended December
31, 1994. This increase was primarily due to an increase in net income from
$82.4 million for the year ended December 31, 1993 to $99.3 million for the year
ended December 31, 1994.
Net cash used for investing increased from $15.8 million for the year ended
December 31, 1993 to $32.6 million for the year ended December 31, 1994. During
1994, cash of $17.3 million was used for the acquisition of operating units,
primarily Fair Lanes. Capital spending was $14.7 million for the year ended
December 31, 1993 compared with $17.8 million for the year ended December 31,
1994.
Net cash used for financing activities decreased from $91.7 million for the
year ended December 31, 1993 to $89.6 million for the year ended December 31,
1994. During 1993, the Company made distributions to stockholders of $77.0
million and net payments on credit note agreements and long-term debt of $28.7
million. Additionally, cash of $5.0 million was received as capital
contributions by stockholders and $9.3 million was received as net proceeds on
notes payable from stockholders. During 1994, the Company made distributions to
stockholders of $78.2 million, net payments on notes payable to stockholders of
$8.6 million and net payments on credit note agreements and long-term debt of
$4.8 million. Additionally, cash of $2.1 million was received as capital
contributions by stockholders.
As a result of the aforementioned, cash decreased by $3.0 million for the
year ended December 31, 1993 compared to an increase of $0.2 million for the
year ended December 31, 1994.
As a result of the Acquisition, the Company's total indebtedness has
increased substantially. See "Risk Factors -- Substantial Leverage; Ability to
Service Indebtedness." Immediately following the consummation of the
Acquisition, the Company's debt structure consisted of Senior Debt of $517.0
million, Senior Subordinated Notes of $250.0 million and Senior Subordinated
Discount Notes of $250.0 million. The Company was also capitalized with equity
of $391.0 million. The Company also has the ability to borrow an additional
$50.0 million for general corporate purposes pursuant to the working capital
facility and up to $100.0 million and, subject to satisfying a financial test,
up to an additional $50.0 million for acquisitions pursuant to an acquisition
facility under the New Bank Credit Agreement, subject to certain conditions. See
"Description of Senior Debt."
The Company is funding its cash needs through cash flow from operations,
existing cash balances and the working capital facility and acquisition facility
under the New Bank Credit Agreement. See "Description of Senior Debt." A
substantial portion of the Company's available cash will be applied to service
the indebtedness incurred to finance the Acquisition.
The Indentures and the New Bank Credit Agreement of the Company contain
financial and operating covenants and significant restrictions on the ability of
the Company to pay dividends, incur indebtedness, make investments and take
certain other corporate actions. See "Description of Senior Debt" and
"Description of Notes."
The Company's ability to make scheduled payments of principal of, or to pay
interest on, or to refinance its indebtedness (including the Exchange Notes)
depends on its future performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors beyond its control. Based upon the current level of operations and
anticipated growth, management of the Company believes that available cash flow,
together with available borrowings under the New Bank Credit Agreement and other
sources of liquidity, will be
77
<PAGE> 85
adequate to meet the Company's anticipated future requirements for working
capital, capital expenditures and scheduled payments of principal of, and
interest on, its Senior Debt, and interest on the Exchange Notes. However, a
portion of the principal payments at maturity on the Exchange Notes may require
refinancing. There can be no assurance that the Company's business will generate
sufficient cash flow from operations or that future borrowings will be available
in an amount sufficient to enable the Company to service its indebtedness,
including the Exchange Notes, or to make necessary capital expenditures, or that
any refinancing would be available on commercially reasonable terms or at all.
See "Risk Factors."
CAPITAL EXPENDITURES (HISTORICAL AND BUDGETED)
For the year ended December 31, 1995, AMF's actual capital expenditures
were $30.1 million, including $9.7 million for the construction of new centers,
compared to the budgeted amount of $27.5 million. In 1994, AMF's actual capital
expenditures were $17.8 million, compared to the budgeted amount of $15.7
million. In 1993, AMF's actual capital expenditures were $14.7 million, compared
to the budgeted amount of $14.3 million. The projected capital expenditures for
1996 and 1997 are $17.7 million and $18.3 million, respectively, including the
amounts discussed in the following two paragraphs, but not including the
acquisition or construction of new centers. The 1996 and 1997 capital budget
amounts are lower than the 1995 level in part because in 1995 three new bowling
centers were constructed, at a cost of approximately $9.7 million. The Company
is currently constructing or planning to construct two new bowling centers, at a
total cost of $6.55 million to $7.55 million, of which approximately $4.3
million is expected to be paid in 1996 and the balance in 1997. The Company
expects to fund its capital expenditures from cash generated by operations, and,
with respect to the construction and acquisition of new centers, the Acquisition
Facility. For a discussion of the Company's current plans to acquire additional
centers, see "Recent Developments -- Pending Transactions."
AMF conducts an ongoing modernization and maintenance program that results
in its centers having upgraded physical plants and generally new and attractive
appearances. Management believes that its historical spending level of 3.7% of
bowling center revenue is fully adequate to cover all modernization and
maintenance capital expenditures. Management estimates that approximately 2.0%
of bowling center revenue is required for maintenance capital expenditures
alone. The revenue of new centers, such as Hanover Lanes in Richmond, Virginia,
the Garden Hotel center in China and Okegawa in Japan, is excluded from the
revenue figure used to calculate the budget for modernization and maintenance
capital expenditures. In addition to the 3.7% budgeted amount, AMF is budgeted
to spend $1.6 million for the major modernization of a 60-lane center located in
Milford, Connecticut, and for the installation of automatic scoring in a 64-lane
center in Akron, Ohio, both of which are former Fair Lanes centers. AMF is
scheduled to spend a total of $1.6 million on the installation of the new
point-of-sale information system in its domestic centers in 1996. In 1995, $0.2
million was spent on the system. A final amount of $1.6 million will be spent in
1997 to complete the installation.
Commencing in 1995, AMF's bowling center operations undertook a program to
replace in certain centers wood lanes having little or no remaining useful life
with new synthetic lanes, manufactured by AMF's manufacturing business. In 1994,
AMF bowling centers identified about 964 (approximately 16.9%) of its lanes
worldwide that had reached the end of their useful lives (generally, 30 to 35
years), or would reach such end in the next two to three years. In 1995, 316
lanes of the 964 lanes were replaced at a total cost of $1.5 million, at
approximately $4,750 per lane. An additional 316 lanes are scheduled to be
replaced in 1996 for approximately $1.5 million and 332 in 1997 for
approximately $1.6 million. This capital spending is in addition to the 3.7% of
revenue spent annually on the maintenance and modernization capital expenditure
program. Upon the acquisition of the Fair Lanes centers, AMF identified a total
of 448 lanes in Fair Lanes centers, or about 12.4% of total Fair Lanes lanes,
also in need of replacement. In 1995, 154 of those lanes were replaced at a
total cost of $0.6 million. In 1996, 150 lanes are scheduled to be replaced for
78
<PAGE> 86
$0.6 million and an additional 144 lanes are scheduled to be replaced in 1997
for $0.6 million, for a total cost of $1.2 million. Management believes that, on
completion of this lane replacement program, future lane replacements will be
covered by the modernization and maintenance capital expenditure program.
AMF's manufacturing business has relatively modest capital investment
requirements, and AMF has followed a relatively conservative approach to capital
investment. Maintenance and replacement investments have been made when clearly
needed but as close to the end of the useful lives of assets as possible.
Investment in production machinery and equipment has received the highest
investment priority and has focused on projects with projected payback periods
of one to three years. Management is not planning significant changes in the
policy for non-strategic projects.
The Company has the potential opportunity to acquire and build additional
bowling centers, both domestically and internationally. See
"Business -- Competitive Strengths (Bowling Center Operations)." Management
preliminarily plans to acquire centers to the maximum extent possible under the
acquisition facility. Under the acquisition facility, the Company has the
ability to borrow up to $100.0 million and, subject to satisfying a financial
test, up to an additional $50.0 million for acquisitions, subject to certain
conditions. The Company is prepared to acquire or build additional bowling
centers as appropriate opportunities arise. The Company is engaged in ongoing
evaluations of and discussions with third parties regarding possible
acquisitions. The Company is currently building or planning to build two new
centers, one in Sydney, Australia (at an estimated cost of $1.55 million) and
one at Chelsea Piers in New York City (at an estimated cost of $5.0 to $6.0
million, which cost includes the conversion of a pier into a bowling center).
For a discussion of the Company's current plans to acquire additional centers,
see "Recent Developments -- Pending Transactions." Management's plans to expand
the bowling center operations are subject to the continuation of favorable
economic and financial conditions, which are generally not within the Company's
control. See "Risk Factors."
SEASONALITY AND CYCLICALITY
On a combined basis, revenue and EBITDA of the combined businesses are
neither highly seasonal nor highly cyclical. The geographic diversity of AMF's
bowling center operations across different regions of the U.S. and across 10
different countries, along with the bowling industry's historic resistance to
recessions, has provided stability to AMF's annual cash flows. Although
financial performance is still seasonal in nature, with cash flows typically
peaking in the winter months and reaching their lows in the summer months, the
geographic diversity of AMF's bowling center operations has helped reduce this
seasonality. In Australia, where AMF has its largest number of international
centers, the reversal of seasons relative to the U.S. helps mitigate the
seasonality in worldwide operations. AMF's cash flows are further stabilized by
the location of many centers in markets where the climates have high average
temperatures and high humidity. In the United States, during the summer months
when league bowling is generally less active, AMF's bowling centers in the
southern U.S. continue to show strong performance. The same applies
internationally in countries with warm summer climates such as Hong Kong and
Mexico, where bowling in air-conditioned centers may be more attractive than
outdoor activities. Given this predictable revenue pattern, the Company is able
to adjust its payroll and other expenses to match the revenue stream.
Replacement and Modernization sales display significant seasonality. The
U.S. market, which is the largest market for Replacement and Modernization
products, is driven by the beginning of leagues in the Fall. Operators typically
sign buying agreements, particularly for replacement equipment, during the first
four months of the year after they receive winter league revenue indications.
Equipment is shipped and installed during the summer months, when leagues are
generally less active. Sales of modernization equipment, such as automatic
scoring and synthetic lane overlays, is less predictable and fluctuates more
than the replacement equipment because of the extended life cycles of these
major products, which range from four to 10 years.
79
<PAGE> 87
The NCP segment of the manufacturing business experiences significant
fluctuations due to changes in demand for NCPs as certain markets experience
high growth followed by market maturity. Market cycles for individual countries
have, in the past, spanned several years with periods of high demand for small
and medium sized markets (e.g., Japan, Korea, Taiwan) lasting from three to five
years. These growth patterns do not seem to be closely tied to general economic
cycles.
INTERNATIONAL OPERATIONS
For the year ended December 31, 1995, 34.2% of AMF's bowling center
operations revenue was generated by its international centers. Historically, AMF
has not engaged in any significant hedging activities.
For the year ended December 31, 1995, approximately two-thirds of AMF's
manufacturing sales were made through international affiliates and distributors.
To minimize credit and international exchange risk, equipment is sold primarily
on Free on Board (F.O.B.)-U.S. plant using letters of credit denominated in U.S.
dollars. Letters of credit are usually collected before shipments leave U.S.
ports. Affiliate offices sell some products in local currency, but adjust
pricing, to the extent that market conditions permit, with changes in exchange
rates. This policy has enabled AMF's manufacturing operations generally to avoid
any material adverse effect from exchange rate fluctuations, except during
severe international exchange rate volatility. See "Risk Factors."
BACKLOG; RECENT NCP SALES
The total NCP backlog as of December 31, 1995 was approximately 940 units.
This figure represents a decrease of 1,138 units from the backlog of 2,078 units
at December 31, 1994. This decrease is primarily composed of decreases in the
backlogs in Korea and Taiwan, which decreased by 528 units and 700 units,
respectively. Management believes that the decrease in the backlog of orders for
these countries is primarily the result of NCP sales to Taiwan and Korea having
peaked in 1994. The decrease in the Korea backlog is also partially due to the
cancellation of orders for 184 lanes previously placed by the now-terminated
Korean distributor. Based on average backlog levels for the three years ended
March 1993, 1994 and 1995, an average of 20% of signed orders in the Company's
backlog is eventually cancelled. The total NCP backlog increased by
approximately 548 units in the first three months of 1996, to 1,488 units at
March 31, 1996, a backlog level higher than that at March 31, 1993, which was
1,206 units, higher than that at March 31, 1994, which was 1,062 units, and
lower than the backlog at March 31, 1995, which was 1,773 units.
Reflecting the decline in orders in the fourth quarter of 1995,
manufacturing revenue from NCP sales declined very substantially during the
first three months of 1996, reflecting a decrease of over 60.0% compared with
NCP sales during the first three months of 1995. The drop in NCP revenue is due
to a decrease in NCP unit sales, particularly in Korea and Taiwan. For the full
year 1995, total NCP sales to Korea decreased by 757 units and to Taiwan
decreased by 519 units compared to the full year 1994. A significant portion of
this decrease occurred during November and December 1995, which had
significantly lower NCP sales than the comparable months in 1994. For the first
quarter of 1996, total NCP sales to Korea decreased by 468 units and total NCP
sales to Taiwan decreased by 723 units compared to the first quarter of 1995.
Management believes that the initial expansion period in both Korea and Taiwan
peaked during 1994. Management believes that the decreased sales to Korea were
also partially attributable to the effect of AMF's decreased presence in Korea
while it was in the process of establishing a direct sales office to replace its
former distributor. As a result of the maturing state of the markets in Korea
and Taiwan, management does not expect NCP sales to these markets to return to
the levels realized in 1995. Management expects overall NCP sales in the second
half of 1996 to exceed NCP sales for the first half of 1996, reflecting
continued progress in establishing a direct sales presence in China, although
there can be no assurance that the decline in NCP sales will be reversed. Total
NCP orders during the first three months of 1996 declined to 1,154 units from
total NCP orders of 1,334 units for the first three months of 1995, but improved
compared to 584 units for the last three months of 1995.
80
<PAGE> 88
As a result of the decrease in NCP sales described above, EBITDA
attributable to NCP sales for the first three months of 1996 declined very
substantially, from $15.6 million for the first quarter of 1995 to $3.3 million
for the first quarter of 1996.
On December 28, 1995, the State Council of China announced the reform and
adjustment of its policy towards foreign invested joint ventures in China. With
effect from April 1, 1996, joint ventures importing capital equipment, including
bowling equipment, are required to pay customs duty and Value Added Tax ("VAT")
on such equipment, though certain grandfather rule exemptions will apply. For
bowling equipment, the current customs duty rate is 50%, while the VAT rate is
17%. Prior to the change in policy, the joint ventures were exempt from customs
duty and VAT on most imported capital equipment, including bowling equipment. As
a grandfather concession, the joint ventures that were approved to set up prior
to April 1, 1996, with a total investment of less than US$30 million may have
until December 31, 1996 to import capital equipment duty free. Accordingly,
there is a risk that the change in import duty policy in China may adversely
affect the sale of NCP units to China. Based on the information available to the
Company, the Company believes that its competitors will be similarly affected by
the new import policy. The Company thus believes that the new policy will not
put it at a competitive disadvantage with respect to its competitors.
IMPACT OF INFLATION
AMF has historically offset the impact of inflation through price increases
and expense reductions. Periods of high inflation could have an adverse effect
on the Company to the extent that increased borrowing costs for floating rate
debt may not be offset by increases in revenue.
ENVIRONMENTAL MATTERS
AMF's operations are subject to federal, state, local, foreign and
international environmental laws and regulations that impose limitations on the
discharge of and establish standards for the handling, generation, emission,
release, discharge, treatment, storage and disposal of certain materials,
substances and wastes. AMF believes that its operations are in material
compliance with the terms of all applicable environmental laws and regulations
as currently interpreted. See "Business -- Environmental Regulation."
81
<PAGE> 89
BUSINESS
AMF is the largest owner and operator of commercial bowling centers in the
United States and worldwide. In addition, AMF is one of the world's leading
manufacturers of bowling center equipment, accounting for, management believes,
approximately 41% of the world's installed base of such equipment. With over 50
years of industry leadership, AMF is among the oldest and most established names
in bowling. AMF is principally engaged in two businesses which, historically,
have been operated independently: (i) the ownership and operation of 205
domestic bowling centers and 80 international bowling centers as of April 30,
1996; and (ii) the design, manufacture and sale of bowling equipment, including
automatic pinspotters, automatic scoring equipment, bowling pins, lanes, ball
returns, and certain spare and replacement parts, and the resale of allied
products such as bowling balls, bags, shoes and certain other spare and
replacement parts. For the year ended December 31, 1995, AMF, on a consolidated
basis, had pro forma revenue and Adjusted Pro Forma EBITDA (as defined herein;
see page 13) of $562.6 million and $167.7 million, respectively, for a margin of
29.8%. AMF's large-scale bowling center operations, its low-cost manufacturing
operations, and its management incentive compensation system, which encourages
revenue growth and aggressive cost management, all contribute to AMF's operating
results.
The historical AMF financial data presented in this section include the two
European bowling centers that have been retained by the Sellers. For the effect
on AMF of excluding these two bowling centers, see "Notes to the Pro Forma
Consolidated Statements of Income" and "Notes to the Pro Forma Consolidated
Balance Sheet."
INDUSTRY OVERVIEW
Bowling -- Sport and Recreation
Bowling is the largest indoor participation sport in the U.S. today, with
over 75 million people (approximately 28% of the U.S. population) bowling each
year. Bowlers represent a broad cross-section of the population and, according
to an industry source, nine out of 10 Americans have bowled at least once in
their lives. Several key reasons for bowling's popularity are that it is: (i) an
indoor, all-weather sport with year-round appeal, (ii) a lifetime sport suitable
for all age groups, and (iii) low in cost relative to other forms of
entertainment, requiring minimal expenditure on equipment to participate.
Bowling enjoys a favorable demographic profile, in that bowlers, in general, are
younger, more affluent, better educated, and more likely to be home-owners and
married than the U.S. population in general, as is shown in the table below.
DEMOGRAPHIC PROFILE OF BOWLERS VS. THE U.S. POPULATION
<TABLE>
<CAPTION>
BOWLERS U.S. POPULATION
-------- ----------------
<S> <C> <C>
Median age 27.6 36.0
Median income $38,400 $35,939
College educated 60.5% 43.4%
Married 76.5% 69.1%
Home-owners 75.8% 64.1%
</TABLE>
- ---------------
Sources: Market Facts, Inc., 1993; U.S. Dept. of Commerce, Bureau of the Census;
Statistical Abstract of the U.S. 1993.
Bowling is both a competitive sport and a recreational activity, resulting
in two distinct groups of bowlers: league bowlers and open play bowlers. League
bowling is offered to bowlers who register in leagues and commit to participate
on a scheduled basis -- generally once a week for a period of 30 to 40 weeks.
League bowlers are also the primary participants in bowling tournaments. This
base of league bowlers provides a recurring, predictable revenue and EBITDA
stream. Open play bowling is designed for the casual bowler who bowls on an
unscheduled basis subject to lane availability.
82
<PAGE> 90
As demographics have shifted, for example, towards increasing numbers of
working women, particularly in the U.S., there has been a gradual decrease in
league participation. This decrease has been partially offset by an increase in
open play bowling. Today, in the U.S., bowling revenue is split approximately
equally between league and open play bowlers. Outside the U.S., the relative
contribution to revenue by open play customers varies by country and accounts
for, management estimates, approximately 40% to 50% (in Mexico and Australia) to
approximately 95% (in Hong Kong and Spain) of bowling revenue.
Open play bowlers and league bowlers differ in terms of customer profiles.
Open play bowlers are often families and/or social groups and tend to be more
discerning than league bowlers with respect to the location, appearance and
breadth of amenities offered by a particular center. Centers that appeal to open
play bowlers are generally clean and bright facilities with increased amenities,
including amusement games, billiards, expanded food service, supervised
children's playrooms, and facilities to accommodate children's birthday parties.
In addition, the most appealing centers attract open play bowlers by taking
advantage of improvements in technology, including computerized automatic
scoring systems and optional bumper bowling systems (bumper guards, often used
by children, which prevent gutter balls).
The Federation Internationale des Quilleurs, bowling's international
rules-making body, estimates that more than 100 million people participate in
all forms of the game worldwide. Over the past several years, the bowling
industry has experienced a strong rate of expansion internationally, fueled by
the growth of bowling in the emerging markets of several countries, particularly
Taiwan and Korea, where, on a combined basis, the number of bowling centers grew
from 708 in 1992 to 1,638 in 1995. China has begun to show signs of growth in
the number of bowling centers. As a result, AMF's sales of New Center Packages
to China have rapidly accelerated, illustrating the recent growth in China. For
1992 through 1995, NCP sales in units to China were 0, 66, 133 and 795,
respectively. Bowling's global growth has been driven by the emergence and
establishment of the sport in developing countries. AMF's experience suggests
that, as the economy of a developing country becomes industrialized, a middle
class emerges and disposable income increases creating an increased demand for
leisure activities. In many emerging markets characterized by these factors,
bowling has developed and grown as a form of sport and recreation.
Bowling Center Operations
The U.S. bowling center industry is highly fragmented. According to an
industry source, there were approximately 6,400 commercial bowling centers in
the U.S. as of January 1996, with the top six operators (including AMF)
accounting for less than 8% of the total number of centers. The domestic bowling
center industry consists of two relatively large bowling center operators, AMF
(which has 205 domestic centers) and Brunswick (which has approximately 115
domestic centers), four medium-sized chains, which together account for
approximately 144 bowling centers, and over 5,900 bowling centers owned by
single-center and small-chain operators, the vast majority of which are owned by
single-center operators. See "-- Competition."
Single-center and small-chain operators generally do not share in the
economies of scale enjoyed by AMF due to AMF's centers' size advantage, AMF's
larger number of centers and their geographic clustering. For example, these
single-center and small-chain operators typically have smaller centers with an
average of only 20 lanes (compared to an average of 35 lanes for AMF).
Management has found that these single-center and small-chain operators are
frequently less willing to invest the capital necessary to modernize and/or
upgrade their bowling centers. Therefore, these centers frequently suffer from a
lack of modernization, and as bowling participants, particularly open play
bowlers, have become increasingly particular in their desire for clean, well-
lighted, modern facilities with complete amenities, many of these operators have
become poorly positioned competitively.
83
<PAGE> 91
The international bowling center industry is also highly fragmented.
Typically, only a small number of operators own more than a few centers in any
given country and a large number of operators own single centers.
Internationally, as bowling becomes popular in developing countries, bowling
centers can enjoy high levels of utilization and relatively high prices for
games. Typically, local developers and entrepreneurs respond to this situation
by building additional bowling centers. In some markets, the investment returns
that can be achieved by the new bowling centers are very attractive, despite the
other new entrants. Management believes that some bowling centers in these
high-demand markets can achieve an investment payback period of less than 24
months.
The bowling center business derives its revenue and profits from three
principal sources: (i) bowling; (ii) food and beverage sales; and (iii)
ancillary sources, such as shoe rental, amusement games, billiards and pro
shops.
Bowling revenue, generally the largest portion of a bowling center's
revenue and profitability, is derived from league play, tournament play and open
play. A center's annual bowling revenue is determined by the product of its
average price per game, lineage, the number of lanes in the center, and the
number of days of operation (typically 365 days per year).
The sale of food and beverages generally accounts for the next largest
portion of a bowling center's revenue and profitability. Most bowling centers
offer food service to bowlers through snack bars. The offerings generally
include hamburgers, pizza, french fries and soft drinks, among other items. Many
bowling centers also serve beer, wine and other alcoholic beverages to
customers.
The last component of a bowling center's revenue consists of revenue from
ancillary sources, such as shoe rental and the operation of amusement games,
billiards and pro shops. The shoe rental business is driven primarily by open
play bowlers who usually do not own a pair of bowling shoes. Open play customers
are also the primary users of amusement games and billiards tables as they are
more likely to have to wait for a lane to become available.
The operation of bowling centers has historically been a profitable, stable
business. Incremental bowling revenue can be particularly profitable due to the
low variable cost per game. In addition, the sale of food and beverages and shoe
rentals can be very profitable due to the ability to charge premium prices to a
captive audience. Overall, bowling centers typically enjoy relatively stable
revenue and EBITDA streams, in part due to league bowling which domestically
accounted for 59% of domestic bowling revenue for 1995.
Bowling Equipment Manufacturing
Historically, the worldwide market for new bowling center equipment has
been characterized by two competitors, AMF and Brunswick, which together account
for, in management's estimate, approximately 89% of the worldwide installed base
of bowling equipment. Management believes that AMF's worldwide market share of
the installed base is approximately 41%.
The bowling equipment manufacturing business consists of two categories:
(i) Replacement and Modernization products (which includes replacement and spare
parts, modernization equipment and allied products); and (ii) New Center
Packages (all of the equipment necessary to outfit a new bowling center or
expand an existing bowling center). AMF and Brunswick are the only full-line
manufacturers of Replacement and Modernization products that compete on a global
basis. AMF's primary competitors for Replacement and Modernization sales (other
than Brunswick) are much smaller companies that tend to offer a narrower range
of products and are often regionally focused. AMF's primary competitor for
worldwide sales of NCPs historically has been Brunswick. More recently, however,
AMF has also competed, primarily in China and Korea, with DACOS, a relatively
recent Korea-based entrant.
Sales of Replacement and Modernization products to bowling center operators
who manage the growing installed base of bowling equipment provide a stable base
of recurring revenue. These products include both proprietary and more standard
spare and replacement parts for existing
84
<PAGE> 92
equipment and other products including pins, shoes, supplies and modernization
equipment. Some of these products, such as bowling pins, should be replaced on
approximately an annual basis to maintain a center, while certain less frequent
investments in other equipment are necessary to modernize a center and are often
required to maintain the customer base.
New Center Package sales follow the trends in the growth of bowling. As
bowling becomes popular in new markets, the economics of constructing and
operating bowling centers become attractive to local market developers and
entrepreneurs. Consequently, they build new bowling centers, which need to be
outfitted with equipment, driving demand for NCPs. For at least the last 15
years, the vast majority of NCP sales have been to international markets. This
international trend has been fueled by the growth of bowling in the emerging
markets of several countries, particularly Taiwan and Korea, and recently in
China. NCP sales in the maturing Taiwan and Korea markets have recently declined
substantially. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Backlog; Recent NCP Sales."
INDUSTRY STATISTICS
The fragmented nature of the bowling centers business makes it difficult to
compile accurate industrywide statistics, even in the United States.
Accordingly, industry statistics provided in this Prospectus should be regarded
as approximations with a significant margin of error.
AMF BOWLING CENTER OPERATIONS
In the United States, AMF is the largest owner and operator of commercial
bowling centers, with (as of April 30, 1996) 205 bowling centers in 35 states.
Outside the United States, AMF owns and operates (as of April 30, 1996) 80
bowling centers in 10 countries: Australia (36), the United Kingdom (15), Mexico
(9), Japan (5), Hong Kong (5), France (3), Spain (3), Switzerland (2), Canada
(1), and China (1). Pursuant to the Stock Purchase Agreement, the Company
acquired 78 of these 80 centers and the Sellers retained one center in Spain and
one center in Switzerland.
85
<PAGE> 93
AMF's bowling center operations have enjoyed strong profitability and
stable results, as is shown in the table below.
AMF WORLDWIDE BOWLING CENTERS(a)
(DOLLARS IN MILLIONS, EXCEPT AVERAGE PRICE PER GAME)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
------------------------------------------------------------------------
1995(d) MARCH 31,
-------------------------------- -------------------
1991 1992 1993 1994(b) AMF(b) FAIR LANES COMBINED 1995 1996
------ ------ ------ ------ ------ ---------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Number of centers....... 196 197 190 187 186 99 285 -- --
Number of lanes......... 5,981 5,988 5,896 5,750 5,756 3,715 9,471 -- --
Average price per game
("APPG").............. $ 2.21 $ 2.21 $ 2.17 $ 2.25 $ 2.33 $ 1.93 $ 2.19 -- --
Percentage change..... -- 0.0% (1.8)% 3.7% 3.6% -- -- -- --
Fixed exchange rate
APPG(c)............... $ 2.09 $ 2.11 $ 2.15 $ 2.23 $ 2.33 $ 1.93 $ 2.19 -- --
Percentage change..... -- 1.0% 1.9% 3.7% 4.5% -- -- -- --
Lineage(e).............. 26.4 26.6 25.9 26.3 25.5 22.2 24.2 -- --
Percentage change..... -- 0.8% (2.6)% 1.5% (3.0)% -- -- -- --
REVENUE:
Bowling................. $127.1 $128.5 $120.8 $124.2 $124.7 $ 58.2 $182.9 $ 54.2 $ 52.2
Food and beverage....... 42.6 43.3 40.8 42.8 44.6 24.8 69.4 20.6 20.1
Ancillary............... 30.5 32.7 31.0 33.0 30.4 9.6 40.0 11.0 10.8
------ ------ ------ ------ ------ ------ ------ ------ ------
Total revenue........... $200.2 $204.5 $192.6.. $200.0 $199.7 $ 92.6 $292.3 $ 85.8 $ 83.1
EBITDA.................. 66.9 68.3 56.9 65.8 63.3 25.7(f) 89.0(f) 30.2(f) 31.8
EBITDA margin........... 33.4% 33.4% 29.5% 32.9% 31.7% 27.8% 30.4% 35.2% 38.3%
PERCENTAGE OF TOTAL
REVENUE
Bowling................. 63.5% 62.8% 62.7% 62.1% 62.5% 62.8% 62.6% 63.2% 62.8%
Food and beverage....... 21.3 21.2 21.2 21.4 22.3 26.8 23.7 24.0 24.2
Ancillary............... 15.2 16.0 16.1 16.5 15.2 10.4 13.7 12.8 13.0
Total............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
- ---------------
(a) The historical AMF financial data presented in this table include the two
European bowling centers that have been retained by the Sellers. For the
effect on AMF of excluding these two bowling centers, see "Notes to the Pro
Forma Consolidated Statements of Income" and "Notes to the Pro Forma
Consolidated Balance Sheet."
(b) Excludes Fair Lanes operations.
(c) Defined as the result of dividing worldwide bowling revenue for each period
presented (as translated into U.S. dollars by using weighted average foreign
currency exchange rates used to translate 1995 revenue) by the total number
of games bowled worldwide. The effect is to fix the exchange rates at the
1995 levels for purposes of comparability in examining changes in average
price per game without the effect of changes in foreign currency exchange
rates.
(d) For 1995, domestic bowling center operations adopted a calendar month-end;
accordingly, the bowling center operations results of operations for the
year ended December 31, 1995 include the results of operations for the
period from December 26, 1994 through December 31, 1995. Total revenue for
the period from December 26, 1994 through December 31, 1994 was
approximately $2.0 million.
(e) Defined as worldwide average number of games bowled per lane per day.
(f) After $2.3 million and $1.2 million of certain non-recurring costs relating
to the Fair Lanes acquisition for the year ended December 31, 1995 and the
three months ended March 31, 1995, respectively. See Note (h) to "Selected
Combined Financial Data."
The geographic diversity of AMF's bowling center operations across
different regions of the U.S. and across 10 different countries, along with the
bowling industry's historic resistance to recessions, has provided stability to
AMF's annual cash flows. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Seasonality and Cyclicality."
86
<PAGE> 94
AMF's bowling center business derives its revenue and profits from three
principal sources: (i) bowling, (ii) food and beverage sales and (iii) ancillary
sources, such as shoe rental, amusement games, billiards and pro shops. Bowling
revenue (approximately 62.6% of revenue), the largest portion of a bowling
center's revenue and profitability, is derived from league play, tournament play
and open play. A center's annual bowling revenue is determined by the product of
its average price per game, lineage, the number of lanes in the center, and the
number of days of operation (typically 365 days per year). A bowling center's
average price per game and lineage are the key factors in generating incremental
bowling revenue as a center's number of lanes and days of operation usually
remain relatively constant.
Management believes that bowling activity is relatively insensitive, over
longer periods of time, to moderate changes in prices for games. That is, modest
increases in prices do not lead to a prolonged fall in lineage, and conversely,
decreases in prices do not generally lead to sustained increases in lineage.
Consequently, management pursues an aggressive pricing strategy, local
conditions permitting, and generally has been successful at increasing prices
over time. AMF's worldwide average price per game and lineage for the last five
years is shown in the graph below.
WORLDWIDE AVERAGE PRICE PER GAME AND LINEAGE(a)
(EXCLUDES FAIR LANES)
[GRAPH]
A graph with two sets of points plotted, representing fixed exchange rate
average price per game and lineage for the years 1991, 1992, 1993, 1994 and
1995, respectively. The coordinates plotted are as follows:
<TABLE>
<CAPTION>
Fixed exchange rate
Year average price per game(b) Lineage(c)
--- ------------------------- ----------
<S> <C> <C>
1991 $2.09 26.4
1992 $2.11 26.6
1993 $2.15 25.9
1994 $2.23 26.3
1995 $2.33 25.5
</TABLE>
- ---------------
(a) The historical AMF financial data presented in this graph include the two
European bowling centers that have been retained by the Sellers. For the
effect on AMF of excluding these two bowling centers, see "Notes to Pro
Forma Consolidated Statement of Income" and "Notes to Pro Forma Consolidated
Balance Sheet."
(b) Defined as the result of dividing worldwide bowling revenue for each period
presented (as translated into U.S. dollars by using weighted average foreign
currency exchange rates used to translate 1995 revenue) by the total number
of games bowled worldwide. The effect is to fix the exchange rates at the
1995 levels for purposes of comparability in examining changes in average
price per game without the effect of changes in foreign currency exchange
rates.
(c) Defined as worldwide average number of games bowled per lane per day.
The graph above depicts the worldwide fixed exchange rate average price per
game and lineage. The fixed exchange rate average price per game reflects
different pricing in the United States and outside the United States, different
pricing for league and open play as well as different pricing for peak and
off-peak times of the day to reflect different levels of demand. The increases
in average price per game shown above have allowed AMF to increase bowling
revenue as shown in
87
<PAGE> 95
the table, even with the slightly declining lineage shown above. The increasing
average price per game reflects management's strategy to increase bowling prices
in its bowling centers worldwide on an annual basis, local conditions
permitting. For 1996, management plans to increase prices in the U.S. by an
average of 3.4% and prices outside the U.S. by an average of 8.4%.
DOMESTIC BOWLING REVENUE MIX
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1995(b)
------------------------
1991 1992 1993 1994(a) AMF(a) FAIR LANES(c)
----- ----- ----- ------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Bowling Revenue
Open play.................... $19.1 $20.2 $20.1 $20.5 $21.8 $24.2
Tournament play.............. 2.2 2.3 2.1 2.4 2.7 --
League play.................. 36.8 35.9 35.9 35.6 36.1 34.0
----- ----- ----- ----- ----- -----
Total................ $58.1 $58.4 $58.1 $58.5 $60.6 $58.2
===== ===== ===== ===== ===== =====
</TABLE>
- ---------------
(a) Excludes Fair Lanes operations.
(b) For 1995, bowling center operations adopted a calendar month-end;
accordingly, the bowling center operations results of operations for the
year ended December 31, 1995 include the results of operations for the
period from December 26, 1994 through December 31, 1995.
(c) Fair Lanes tournament play bowling revenue is included in open play bowling
revenue because the operations grouped these data together for periods
earlier in 1995.
The table above demonstrates that the slight decreases in domestic bowling
revenue derived from league play have been more than offset by increases in
bowling revenue from both open play and tournament play. Between 1991 and 1995,
total bowling revenue at AMF's domestic centers increased by almost 4.3%. Open
play games have increased during this period due to AMF's ability to attract
additional open play bowlers. Tournament games in AMF centers have increased at
an average annual rate of 10.4% since AMF hired a National Tournament Director
in 1993, and management expects similar growth in 1996.
The sale of food and beverages is the next largest source of AMF's bowling
centers' revenue. Most centers offer food service to bowlers through snack bars.
The offerings generally include hamburgers, pizza, french fries and soft drinks,
among other items. Many centers also serve beer, wine and other alcoholic
beverages. Domestically, management estimates that the sale of alcoholic
beverages typically accounts for approximately 10% of a bowling center's
revenue. Internationally, management estimates that the sale of alcoholic
beverages varies by country and generally constitutes less than 10% of a bowling
center's revenue. AMF enjoys attractive pricing from certain of its food and
beverage suppliers.
The last portion of AMF's bowling centers' revenue consists of ancillary
revenue from shoe rental and the operation of amusement games, billiards and pro
shops. The shoe rental business is driven primarily by open play customers who
usually do not own a pair of bowling shoes. Shoe rental is very profitable as
the payback period for a pair of shoes is typically only seven to eight rentals.
Open play customers are also the primary users of amusement games and billiards
tables as they are more likely to have to wait for a lane to become available.
AMF receives on average 50% of the gross revenue from coin-operated amusement
games, which are generally owned by independent concerns, in exchange for
providing space and electricity for the games.
88
<PAGE> 96
The combined results shown above reflect both the domestic and
international bowling center operations, both of which are highly profitable and
relatively stable, as shown in the tables below:
AMF DOMESTIC BOWLING CENTERS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1995(a)
-------------------------------
1991 1992 1993 1994(b) AMF(b) FAIR LANES COMBINED
----- ----- ----- ----- ----- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue............... $93.0 $94.7 $94.6 $96.2 $99.8 $ 92.6 $192.4
EBITDA...................... 27.9 29.6 27.4 30.3 31.2 25.7(c) 56.9(c)
EBITDA margin............... 30.0% 31.3% 29.0% 31.5% 31.3% 27.8% 29.6%
</TABLE>
- ---------------
(a) For 1995, bowling center operations adopted a calendar month-end;
accordingly, the bowling center operations results of operations for the
year ended December 31, 1995, include the results of operations for the
period from December 26, 1994 through December 31, 1995. Total revenue for
the period from December 26, 1994 through December 31, 1994 was
approximately $2.0 million.
(b) Excludes Fair Lanes operations.
(c) After $2.3 million of certain non-recurring costs relating to the Fair Lanes
acquisition. See Note (h) to "Selected Combined Financial Data."
AMF INTERNATIONAL BOWLING CENTERS(a)
(U.S. DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1991 1992 1993 1994 1995
------ ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Total revenue................................... $107.2 $109.8 $98.0 $103.8 $99.9
EBITDA.......................................... 39.0 38.7 29.5 35.5 32.1
EBITDA margin................................... 36.4% 35.2% 30.1% 34.2% 32.1%
</TABLE>
- ---------------
(a) The historical AMF financial data presented in this table include the two
European bowling centers that have been retained by the Sellers. For the
effect on AMF of excluding these two bowling centers, see the "Notes to the
Pro Forma Consolidated Statement Of Income" and "Notes to the Pro Forma
Consolidated Balance Sheet."
The foregoing operating results reflect AMF's retention of a strong,
recurring revenue base from its important league bowlers, as well as its success
in attracting increasing numbers of open play bowlers. In December 1995, AMF
raised domestic shoe rental prices by 10% and domestic food and beverage prices
by 3%. For 1996, management expects to raise domestic bowling prices an average
of 3.4% and international bowling prices an average of 8.4%. There can be no
assurance as to the timing or amount of future price increases.
THE FAIR LANES ACQUISITION
On January 10, 1995, AMF assumed operational control of Fair Lanes. Several
key factors led AMF to purchase the Fair Lanes bowling centers. These bowling
centers were generally well-located and grouped in areas where AMF had little
market presence. AMF also believed that it could make meaningful operating
improvements in these centers, and that this acquisition would allow AMF to take
further advantage of its significant economies of scale.
The opportunity for AMF to acquire Fair Lanes was precipitated by a period
of deteriorating operating results at Fair Lanes beginning in late 1992. AMF's
management believes that Fair Lanes' financial distress was caused by poor
corporate decisions that resulted in lower revenue and higher operating costs.
These decisions included lowering open play pricing, eliminating the center
manager position at its bowling centers and shifting league times. Fair Lanes
attempted to create more open play lineage by shifting leagues to off-peak times
and by heavily discounting open play prices. The end result was lower open play
revenue from the open play price discounting, no
89
<PAGE> 97
sustained increased lineage in open play bowling, and a substantial drop in
revenue from league bowling, since many league bowlers preferred to switch
centers rather than play in a different time slot. In addition, Fair Lanes
removed all center managers and placed separate people in charge of bowling,
food and beverage, and amusement games at each center. This created numerous
positions with limited total responsibility, resulting in less direct
accountability and higher labor costs. Results consequently deteriorated, with
Fair Lanes generating EBITDA of $33.1 million, $24.7 million and $12.4 million
for its fiscal years ended June 1992, 1993 and 1994, respectively. Fair Lanes
filed for protection under Chapter 11 of the Bankruptcy Code in June 1994. A
plan of reorganization was approved by the creditors and confirmed by the
Bankruptcy Court in September 1994. In September 1994, the Sellers acquired a
majority of the common stock of Fair Lanes, and acquired the remaining common
stock by February 1995.
Within 70 days of assuming operational control, AMF integrated 99 of Fair
Lanes' 106 centers into AMF's then existing base of 107 domestic bowling
centers. The other seven centers were ultimately closed.
As part of the integration, AMF implemented a number of cost-saving
measures, organizational changes and revenue enhancement initiatives, resulting
in significant improvements in the operating performance of the Fair Lanes
centers. AMF closed the Fair Lanes corporate office of 41 people and added only
14 employees to the existing AMF corporate headquarters. AMF also reduced
employee headcount and wage scales at all levels of the organization. Investment
of $4.8 million in total was made to modernize approximately 90% of the
remaining centers by adding bumpers, synthetic lanes, new bowling equipment, new
paint, carpet and signage and other facility improvements, depending on the
needs of each specific center. Pricing was then increased to be more in line
with AMF levels. However, AMF did not increase Fair Lanes' league pricing for
the 1995 to 1996 season as the leagues were already committed. AMF has since
raised league prices by an average of 6.0%, which will take effect in June 1996.
AMF management also decentralized marketing, moving it to the center level, and
significantly reduced advertising and promotion expenses. Marketing was improved
through sales calls, bowling parties and tournaments. In addition, the Fair
Lanes centers were incorporated into AMF's cluster/region organizational
structure, and all managers were included in AMF's incentive compensation
system.
The initiatives described above resulted in significant profit improvements
at Fair Lanes. For the year ended December 31, 1994 (before AMF assumed
control), Fair Lanes had revenue of $98.3 million and EBITDA of $4.9 million
from its 106 centers. For the year ended December 31, 1995 (after AMF assumed
control), the 99 continuing Fair Lanes centers had revenue of $90.7 million and
EBITDA of $28.0 million (before certain non-recurring costs of $2.3 million).
The key drivers of this improvement were decreases in corporate, payroll and
marketing expenses and higher revenue through price increases and improved
marketing. The purchase price of $105.0 million represents a multiple of 3.8
times Fair Lanes' 1995 EBITDA of $28.0 million (before certain non-recurring
costs of $2.3 million).
COMPETITIVE STRENGTHS (BOWLING CENTER OPERATIONS)
AMF attributes its leading position in worldwide bowling center operations
to the following factors:
SIGNIFICANT ECONOMIES OF SCALE. AMF's large number of centers, their
geographic clustering and their size advantage (an average of 35 lanes per AMF
domestic center versus an industry average of 20 lanes) provide it with both
additional revenue opportunities and economies of scale which allow it
significant cost savings. These revenue opportunities include: (i) scheduling
flexibility which improves lane utilization, (ii) the ability to support an
expanded food and beverage operation and (iii) increased concourse space for
amusement games, billiards and pro shops. Cost savings resulting from the
economies of scale include: (i) the ability to spread operating and corporate
90
<PAGE> 98
overhead costs over a larger revenue base and (ii) attractive pricing terms from
certain of AMF's suppliers.
UPGRADED, MODERN FACILITIES. AMF's bowling centers have upgraded physical
plants and generally new and attractive appearances, which aid AMF in retaining
its existing league bowlers and in attracting open play bowlers as well as new
league bowlers. AMF conducts an ongoing modernization and maintenance program
which results in AMF's centers having upgraded physical plants, generally
attractive appearances and computerized automatic scoring equipment. All but two
of AMF's centers have computerized automatic scoring (versus the industry
average of approximately 65%), and the two remaining centers will have automatic
scoring installed in the first quarter of 1996. In general, AMF's centers are
either located on major thoroughfares or in high-traffic areas in markets with
favorable demographics, or are well-established and well-known in their
communities. All of AMF's bowling centers have food and beverage operations, and
almost all are air-conditioned and provide customer parking facilities. The
majority of centers also have amusement games, billiards, pro shops, supervised
children's playrooms, and facilities to accommodate birthday parties. Many of
these amenities provide opportunities for ancillary revenue and profits in
addition to the core bowling revenue.
ABILITY TO ACQUIRE AND INTEGRATE NEW BOWLING CENTERS. AMF has a track
record of acquiring bowling centers at attractive prices and integrating and
enhancing acquired operations within a short period of time after the purchase,
as discussed above. See "-- The Fair Lanes Acquisition."
GEOGRAPHICALLY DIVERSE PORTFOLIO OF CENTERS. AMF benefits from a
geographically diverse portfolio of bowling centers both throughout the United
States and across many countries, which has historically stabilized AMF's
operating results and has partially mitigated the effect of economic, political
and weather-related events which may be either seasonal, regional or
country-specific. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Seasonality and Cyclicality."
EXPERIENCED, MOTIVATED, INFORMED MANAGEMENT TEAM. AMF's bowling center
operations benefit from a management team which generally has many years of
bowling center management experience, allowing for a decentralized operating
structure which provides for timely local market decision making. Senior
operating managers, including U.S. region managers and international country
managers, have an average of 12 years experience with AMF and generally more in
the industry. Center and cluster managers have an average of approximately six
to seven years experience with AMF, and generally more in the industry. Managers
are financially motivated, through an attractive incentive compensation program,
to increase bowler participation, increase revenue, and aggressively control
expenses, which has contributed to strong revenue and EBITDA performance. At the
corporate level, management utilizes AMF's detailed management information
systems to effectively and efficiently monitor the business on a timely,
center-by-center basis. See "-- Operations (Bowling Center Operations)."
Although the Company is not aware of any material competitive weakness of
its bowling center operations taken as a whole, in some local markets the
Company's Bowling Centers may not be as modern or as well maintained as one or
more competing centers.
STRATEGIES (BOWLING CENTER OPERATIONS)
AMF intends to pursue the following strategies to further strengthen its
position and increase sales and profits in its bowling center operations:
PURSUE FURTHER DOMESTIC ACQUISITIONS. AMF will seek to acquire some of the
approximately 5,900 domestic bowling centers owned by single-center and
small-chain operators, capitalizing on AMF's proven ability to integrate and
enhance acquired operations. The Company will have the ability to borrow, under
certain conditions, up to $100.0 million, and, subject to the Company's
satisfying a financial test, up to an additional $50.0 million, for
acquisitions. AMF is regularly
91
<PAGE> 99
approached, and management has recently been preliminarily approached on an
unsolicited basis by other operators with requests for AMF to purchase their
centers. AMF has demonstrated a history of improving cash flow at acquired
centers by taking advantage of AMF's economies of scale and management
expertise.
MAINTAIN AND GROW LEAGUE PARTICIPATION. AMF intends to continue to conduct
marketing and promotional programs directed at maintaining existing league
participation and attracting new league bowlers. Bowling center and cluster
managers regularly contact local companies and other organizations to offer free
bowling parties, an effective and proven method of creating new leagues and new
league bowlers. AMF recently hired a bowling center operations Sales Training
Manager who is implementing a new sales training program to enhance the
performance of sales personnel. See "-- Sales and Marketing."
ATTRACT OPEN PLAY BOWLERS. AMF will continue to seek to attract, through
its generally bright, clean and attractive facilities with expanded amenities,
additional open play bowlers, including families and social groups. With its
greater number of amenities, such as amusement games, billiards, expanded food
and beverage offerings, supervised children's playrooms and birthday party
facilities, AMF believes that it has a competitive strength in attracting new
open play bowlers and has specific marketing programs designed to attract such
bowlers. See "-- Sales and Marketing."
EXPAND INTERNATIONAL BOWLING CENTER OPERATIONS. AMF expects to focus on
growing its portfolio of bowling centers in potential high-growth international
markets, including China and selected markets in Europe, as well as in certain
more mature markets, such as Australia. AMF recently opened its first center in
China (located in Guangzhou), and plans to construct three or more additional
centers in China per year for the next five years. AMF also believes growth
opportunities exist in Australia, a more developed market where AMF has 36
centers. Management believes that AMF could build as many as five additional
centers to strengthen further its leading position in the Melbourne and Sydney
markets. In selected European markets, AMF believes opportunities exist to build
new or consolidate existing bowling centers.
IMPROVE ANCILLARY REVENUE. AMF plans to focus on improving the amusement
games, billiards, and pro shops in its current centers. Management believes that
better layout and active maintenance of its amusement games and the addition of
billiards in selected centers can increase ancillary revenue. Ancillary revenue
can also be improved by selective price increases. Management recently increased
domestic food and beverage prices by 3% and domestic shoe rental prices by 10%.
There can be no assurance that AMF will be able to maintain these
competitive strengths or to implement these strategies successfully. See "Risk
Factors."
OPERATIONS (BOWLING CENTER OPERATIONS)
AMF's domestic bowling center operations are distributed throughout the
U.S. and organized geographically, for management purposes, into 47 clusters,
with approximately three to five bowling centers per cluster. Cluster managers
report to one of six regional managers, some of whom also have direct
responsibility for one or more individual centers. This management structure
provides close local market management which, when coupled with the management
incentive program, fosters strong revenue and EBITDA performance.
All center, cluster and region managers receive an incentive-based
compensation package tied to achieving budgeted revenue and EBITDA targets for
their respective areas of responsibility. Managers must meet 97% of their
revenue budget in order to qualify for bonuses. If EBITDA budget is met, a
center manager receives a bonus equal to 20% of salary, and cluster and region
managers receive bonuses equal to 50% of salary. To the extent EBITDA budget is
exceeded, center and cluster managers receive 10%, and region managers receive
6%, of any EBITDA above the budgeted amount. The same general approach to
management organization and incentive compensation applies to the international
operations.
92
<PAGE> 100
Most of AMF's domestic bowling centers are generally open seven days a
week, 16 to 18 hours per day. The total number of personnel per center varies
from 20 to 25. Personnel costs typically represent approximately 30% of a
center's operating costs. A major portion of the centers' staff consists of
hourly employees, the number of which is reduced during periods of slower
business.
All of AMF's bowling centers have food and beverage operations, and almost
all are air-conditioned and provide customer parking facilities. The majority of
centers also have amusement games, billiards, pro shops, supervised children's
playrooms, and facilities to accommodate birthday parties. In addition, once the
installation of automatic scoring is completed at two centers in the first
quarter of 1996, 100% of AMF's centers will have computerized automatic scoring
versus the industry average of approximately 65%.
Most of AMF's bowling centers have computerized cash receipt control
systems to ensure receipt of funds for all games bowled as well as computer
terminals tied directly to the corporate office computer system to further
enhance these controls. On a daily basis, revenue results from all centers are
tabulated and cash receipts are audited. Cash is deposited in local banks daily
and there is therefore never more than one day's cash receipts in a center at
any time. Over the next two years, AMF is planning to roll-out in the United
States a touch screen technology point-of-sale system, which is currently being
used in AMF's Australian operations. The point-of-sale system is expected to
improve cash control, enhance and speed the flow of data between the centers,
management and the corporate office, and through its touch screen technology, be
more employee user-friendly, thereby enhancing customer service and minimizing
errors.
Overall, AMF's international bowling centers are operated in the same
manner as the domestic centers.
SALES AND MARKETING (BOWLING CENTER OPERATIONS)
Marketing programs are important in creating new leagues, maintaining
existing league participation and attracting new open play bowlers. AMF uses
center-based sales programs, where dedicated sales people make calls on nearby
companies, schools, churches and other institutions to generate league and open
play traffic. Bowling center and cluster managers regularly contact local
companies and other organizations to offer free bowling parties, an effective
and proven method of creating new leagues and new league bowlers. In November
1995, AMF hired a bowling center operations Sales Training Manager, who is
responsible for implementing a new sales training program to enhance the
performance of sales personnel. The Sales Training Manager provides center
managers with a training video, holds seminars with center managers and center
sales personnel, conducts live sales calls with them and tracks the success of
bowling parties throughout AMF. AMF also maintains center databases containing
the names and addresses of all league players, and mailings and phone calls are
made to notify members of league meetings, league start dates and rates.
AMF is also creative in developing flexible leagues to appeal to different
demographic groups. For example, there are new league sales programs directed
specifically at the large and fast growing seniors' market (principally daytime
leagues) and the important children's and juniors' markets. In addition, for
individuals that do not want a standard 35-week commitment, there are short
season leagues that run from 10 to 16 weeks, as well as leagues that bowl twice
per month rather than weekly. As an added benefit for parents, many centers also
offer child care facilities during league play.
AMF believes that it offers the most extensive tournament program in the
United States for the benefit of league bowlers. AMF named a National Tournament
Director in 1993, who is primarily responsible for further raising the profile
of tournaments in AMF's centers. Through the development and sponsorship of
national, regional and cluster tournaments, as well as working with major food
and beverage vendors, tournament lineage in AMF centers has increased 10.4%
annually since hiring the National Tournament Director. Management expects
similar growth in 1996.
93
<PAGE> 101
Each bowling center is also allocated an advertising and promotion budget
tied to its revenue stream, which it is authorized to spend on center-specific
advertising and promotion programs. Media used include television (primarily
local cable), radio, newspaper, value-pack coupons distributed in each center's
neighborhood, and "bounce back" coupons (given to bowlers as a return
incentive). Also, each center's operations are covered by local bowling
associations and journals which are extensively used by the centers. AMF's
marketing mix also includes, at the national level, creative league and open
play programs developed with, and funded primarily by, major food and beverage
vendors. These vendors also support AMF's national and regional tournament
programs and an AMF exclusive pro bowler exhibition tour.
AMF's marketing strategy for its international bowling centers is similar
to its domestic strategy, although individual programs and promotions vary
slightly from country to country, based on the local competitive environment.
COMPETITION (BOWLING CENTER OPERATIONS)
Bowling, both as a sport and a recreational activity, faces competition
from numerous alternative activities. In addition, AMF's centers compete with
other bowling centers, although such competition is usually limited to centers
within a certain radius due to convenience and drive-time limitations. In areas
where competing facilities are nearby, AMF typically competes against single-
center and small-chain operators. AMF competes primarily through the quality and
appearance of its facilities and through the range of amenities offered.
The domestic bowling center industry is highly fragmented with the top six
operators (including AMF) accounting for less than 8% of the total number of
centers.
DOMESTIC BOWLING INDUSTRY(a)
<TABLE>
<CAPTION>
OPERATOR NUMBER OF LOCATIONS % OF TOTAL
- -------------------------------------------------------------- ------------------- ----------
<S> <C> <C>
AMF........................................................... 205 3.2%
Brunswick..................................................... 115 1.8
Bowling Corp. of America...................................... 57 0.9
American Recreation Centers................................... 40 0.6
Bowl America.................................................. 25 0.4
ConBow........................................................ 22 0.3
----- -----
Subtotal.................................................... 464 7.2
Single-center and small-chain operators....................... 5,935 92.8
----- -----
Total....................................................... 6,399 100.0%
===== =====
</TABLE>
- ---------------
(a) AMF estimate. Single-center and small-chain operators are operators of 20 or
fewer centers, the vast majority of which are operators of between one and
four centers.
The international bowling center industry is also highly fragmented. There
is typically a small number of operators with more than a few centers in any
given country and a large number of single-center operators. AMF generally
enjoys a relative size advantage (i.e., a larger number of lanes per center),
and is competitively well-positioned in the markets where it has a significant
presence.
94
<PAGE> 102
FACILITIES (BOWLING CENTER OPERATIONS)
As of April 30, 1996, AMF owns or leases 205 bowling centers in the United
States. In addition, AMF operates two bowling centers in the United States under
a management agreement with the former owners. A regional listing of these
facilities is set forth below.
DOMESTIC CENTERS
<TABLE>
<CAPTION>
REGION NUMBER OF CLUSTERS NUMBER OF LOCATIONS OWNED/LEASED
- --------------------------------------- ------------------ ------------------- ------------
<S> <C> <C> <C>
Baltimore/Washington................... 5 29 15/14
East................................... 12 48 25/23
South.................................. 12 45 32/13
Midwest................................ 6 29 21/8
Texas.................................. 6 24 18/6
West................................... 6 30 20/10
--
--- ------
Total................................ 47 205 131/74
== === ======
</TABLE>
On May 1, 1996, AMF closed one leased bowling center in the
Baltimore/Washington region.
Immediately prior to the Acquisition, AMF owned or leased 80 bowling
centers outside the United States. Pursuant to the Acquisition, the Sellers
retained one center in Spain and one in Switzerland. A list of the remaining 78
centers included in the Acquisition is set forth below.
INTERNATIONAL CENTERS INCLUDED IN THE ACQUISITION
<TABLE>
<CAPTION>
COUNTRY NUMBER OF LOCATIONS OWNED/LEASED
- ---------------------------------------------------------- ------------------- ------------
<S> <C> <C>
Australia................................................. 36 23/13
United Kingdom............................................ 15 1/14
Mexico.................................................... 9 5/4
Hong Kong................................................. 5 0/5
Japan..................................................... 5 0/5
France.................................................... 3 0/3
Spain..................................................... 2 0/2
Switzerland............................................... 1 0/1
Canada.................................................... 1 1/0
China..................................................... 1 0/1
--
-----
Total................................................... 78 30/48
== =====
</TABLE>
AMF's leases are subject to periodic renewal. Twenty-six of AMF's domestic
centers have leases which expire in the next three years -- five in 1996, 15 in
1997 and six in 1998; however, 22 of these leases have renewal options. Sixteen
of AMF's international centers have leases which expire in the next three
years -- seven in 1996, five in 1997 and four in 1998; however, 11 of these
leases have renewal options. AMF generally has not had difficulty renewing
leases when and where it wished to do so.
95
<PAGE> 103
EMPLOYEES (BOWLING CENTER OPERATIONS)
As of December 31, 1995, AMF's bowling center operations had approximately
6,845 employees. This table includes the employees at the centers in Spain and
Switzerland that are being retained by the Sellers. The number of employees
varies depending on the time of year. Employees are divided along functional
lines as shown in the table below.
NUMBER OF EMPLOYEES
<TABLE>
<CAPTION>
COUNTRY OPERATIONS(A) CORPORATE
- ------------------------------------------------------------------- ------------- ---------
<S> <C> <C>
United States...................................................... 5,103 118
----- ---
Australia.......................................................... 648 17
United Kingdom..................................................... 331 9
Mexico............................................................. 217 18
Hong Kong.......................................................... 69 9
Japan.............................................................. 75 4
France............................................................. 72 3
Spain.............................................................. 43 2
Switzerland........................................................ 21 4
Canada............................................................. 24 0
China.............................................................. 54 4
----- ---
Total International........................................... 1,554 70
----- ---
Total Worldwide............................................... 6,657 188
===== ===
</TABLE>
- ---------------
(a) Numbers vary depending on the time of year.
96
<PAGE> 104
AMF BOWLING EQUIPMENT MANUFACTURING BUSINESS
AMF is one of the world's leading manufacturers of bowling center
equipment, and management believes that AMF, together with Brunswick, accounts
for approximately 89% of the world's installed base of bowling center equipment.
Management believes that AMF alone accounts for approximately 41% of the world's
installed base of bowling center equipment and is a supplier to an estimated
10,000 bowling centers in over 50 countries.
The bowling equipment industry generally encompasses the manufacture of
automatic pinspotters (machines which set and reset bowling pins and return the
players' bowling balls), computerized automatic scoring systems, wood and
synthetic bowling lanes, lane maintenance systems (automated machines that dust,
clean and oil lanes to meet technical specifications), masking panels
(decorative covers installed in front of pinspotters), ball returns, seating,
bumper bowling systems (bumper guards, often used by children, which prevent
gutter balls), replacement and maintenance parts and operating supplies such as
spare parts, pins, lane oils, bowling balls, bowling shoes and other bowling
accessories. AMF either manufactures or resells all of these products.
The two categories of AMF's bowling equipment manufacturing business are
(i) recurring sales of replacement and spare parts and supplies, resale
products, and major modernization equipment (collectively, "Replacement and
Modernization" sales) to established bowling centers in both mature and
developing markets and (ii) sales of the bowling equipment necessary to outfit a
new bowling center or to expand an existing bowling center ("New Center
Packages" or "NCPs"). New Center Packages include a pinspotter, and the vast
majority also include all of the other equipment needed to outfit one new
bowling lane.
AMF and Brunswick are the only full-line manufacturers of Replacement and
Modernization products that compete on a global basis. AMF's primary competitors
for Replacement and Modernization sales (other than Brunswick) are much smaller
companies that tend to offer a narrower range of products and are often
regionally focused. AMF's primary competitor for worldwide sales of NCPs
historically has been Brunswick. However, AMF also competes, primarily in China
and Korea, with DACOS, a Korea-based manufacturer.
AMF positions its products as the highest quality, most technologically
advanced products in the industry, allowing AMF generally to command premium
prices. AMF's long history of bowling equipment innovation began 50 years ago
when AMF revolutionized ten-pin bowling with the introduction of the automatic
pinspotter. Today, AMF manufactures the fastest pinspotter (for play conducted
under conditions specified by the American Bowling Congress), the
highest-scoring lanes and the most durable pins. The superior speed of AMF's
pinspotter directly influences the amount of bowling revenue a bowling center
can generate, and the reliability and ease of repair is an important marketing
tool against sellers of refurbished equipment. AMF's synthetic lanes, introduced
in 1988, are the performance leaders. In the annual American Bowling Congress
tournament, where AMF and Brunswick supply the equipment on alternating years,
every major scoring record has been set on AMF's synthetic lanes. The lives of
both the pinspotter and lanes, when properly maintained, typically exceed 35
years. Internal tests demonstrate that AMF pins are more durable under stress
conditions and less likely to break. In general, AMF's products are developed
through internal research and development efforts. AMF holds over 40 U.S.
patents for its various proprietary products and technologies.
97
<PAGE> 105
Sales and EBITDA for AMF's manufacturing business and for the two
categories are presented below:
AMF MANUFACTURING RESULTS(A)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Total Manufacturing Combined
Total revenue.......................... $155.7 $186.7 $235.0 $292.4 $272.6
EBITDA................................. 33.6 44.5 67.1 80.6 74.5
EBITDA margin.......................... 21.6% 23.8% 28.6% 27.6% 27.3%
Replacement and Modernization Products
Revenue................................ N/A N/A $112.4 $121.9 $120.0
EBITDA................................. N/A N/A 29.7 30.4 27.1
EBITDA margin.......................... N/A N/A 26.4% 24.9% 22.6%
New Center Packages
Total NCPs sold........................ 1,896 2,210 3,577 4,941 4,437
Revenue................................ N/A N/A $122.6 $170.5 $152.6
EBITDA................................. N/A N/A 37.4 50.1 47.4
EBITDA margin.......................... N/A N/A 30.5% 29.4% 31.1%
</TABLE>
- ---------------
(a) Excludes sales to AMF bowling center operations of $9.2 million, $8.7
million, $8.6 million, $9.3 million and $13.9 million for the years ended
December 31, 1991, 1992, 1993, 1994 and 1995, respectively. The EBITDA
associated with this revenue was $3.5 million, $4.1 million, $4.0 million,
$4.1 million and $4.8 million for the years ended December 31, 1991, 1992,
1993, 1994 and 1995, respectively.
REPLACEMENT AND MODERNIZATION SALES
The potential customers for sales of Replacement and Modernization products
include all bowling centers in operation today, and the number of these
potential customers will continue to grow as the number of centers increases. In
order for a bowling center to remain competitive and satisfy its customers, the
center operator must make certain periodic investments in its bowling center's
equipment. Some of these investments must be made on approximately an annual
basis, such as certain replacement parts and replacement pins; these annual
investments represent relatively modest expenditures necessary to maintain the
center. Other equipment, such as automatic scoring systems, replacement lanes
and upgraded automated lane maintenance equipment, require less frequent but
more significant investments by center operators. Management believes that many
of these modernizations are necessary for a center to maintain its existing
customer base.
AMF's large share of the installed base of bowling center equipment has
established the brand name and quality reputation of its products in the bowling
industry. AMF's experienced sales force and reputation for quality help AMF
develop strong relationships with bowling center operators and mechanics, the
primary customers for Replacement and Modernization products. These long-
standing customer relationships, predictable demand, a steadily increasing
installed base and AMF's ability to supply a full product line have historically
made the Replacement and Modernization category a stable and recurring base of
revenue and EBITDA for AMF.
NEW CENTER PACKAGES
Each New Center Package includes a pinspotter, and the vast majority also
include the other equipment needed to outfit one new bowling lane. A complete
New Center Package requires an investment, on average, of approximately $30,000
to $35,000 per lane for the equipment, plus approximately $3,000 to $3,500 per
lane for installation. A complete New Center Package consists
98
<PAGE> 106
of an automatic pinspotter (approximately 57% of the cost of a complete NCP), a
lane package (22%), automatic scoring equipment (15%), seating, a ball lift and
ball return, and various other supplies and miscellaneous items.
AMF and Brunswick are the only two full-line manufacturers of equipment
comprising a New Center Package. Used equipment dealers or refurbishers combine
used pinspotters with other used and some new equipment to create their own
version of a "NCP." AMF's primary competitor for worldwide sales of NCPs
historically has been Brunswick. However, AMF also competes, primarily in China
and Korea, with DACOS.
Almost all of the new bowling centers built in the world today are being
built outside of the U.S., predominantly in Asia. As bowling markets develop,
new centers continue to be built until the number of installed lanes serving the
local population reaches a point at which the prospective economic returns from
the construction of a new bowling center begin to decline. In the U.S., Taiwan
and Japan, which are mature bowling markets, the population per lane in 1995 was
2,031, 1,439 and 3,903, respectively. (Calculated by dividing total population
by number of lanes. Total population is obtained from the "Population Reference
Bureau." Lane numbers are estimates received from AMF Regional Sales
Representatives.) In developing markets the population per lane is significantly
higher, suggesting the opportunity for additional growth. For example, in China,
where the population is approximately 1.2 billion, and the demand for bowling
and new bowling centers has begun to grow, the population per lane is only
approximately 351,000. There can be no assurance, however, that China or other
markets will follow this pattern.
Revenue growth over the past five years for AMF's NCP segment has resulted
primarily from increased unit sales to Taiwan and Korea, where the popularity of
bowling and the consequent demand for new bowling centers has increased
dramatically over the last few years, and to China, where the demand for
bowling, and for new bowling centers, has begun to show high growth. (See table
below.) In the early 1990s, AMF focused its resources and attention on the
demand in the Korean and Taiwanese markets. AMF benefited from local laws in
Korea and Taiwan prohibiting the import and use of used or refurbished capital
equipment generally, including bowling equipment specifically, which precluded
the resale of used equipment. NCP sales to Korea and Taiwan declined
substantially in the first quarter of 1996 as compared to the first quarter of
1995, and management expects NCP sales in Korea and Taiwan to continue to
decline over the next few years as these markets continue to mature. Over the
next several years, AMF expects to benefit from increases in demand from
selected international markets, including continued growth in China and growth
in Indonesia, India, Malaysia, Poland, and other selected markets in Asia,
Europe and South America. However, there can be no assurance that such growth
will materialize.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Backlog; Recent NCP Sales."
NUMBER OF AMF'S NEW CENTER PACKAGES SOLD
(UNITS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1991 1992 1993 1994 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Korea................................... 1,070 1,437 2,025 2,202 1,445
Taiwan.................................. 326 324 835 1,882 1,363
China................................... 0 0 66 133 795
----- ----- ----- ----- -----
Subtotal...................... 1,396 1,761 2,926 4,217 3,603
Other................................... 500 449 651 724 834
----- ----- ----- ----- -----
Total......................... 1,896 2,210 3,577 4,941 4,437
===== ===== ===== ===== =====
% Change................................ -- 16.6% 61.9% 38.1% (10.2)%
</TABLE>
99
<PAGE> 107
AMF sold 795 New Center Packages in China in 1995, roughly 30%, in
management's estimate, of the total number of NCPs sold to China in 1995.
Management believes that Brunswick accounted for approximately 40%, and others,
primarily DACOS and certain used equipment refurbishers, accounted for the
remaining approximately 30%. AMF will aggressively seek to grow its share of
this expanding market in 1996 by opening new sales offices, adding local staff,
increasing local technical support, aggressively promoting its products and
introducing products particularly suited to China. Representative offices in
Beijing and Shanghai began operations during 1996.
BILLIARDS
In addition to bowling equipment manufacturing, AMF manufactures and sells
PlayMaster billiards tables. PlayMaster sells an extensive line of home
billiards tables and a limited line of commercial billiards tables. AMF also
owns a pool cue manufacturing business, Legendary, which markets a limited line
of high-end pool cues. For the year ended December 31, 1995, PlayMaster and
Legendary had EBITDA of $2.3 million and a deficit of $0.8 million,
respectively.
COMPETITIVE STRENGTHS (MANUFACTURING)
AMF attributes its position as a leading bowling equipment manufacturer to
the following factors:
LARGE SHARE OF THE INSTALLED BASE OF BOWLING CENTER EQUIPMENT. Management
believes that AMF alone accounts for approximately 41% of the world's installed
base of bowling center equipment and is a supplier to an estimated 10,000
bowling centers in over 50 countries. AMF's share of the installed base of
equipment helps establish AMF's industry reputation, supports AMF's sales
efforts through its large number of existing customer relationships and aids AMF
with regard to sales of Replacement and Modernization products. AMF enjoys
strong brand loyalty, and AMF's experience has shown that past purchasers of AMF
New Center Packages tend to purchase AMF's Replacement and Modernization
products for several years after their initial purchases of AMF New Center
Packages, although there are competing suppliers of replacement parts and
equipment.
STRONG DIRECT SALES FORCE AND EXTENSIVE DISTRIBUTOR NETWORK. AMF's direct
sales network provides AMF greater control over the sale of its products.
Through this network, AMF develops long-term sales relationships with bowling
center operators and mechanics both domestically and internationally. AMF's
extensive distributor network complements the direct sales effort by providing
sales coverage in selected international markets. With the exception of
Brunswick, AMF's primary competitors for Replacement and Modernization sales are
generally smaller and, in contrast to AMF's broad sales coverage, do not
maintain as significant a sales presence either domestically or internationally.
Management believes that the strength of its sales force and distributor network
allows AMF to successfully serve the installed base of AMF equipment operators
as well as sell Replacement and Modernization products to non-AMF equipment
operators.
LOW-COST MANUFACTURER. Management believes that AMF is generally a
low-cost producer of equipment for both the Replacement and Modernization and
New Center Package categories. Management believes that AMF's generally low cost
position has helped it to maintain its leading competitive standing. In
addition, AMF's manufacturing business enjoys a high variable cost position.
Management estimates that approximately 75% of the cost of a NCP is variable
(based on 1995 NCP volumes and before purchase accounting adjustments from the
Acquisition), which helps to protect AMF's EBITDA margins in the event of lower
unit production.
SUPERIOR PRODUCTS. AMF positions its products as the highest quality, most
technologically advanced products in the industry, allowing AMF generally to
charge premium prices. For example, AMF manufactures the fastest pinspotter (for
play conducted under conditions specified by the American Bowling Congress), the
highest-scoring synthetic lanes, and the most durable pins. The pinspotter
(approximately 57% of the total cost of a New Center Package) is one of the keys
to a bowling center's return on investment because the speed and reliability of
a pinspotter directly
100
<PAGE> 108
influence the amount of bowling revenue a bowling center can generate. AMF
believes the superior speed and reliability of its pinspotters are competitive
strengths that assist it in marketing AMF New Center Packages.
MOTIVATED AND EXPERIENCED MANAGEMENT TEAM. AMF's manufacturing management
team is experienced and is motivated by an attractive incentive compensation
program to produce strong revenue and EBITDA performance.
AMF is not aware of any material competitive weaknesses of its
manufacturing operations as compared to its competitors. Until 1996, AMF was at
a disadvantage in competing in certain Asian markets because AMF was later than
its competitors in setting up local sales offices in such markets. Management
believes that this disadvantage has been reduced by the recent establishment of
local offices in Beijing, Shanghai and Guangzhou.
STRATEGIES (MANUFACTURING)
AMF intends to pursue the following strategies to enhance further its
position and to increase sales and profits in manufacturing:
EXPAND LEADING POSITION IN REPLACEMENT AND MODERNIZATION SALES. As the
worldwide installed base of bowling equipment grows, management believes that
AMF's strong direct sales force, its extensive distributor network and its high
quality products will allow AMF to increase its sales of Replacement and
Modernization products. AMF expects to continue to improve its existing product
line and develop new value-added products targeted specifically to the existing
bowling center operators' needs.
GROW NEW CENTER PACKAGE SALES. AMF's recognized brand name, its
technologically advanced products and its strong sales force should continue to
position AMF to take advantage of increasing international New Center Package
demand in parts of Asia and other possible high-growth regions.
MAINTAIN LOW-COST MANUFACTURING POSITION. AMF's position as a low-cost
producer has allowed it to generate high EBITDA margins. AMF expects to continue
to maintain its low-cost manufacturing position through taking further advantage
of manufacturing efficiencies, continuous improvement programs and its low-cost
non-union work force.
MAINTAIN PRODUCT SUPERIORITY. AMF expects to continue to maintain its
technological lead through its research efforts and continued development of
new, more advanced products. In order to keep its competitive edge, AMF conducts
its research and development efforts internally.
There can be no assurance that AMF will be able to maintain these
competitive strengths or implement these strategies successfully. See "Risk
Factors."
SALES AND MARKETING (MANUFACTURING)
AMF's equipment sales units operate separately from the manufacturing
operations. Sales efforts are organized into five geographic zones: the
Americas, Europe, Asia-Pacific (other than Japan), Japan and Sweden. In each of
the countries it serves, AMF, through either its direct sales force or its
distributor network, sells the entire AMF product line and also acts as a
distributor for certain competitive products including bowling balls (for
Columbia and Ebonite) and a polymer film used to extend the life of wood lanes
(for Brunswick).
AMF's sales force serves, and AMF is a supplier to, over 10,000 accounts in
over 50 countries. The 33-person domestic sales force serves approximately 7,000
accounts throughout the U.S. The domestic sales force concentrates its sales
efforts on Replacement and Modernization products. AMF also maintains a
telemarketing group which complements the domestic sales force by calling on
selected accounts.
101
<PAGE> 109
Outside the U.S., AMF employs a total of 177 people, who sell AMF products
through direct sales and service offices located in Australia, France, Germany,
Sweden, the United Kingdom, Mexico, China, Hong Kong, Japan and Korea. Each of
these sales offices sells both New Center Packages and Replacement and
Modernization products, with the emphasis depending on local market demand for
each product category. In higher growth markets, AMF's sales force develops
relationships with local entrepreneurs and investors who are likely to build new
bowling centers and purchase New Center Packages, while sales offices in mature
markets focus their resources on the Replacement and Modernization sales. In
each country where AMF has direct sales offices, AMF provides extensive customer
services, including technical and installation support, inventory/spare part
assistance and training of local bowling center mechanics.
In certain slower growth or mature bowling markets, AMF generally utilizes
bowling equipment distributors in order to minimize fixed costs. AMF did,
however, use distributors in two high growth markets, Korea, which until 1993
required the use of a local distributor, and Taiwan. AMF continues to utilize
its Taiwanese distributor, but AMF recently replaced its Korean distributor with
a direct sales office in Seoul. Management believes this replacement has led to
better sales coverage in Korea. In China, AMF has concluded that it can most
effectively cover the growth in NCP demand through direct sales offices. AMF
opened permanent offices in Beijing and Shanghai in 1996. In addition, AMF
complements its sales coverage of China with additional coverage from its Hong
Kong sales office.
Most NCP sales, including those to international distributors and some
affiliates, are sold using letters of credit denominated in U.S. dollars.
Contract terms are Free on Board (F.O.B.) - U.S. plant. If collection problems
occur, the Company typically has three weeks to resolve them and it can hold
shipments at either the U.S. port or the port of entry, if necessary.
Shipments to AMF's Japan, U.K. and Sweden affiliate offices are not always
secured by letters of credit. Typical terms of sale require the customer to pay
90% of the equipment cost prior to installation. The remaining 10% is typically
due within 30 days of installation sign-off. These NCPs are sold in local
currency and affiliates adjust pricing to reflect prevailing exchange rates to
the extent competitive conditions allow.
AMF markets its products on a product-by-product basis. Its programs
include the development of sales support material, the design of advertising
campaigns for trade journals and direct mailings to the customer base. In
addition, at the corporate level, AMF's manufacturing business sponsors
tournaments, such as the AMF Dick Weber Classic, to promote the AMF brand name.
COMPETITION (MANUFACTURING)
AMF and Brunswick, a publicly-traded producer of marine and recreational
products, are the two largest manufacturers of bowling center equipment in the
world. Management estimates that AMF and Brunswick together account for
approximately 89% of the worldwide installed base of bowling center equipment,
with AMF accounting for approximately 41% and Brunswick accounting for
approximately 48%. The remaining 11% of the installed base is shared by several
companies which no longer manufacture equipment (such as Furukawa Mining Company
Ltd. and Kanematsu, Ltd.), DACOS and several smaller manufacturers.
AMF and Brunswick are the only full-line manufacturers of Replacement and
Modernization products that compete on a global basis. AMF's primary competitors
for Replacement and Modernization sales (other than Brunswick) are much smaller
companies that tend to offer a narrower range of products and are often
regionally focused. AMF's primary competitor for worldwide sales of NCPs
historically has been Brunswick. However, AMF also competes with DACOS, a
Korea-based manufacturer. DACOS has generally grown in the Asia-Pacific region,
primarily in China and Korea. In China, DACOS has opened offices and is
aggressively marketing its equipment. AMF has responded by opening several sales
offices in China, adding local staff to sell
102
<PAGE> 110
and to support AMF equipment, and aggressively promoting its products geared
toward the China market.
Because of bowling equipment's relatively long useful life, used equipment
can be refurbished and sold, most often to builders of new centers.
Refurbishers, who are often U.S.-based, currently compete with AMF's sales
efforts in new high growth markets. However, refurbished equipment is often
slower, less reliable and more difficult to repair. Therefore, AMF is well
positioned with its higher performing NCP.
Although there are no other competitors that are as large as either AMF or
Brunswick, AMF competes with smaller, often regionally-focused companies in
certain product lines. These competitors include Eastern Bowling Company, Inc.
and The Scorekeeper (a division of DACOS) (automatic scoring products), Heddon
Bowling Corporation ("Heddon"), Quality Bowling Corp., Vantage Bowling
Corporation ("Vantage"), and JCP Construction ("JCP") (replacement pinspotters),
DBA Products Company, Inc. (automated lane maintenance machines), Heddon and
Murrey International Bowling and Billiards, Inc. (synthetic lanes), Vulcan
Corporation and Diamond Duramid, Inc. (pins), and Vantage and JCP (spare parts).
OPERATIONS (MANUFACTURING)
Management believes that AMF's generally low-cost position generates higher
EBITDA margins for its products than those of its competitors. Many of AMF's
competitors outsource significant portions of the manufacture of many of their
products, while AMF's manufacturing is more vertically integrated. Management
believes that AMF's generally low-cost position has helped it to maintain its
leading competitive standing.
AMF's manufacturing business enjoys a high variable cost position.
Management estimates that approximately 75% of the cost of a NCP is variable
(based on 1995 NCP volumes and before the purchase accounting adjustment
resulting from the Acquisition), which helps to protect AMF's EBITDA margins in
the event of lower unit production. This variable cost profile is due to AMF's
strategy of always sourcing components to the low-cost manufacturer, whether an
outside vendor or in-house producer. These components are typically assembled
in-house using a predominantly low-skilled, non-union labor force whose size can
be managed over time. This high degree of variable costs reduces the impact of
changes in NCP unit sales on AMF's profitability. Indicative of the high
variable cost component, gross margins on NCPs, inclusive of depreciation, have
remained between 40.9% and 42.0% for the years 1993 to 1995 while NCP units sold
have increased approximately 24.0% over the same period. In addition, AMF does
not face any major capacity issues, and most operations currently are operating
on a single shift.
RESEARCH AND DEVELOPMENT (MANUFACTURING)
Virtually all the Research and Development effort in the manufacturing
business is focused on either developing new products to fill specific customer
needs or enhancing current products. Very little investment is made in basic
research. The Company tends to adapt technologies and materials developed and
proven outside the bowling industry for use in products within the bowling
industry. In-house engineering staff conduct on-going product enhancement and
cost-reduction initiatives. AMF augments its engineering staff with contract
employees and the use of outside engineering firms during major product
development programs.
103
<PAGE> 111
PROPERTIES (MANUFACTURING)
As of December 31, 1995, AMF's manufacturing operations owned or leased
facilities at four different locations in the U.S., three for its bowling
equipment manufacturing business and one for its billiards businesses. AMF also
leased facilities at nine different international locations, which are used as
offices or warehouses. These facilities are listed below.
U.S. FACILITIES
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION PRODUCTS SQUARE FOOTAGE OWNED/LEASED
- ------------------------- ------------------------------------ -------------- ------------
<S> <C> <C> <C>
Richmond, VA Pinspotters, automatic scoring, 360,000 Owned
synthetic lanes, other capital
equipment, consumer products
Used pinspotters 54,000 Leased
Lowville, NY Pins and wood lanes 121,000 Owned
50,000 Owned
Golden, CO Lane maintenance equipment 50,000 Leased
(Century)
Bland, MO Billiards tables (PlayMaster) 37,210 Owned
33,373 Leased
32,000 Owned
24,000 Owned
16,000 Owned
11,000 Leased
</TABLE>
INTERNATIONAL FACILITIES
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION FUNCTIONS SQUARE FOOTAGE OWNED/LEASED
---------------------------------------- --------------- -------------- ------------
<S> <C> <C> <C>
Emu Plains, Australia................... Office 400 Leased
Warehouse 10,100 Leased
Hong Kong............................... Office 2,500 Leased
Office 1,125 Leased
Levallois-Perret, France................ Office 984 Leased
Warehouse 1,470 Leased
Mainz-Kastel, Germany................... Office 656 Leased
Warehouse 1,650 Leased
Yokohama, Japan......................... Office 4,626 Leased
Warehouse 8,880 Leased
Service Center 1,634 Leased
Seoul, Korea............................ Office 5,119 Leased
Warehouse 7,472 Leased
Mexico City, Mexico..................... Office 1,300 Leased
Warehouse 11,431 Leased
Granna, Sweden.......................... Office 4,515 Leased
Warehouse 12,705 Leased
Hemel Hempstead, United Kingdom......... Office 11,500 Leased
Warehouse 11,770 Leased
</TABLE>
104
<PAGE> 112
EMPLOYEES (MANUFACTURING)
As of December 31, 1995, AMF's manufacturing business had approximately 984
full-time employees. Employees are divided along functional lines as shown in
the table below.
EMPLOYEES
<TABLE>
<CAPTION>
SEGMENT NUMBER OF EMPLOYEES
----------------------------------------------------------------- -------------------
<S> <C>
Manufacturing
Bowling products............................................... 635
Billiards products............................................. 114
---
Subtotal.................................................... 749
Sales
Australia...................................................... 7
Americas....................................................... 33
Europe......................................................... 46
Asia-Pacific................................................... 63
Japan.......................................................... 45
Sweden......................................................... 16
Billiards products............................................. 3
---
Subtotal.................................................... 213
Corporate........................................................ 22
---
Total.................................................. 984
===
</TABLE>
LEGAL PROCEEDINGS
AMF is currently, and is from time to time, subject to claims and suits
arising in the ordinary course of its business, including employment
discrimination claims, workers' compensation claims and minor personal injury
claims of customers of AMF's bowling centers. In certain such actions,
plaintiffs request punitive or other damages that may not be covered by
insurance. It is the opinion of management that the various asserted claims and
litigation in which AMF is currently involved will not have a material adverse
effect on its financial position. However, no assurance can be given as to the
ultimate outcome with respect to such claims and litigation. The resolution of
such claims and litigation could be material to the Company's operating results
for any particular period, depending upon the level of income for such period.
AMF is a defendant in a patent infringement action (Kegel v. AMF Bowling,
Inc.) with respect to the oil application system used in a lane cleaning machine
manufactured by AMF. The plaintiffs, competitors of AMF, obtained a summary
judgment on the issue of liability in December 1994. AMF appealed the court's
final judgment and the appeal is currently pending. A trial on damages will not
occur unless and until the liability issue is resolved against AMF. The
plaintiff is claiming damages of approximately $3.0 million, and alleges a right
to increased damages up to three times that amount for "willful infringement."
Immediately after the summary judgment, AMF changed its manufacturing method to
one that does not use the disputed oil application system and has recently
introduced an advanced lane cleaning machine that uses new technology.
AMF has been charged with infringement by Joseph Gentiluomo, the owner of a
patent relating to certain bowling balls. Although no action has been filed
against AMF, Mr. Gentiluomo has filed an infringement suit against Brunswick
Bowling & Billiards Corporation and Columbia 300, Inc. (Gentiluomo v. Brunswick
Bowling & Billiards Corporation, et al.), and has informed AMF that he "intends
to pursue all available rights and remedies against AMF and all other infringers
. . . prior to or upon conclusion of the pending lawsuit."
105
<PAGE> 113
Actions have been brought against AMF by AMF's former Korean distributor,
in both Korea and New York State. These actions arise from the same factual
circumstances, and allege that certain notices of termination of plaintiff's
distributorship agreement with AMF were deficient. On February 16, 1996, the
Korean Court dismissed the litigation on jurisdictional grounds, although such
decision is subject to appeal. In the New York Supreme Court action, the
plaintiff is seeking $41.8 million in general damages as well as $100.0 million
in punitive damages. In both situations, pursuant to the Stock Purchase
Agreement, the Sellers agreed to indemnify the Company against all liabilities
in connection with both of these actions, and to assume the defense in such
litigation. The parties have agreed in principle to settle this matter, at no
cost to the Company.
On March 5, 1996, the defendant in an action entitled Northland Bowl and
Sports Center, Inc. and Recreation Associates, II v. Golden Giant, Inc., d/b/a
Golden Giant Building Systems, Court of Common Pleas, Centre County, Pa. (Index
No. 96-75), asserted a third-party claim against AMF and other parties.
Defendant, Golden Giant, a construction company, was previously named as
defendant by a bowling center (not owned or operated by AMF) in connection with
the collapse of the center's roof in early 1994. Golden Giant has now named AMF,
charging it with negligence and breach of implied warranty for installing
scoring monitors (four years before the roof collapsed) on a portion of the
building that allegedly could not adequately support the additional weight of
the equipment. The bowling center plaintiff claims total damages in amounts
exceeding $3.5 million, and Golden Giant asserts that, if plaintiff is entitled
to any recovery, it should be in whole or part against AMF.
REGULATORY MATTERS
There are no unique federal or state regulations applicable to bowling
center operations or equipment manufacturing. States and local governments
require establishments to hold permits to sell alcoholic beverages and, although
regulations vary from state to state, once permits are issued, they generally
remain in place indefinitely (except for routine renewals) without burdensome
reporting or supervision other than revenue tax reports.
In September 1995, the Justice Department informed AMF of the results of an
investigation that it had conducted in early 1994 at six Fair Lanes bowling
centers, prior to Fair Lanes' Chapter 11 filing. The investigation was to
evaluate compliance with the Americans with Disabilities Act. The Justice
Department concluded that there were violations, because Fair Lanes had
apparently failed to respond appropriately or to take corrective action while it
was in Chapter 11. Since informing AMF of the results of this investigation, the
Justice Department has inspected an additional four AMF bowling centers.
Although it has not formally reported any violations at these four AMF centers,
it has indicated by telephone that its inspector believed that there were some
violations. AMF believes that many of the potential violations at the six Fair
Lanes bowling centers have been corrected since AMF took control of Fair Lanes.
AMF intends to provide the Justice Department with the details of the corrective
action taken at the Fair Lanes centers.
ENVIRONMENTAL REGULATION
AMF's operations are subject to federal, state, local and foreign
environmental laws and regulations that impose limitations on the discharge of,
and establish standards for the handling, generation, emission, release,
discharge, treatment, storage and disposal of, certain materials, substances and
wastes. To the best of AMF's knowledge, AMF's operations are in material
compliance with the terms of all applicable environmental laws and regulations.
AMF's Century Division leases a facility in Golden, Colorado. In connection
with the landlord's recent attempted sale of the facility, a potential buyer
conducted exploratory groundwater sampling that yielded evidence of potential
groundwater contamination in one monitoring well on the site. The landlord is
currently conducting additional tests to determine the existence and extent of
any such contamination. AMF believes that, pursuant to the 1990 asset purchase
agreement by which AMF
106
<PAGE> 114
acquired the Century Division, it is indemnified by the former shareholders of
Century International for the costs of any necessary remediation at the Golden,
Colorado facility for contamination that occurred prior to 1990. To the extent
that contamination may have been caused by AMF since 1990, AMF would not be
indemnified. AMF is not, however, aware of any post-1990 contamination. AMF
cannot at this time estimate the potential costs of investigation or cleanup, if
any, but, based on currently available information, AMF believes that its
liability with respect to any such investigation or cleanup is unlikely to have
a material adverse effect on AMF's business or financial condition or its
financial statements taken as a whole.
AMF's Trinity Avenue site, which is part of AMF's facility in Lowville, New
York, is undergoing groundwater remediation in connection with solvent
contamination dating to 1986, when underground storage tanks were removed. The
site is listed on the New York State Registry of Inactive Hazardous Waste Sites.
AMF believes that liability for the remediation rests with a third party under
the 1986 agreement pursuant to which the Sellers acquired from such third party
the core bowling equipment manufacturing business. Such third party has taken
responsibility to date and is implementing the remedy. In the event that such
third party were unable to meet its obligations with respect to the remediation,
AMF could be held responsible for such remediation.
Another property, the AMF bowling center at Bristol Pike Lanes, Croydon,
Pennsylvania, is located within the boundaries of the Croydon TCE Spill
Superfund site, which has been listed on the National Priorities List ("NPL")
under the federal Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA" or "Superfund"). The site includes an area of
groundwater contamination of approximately 3.5 square miles, and the bowling
center is close to properties identified by the U.S. Environmental Protection
Agency ("EPA") as potential sources of the contamination. The bowling center
does not appear to have contributed to the groundwater contamination, and EPA
has not listed AMF as a potentially responsible party. AMF does not believe that
the groundwater contamination at either of the sites described in this paragraph
and the preceding paragraph is likely to have a material adverse effect on AMF's
business or financial condition or on its financial statements taken as a whole.
AMF has received notices of potential liability under CERCLA or analogous
state statutes at eight off-site disposal facilities. AMF believes that the AMF
entity involved was a de minimis contributor of waste at each of these sites. In
addition, in connection with the Acquisition, AMF Reece Inc. will be required to
indemnify the Company for the liability at three of these sites under an
indemnity agreement which Sellers are obliged to procure. AMF does not believe
that its CERCLA liabilities for these eight sites in the aggregate will have a
material adverse effect on AMF's business or financial condition or on its
financial statements taken as a whole.
AMF cannot predict with any certainty whether future events, such as
changes in existing laws and regulations, may give rise to additional
environmental costs. Furthermore, actions by federal, state, local and foreign
governments concerning environmental matters could result in laws or regulations
that could increase the cost of producing AMF's products, or providing its
services, or otherwise adversely affect the demand for its products or services.
The Company's principal executive offices are located at 8100 AMF Drive,
Mechanicsville, VA 23111, telephone (804) 730-4000.
107
<PAGE> 115
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information concerning the individuals who
are expected to be the executive officers and directors of the Company
immediately following the Acquisition:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- ---------------------------------------------------
<S> <C> <C>
Richard A. Friedman.............. 38 Director and President
Terence M. O'Toole............... 37 Director
Peter M. Sacerdote............... 58 Director
Charles M. Diker................. 61 Director
Paul B. Edgerley................. 40 Director
Howard A. Lipson................. 32 Director
Douglas J. Stanard............... 49 Director; Chief Operating Officer;
President -- Bowling Center Operations
Robert L. Morin.................. 37 Director; Executive Vice President; Director --
Worldwide Market Development
Stephen E. Hare.................. 42 Director; Executive Vice President; Chief Financial
Officer
Michael P. Bardaro............... 45 Vice President and Corporate Controller
William W. Flexon................ 33 Vice President, Taxation
</TABLE>
RICHARD A. FRIEDMAN is a general partner at Goldman Sachs where he is the
head of the Principal Investment Area. He joined Goldman Sachs in 1981 and
became a partner in 1990. Mr. Friedman is a member of Goldman Sachs' Operating
Committee, Risk Committee, Investment Committee and Real Estate Principal
Investment Committee. He is on the Advisory Committees or Boards of Directors of
Diamond Cable Communications PLC, Globe Manufacturing Co., Marcus Cable Company,
L.P., and Polo Ralph Lauren Enterprises, L.P. Mr. Friedman is also a member of
the Board of Trustees of The Dalton School in New York City. He received an A.B.
from Brown University and an M.B.A. from The University of Chicago.
TERENCE M. O'TOOLE is a general partner at Goldman Sachs in the Principal
Investment Area. He joined Goldman Sachs in 1983 and became a partner in 1992.
He is a member of Goldman Sachs' Investment Committee. Mr. O'Toole serves on the
Boards of Directors of Concentric Network Corporation, Insilco Corporation,
Rollerblade, Inc. and Western Wireless Corporation. He holds a B.S. degree from
Villanova University and an M.B.A. from the Stanford Graduate School of
Business.
PETER M. SACERDOTE is a limited partner of Goldman Sachs. He joined Goldman
Sachs in 1964 and served as a general partner from 1973 to 1990. During his
tenure at Goldman Sachs, Mr. Sacerdote was chairman of the Firm's Commitments,
Investment and Credit Committees, partner-in-charge of the Corporate Finance
Department from 1980 to 1987, and partner-in-charge of the Private Finance
Department from 1973 to 1980. Mr. Sacerdote is currently Chairman of Goldman
Sachs' Investment Committee and a member of Goldman Sachs' Real Estate Principal
Investment Committee. Mr. Sacerdote serves on the Boards of Directors of
Franklin Resources, Inc., QUALCOMM Incorporated and Weis Markets, Inc. Mr.
Sacerdote has a B.E.E. from Cornell University and an M.B.A. from the Harvard
Graduate School of Business Administration.
CHARLES M. DIKER has been Chairman of the Board of Cantel Industries since
1986 and he has been a limited partner of Weiss, Peck & Greer, an investment
management firm, since 1975. He has also been a director of BeautiControl
Cosmetics, International Specialty Products, Data Broadcasting and Chyron
Corporation since 1987, 1992, 1995 and 1994, respectively. He received an A.B.
from Harvard College and an M.B.A. from the Harvard Graduate School of Business
Administration.
108
<PAGE> 116
PAUL B. EDGERLEY has been Managing Director of Bain Capital, Inc., an
investment firm, since 1993. From 1990 to 1993 he was a General Partner of Bain
Venture Capital, and from 1988 to 1990 he was a principal of Bain Capital
Partners. He currently serves on the Boards of Directors of Masland Corporation
and GS Industries Inc. Mr. Edgerley received a B.S. from Kansas State University
and an M.B.A. with distinction from the Harvard Graduate School of Business
Administration.
HOWARD A. LIPSON is Senior Managing Director of The Blackstone Group, and
has been involved in the firm's principal activities since 1988. Prior to
joining Blackstone, Mr. Lipson was a member of the Mergers and Acquisitions
Group of Salomon Brothers Inc. He currently serves on the Boards of Directors of
UCAR International Inc., Volume Services, Inc. and Ritvik Holdings, Inc. Mr.
Lipson received a B.S. in Economics from the Wharton School of The University of
Pennsylvania.
DOUGLAS J. STANARD is the Chief Operating Officer of AMF Group Inc. and the
President of AMF's bowling center operations and manufacturing operations. He
joined AMF in 1992 after having been President of Stewart Foods, Inc. from 1989
to 1992 and President of Beatrice International Food (Europe) S.A. from 1984 to
1988. Mr. Stanard received a B.S. degree from Northern Illinois University and a
J.D. degree from The College of William and Mary.
ROBERT L. MORIN is an Executive Vice President of AMF Group Inc. and the
Director of Worldwide Market Development for AMF Bowling Products. He joined AMF
in 1992 as General Manager of the Capital Equipment Division. Prior to joining
AMF, Mr. Morin worked as a Management Consultant from 1985 to 1992 at Booz,
Allen & Hamilton, Inc., a management consultant firm, specializing in operations
management. Mr. Morin also spent three years as an engineer at General Motors.
He holds a B.S. degree from Notre Dame and an M.B.A. from the Graduate School of
Business Administration at the University of Virginia.
STEPHEN E. HARE is an Executive Vice President and Chief Financial Officer
of AMF Group Inc. He joined AMF in May 1996. Prior to joining AMF, Mr. Hare was
Senior Vice President and Chief Financial Officer of James River Corporation of
Virginia, beginning in 1992. Before joining James River Corporation, he was
Senior Vice President of Investment Banking at Kidder, Peabody & Co. in New
York. Mr. Hare holds a Certified Public Accountant license. He received a B.B.A.
from Notre Dame and an M.B.A. from the Harvard Graduate School of Business
Administration.
MICHAEL P. BARDARO is a Vice President and Corporate Controller of AMF
Group Inc. and the Vice President and Corporate Controller for AMF's bowling
center operations. He joined AMF in 1994 after having been Controller at General
Medical Manufacturing Co. in Richmond, Virginia between 1989 and 1994 and Vice
President/Controller at Virginia Linen Service, Inc. between 1986 and 1989. Mr.
Bardaro holds a Certified Public Accountant License in Virginia. He received a
B.S. degree in Accounting from the University of Cincinnati.
WILLIAM W. FLEXON is a Vice President of Taxation AMF Group Inc. He first
joined AMF's tax department in 1988 and became Tax Manager in 1991. Between
December 1992 and April 1994, Mr. Flexon worked at Financial Decision Systems as
a Tax Software Application Consultant. He then returned to AMF in April 1994.
Mr. Flexon holds a Certified Public Accountant license in Virginia. He received
a B.S. degree in Business Administration from the University of Richmond.
109
<PAGE> 117
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by AMF to each of
its most highly compensated executive officers whose total cash compensation
exceeded $100,000 during the last fiscal year, for each of the three years in
the period ended December 31, 1995:
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
<TABLE>
<CAPTION>
AWARDS
-------------------- PAYOUTS
OTHER ---------------------------- ALL
ANNUAL COMPENSATION ANNUAL RESTRICTED SECURITIES OTHER
-------------------------- COMPEN- STOCK UNDERLYING COMPEN-
SALARY BONUS SATION AWARD(S) OPTIONS/SARS LTIP SATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) ($) ($) ($)
- ----------------------------- ---- ------- ------- ------- ---------- ------------ ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Douglas J. Stanard...........
President, Worldwide 1993 180,000 100,750 -- -- -- -- --
Bowling Centers 1994 180,000 112,500 -- -- -- -- --
1995 225,000 204,750 -- -- -- -- --
Robert L. Morin..............
General Manager, 1993 100,000 58,825 -- -- -- 10,000 shares(a) --
AMF Bowling, Inc. 1994 103,000 59,950 -- -- -- -- --
President, AMF Bowling, 1995 180,286 60,125 -- -- -- -- --
Inc.
Michael P. Bardaro...........
Treasurer/Controller, 1993 N/A N/A N/A N/A N/A N/A N/A
AMF Bowling Centers 1994 44,371(b) 4,500 -- -- -- -- --
Chief Financial Officer, 1995 95,833 29,958 -- -- -- -- 2,327
AMF Bowling Centers
</TABLE>
- ---------------
(a) Prior to the Acquisition, Mr. Morin held 10,000 shares of phantom stock in
the Capital Equipment Division ("CED") of AMF Bowling, Inc., under a Phantom
Stock Plan (the "Phantom Stock Plan"). Under the Phantom Stock Plan, the
phantom stock was valued at five times the average earnings of CED for the
current and two preceding fiscal years. In connection with the Acquisition,
the shares of phantom stock issued under the Phantom Stock Plan were
exchanged for $86.01 per share in cash and the Phantom Stock Plan was
terminated.
(b) Employment commenced July 1994.
EMPLOYMENT AGREEMENTS
Mr. Stanard and Mr. Hare each have an employment agreement with AMF
Holdings Inc., Holdings' parent company ("Parent") and the Company, and Mr.
Morin has an employment agreement with Parent and a subsidiary of the Company.
Mr. Stanard's and Mr. Morin's employment agreements are for an employment period
ending on May 1, 1999 and Mr. Hare's is for an employment period ending on May
28, 1999. Pursuant to these agreements, each receives compensation consisting of
salary and an incentive bonus of up to 50% of the executive's annual salary if
certain operational and financial targets are met. (Mr. Stanard's annual base
salary is $350,000, Mr. Hare's annual base salary is $300,000 and Mr. Morin's
annual base salary is $250,000. All three employment agreements provide for the
payment of an annual bonus equal to 50% of the annual base salary if certain
operational and financial targets determined by the Company's board of directors
(the "Targets") are attained, and that the executive will earn an annual bonus
of less than 50% of his annual base salary if less than 100% but more than 90%
of the Targets are attained. Notwithstanding this provision, Mr. Hare's
employment agreement additionally states that his annual bonus will not be less
than $100,000 for the fiscal year ending December 31, 1996, and will not be less
than $50,000 for the fiscal year ending December 31, 1997. Moreover, Mr. Morin's
employment agreement provides that his annual bonus for the third and fourth
quarters of 1996 is fixed at 25% of his base salary, or $62,500.
Under their respective employment agreements, Mr. Stanard holds the
position of Chief Operating Officer of the Company, Mr. Hare holds the position
of Chief Financial Officer of the Company and Mr. Morin holds the position of
Director of Worldwide Market Development of AMF
110
<PAGE> 118
Bowling, Inc. ("AMF Bowling"), an indirect subsidiary of the Company, and
Director of Worldwide Marketing Development of the Company. In addition, Mr.
Stanard is currently serving as President of AMF Bowling Centers, Inc. and AMF
Bowling. The employment agreements provide for payment of accrued compensation,
continuation of certain benefits and payment of a portion of the executive's
bonus (if the applicable targets are later met) following termination of
employment by the Company, in the case of Mr. Stanard or Mr. Hare, and by AMF
Bowling, in the case of Mr. Morin (in each case, the executive's "Employer").
The agreements further provide for a severance payment equal to the executive's
annual base salary if termination by the Employer is not due to death or
disability. The executive's employment will be deemed to have been terminated by
his Employer if all or substantially all of the stock or assets of such Employer
are sold or disposed of to an unaffiliated third party and the executive is not
thereafter employed by Parent or one of its continuing affiliates, however
neither Parent nor the executive's Employer will have any obligations with
respect to accrued salary, continuation of benefits, allocated portion of bonus
and, if applicable, severance payments to any of Mr. Stanard, Mr. Hare or Mr.
Morin upon termination of his employment if he is hired by the purchaser of the
Company's stock or assets, or if his employment is continued by the Company.
Messrs. Stanard and Morin each purchased, pursuant to their respective
employment agreements, 150,000 shares of Parent Common Stock (the "Purchased
Stock") for the payment of $500,000 in cash plus a non-recourse promissory note
for $1,000,000, payable to Parent and secured by the purchased stock which has
been pledged pursuant to a stock pledge agreement between the executive and
Parent. Mr. Hare purchased 150,000 shares of Parent Common Stock for the payment
of $333,167 in cash plus a non-recourse promissory note for $1,000,000 and a
full recourse promissory note of $62,614, payable to Parent and secured by the
purchased stock which has been pledged pursuant to a stock pledge agreement
between Mr. Hare and the Parent. In addition, Mr. Stanard was granted options to
purchase 130,000 shares of Parent Common Stock and Mr. Morin was granted options
to purchase 110,000 shares of Parent Common Stock and Mr. Hare was granted
options to purchase 105,000 shares of Parent Common Stock (together, the
"Options"). Unless sooner exercised or forfeited as provided, the Options expire
on May 1, 2006. To the extent not inconsistent with the employment agreements,
the Options are governed by Parent's 1996 Stock Incentive Plan (the "Stock
Incentive Plan"), described below. Twenty percent of Mr. Stanard's and Mr.
Morin's Options vest on May 1, 1997 and on each May 1 thereafter through the
year 2001; twenty percent of Mr. Hare's Options vest on May 28, 1997 and on each
May 28 thereafter through the year 2001.
The employment agreements further provide that, prior to the consummation
of an initial public offering or offerings by Parent with gross proceeds in the
aggregate of at least $100 million (an "IPO"), Parent may, upon termination of
the executive's employment for any reason (including death), repurchase all of
the shares of Purchased Stock and any shares of Parent Common Stock issued upon
exercise of the Options (together, "Restricted Stock") held by him for fair
market value as of a specified date. The executive or his legal representative
may, prior to such an initial public offering or offerings, require Parent to
repurchase all of his Restricted Stock at fair market value (in the case of
death or disability) or otherwise at the original price paid for the shares, if
his Employer terminates his employment for any reason. Immediately prior to
certain change in control transactions, any then unvested Options will vest. If
any successor to Parent or the executive's Employer acquires all or
substantially all of the business and/or assets of Parent or such Employer,
Parent may purchase all of the Restricted Stock held by the executive for its
fair market value, and any Options then held by him for the fair market value of
the underlying Parent Common Stock less the exercise price of the Options.
AMF HOLDINGS INC. 1996 STOCK INCENTIVE PLAN
In connection with the Acquisition, Parent adopted the AMF Holdings, Inc.
1996 Stock Incentive Plan (the "Stock Incentive Plan") under which Parent may
grant incentive awards in the form of
111
<PAGE> 119
shares of Parent Common Stock ("Restricted Stock Awards"), options to purchase
shares of Parent Common Stock ("Stock Options") and stock appreciation rights
("Stock Appreciation Rights") to certain officers, employees, consultants and
non-employee directors ("Participants") of Parent and its affiliates. The total
number of shares of Parent Common Stock initially reserved and available for
grant under the Stock Incentive Plan is 1,767,151. A committee of Parent's board
of directors (the "Committee") is authorized to make grants and various other
decisions under the Stock Incentive Plan and to make determinations as to a
number of the terms of awards granted under the Stock Incentive Plan. Unless
otherwise determined by the Committee, any Participant granted an award under
the Stock Incentive Plan must become a party to, and agree to be bound by, the
Stockholders Agreement (as defined below).
Stock Option awards under the Stock Incentive Plan may include incentive
stock options, nonqualified stock options, or both types of Stock Options, in
each case with or without Stock Appreciation Rights. Stock Options are
nontransferable (except under certain limited circumstances) and, unless
otherwise determined by the Committee, have a term of ten years. Upon a
Participant's death or when the Participant's employment with Parent or the
applicable affiliate of Parent is terminated for any reason, such Participant's
previously unvested Stock Options are forfeited and the Participant or his legal
representative may, within three months (if termination of employment is for any
reason other than death) or one year (in the case of the Participant's death),
exercise any previously vested Stock Options. Stock Appreciation Rights may be
granted in conjunction with all or part of any Stock Option award, and are
exercisable, subject to certain limitations, only in connection with the
exercise of the related Stock Option. Upon the termination or exercise of the
related Stock Option, Stock Appreciation Rights terminate and are no longer be
exercisable. Stock Appreciation Rights are transferable only with the related
Stock Options.
Unless otherwise provided in the related award agreement or, if applicable,
the Stockholders Agreement, immediately prior to certain change of control
transactions described in the Stock Incentive Plan, all outstanding Stock
Options and Stock Appreciation Rights will, subject to certain limitations,
become fully exercisable and vested and any restrictions and deferral
limitations applicable to any Restricted Stock Awards will lapse.
The Stock Incentive Plan will terminate 10 years after its effective date;
however, awards outstanding as of such date will not be affected or impaired by
such termination. Parent's board of directors and the Committee have authority
to amend the Stock Incentive Plan and awards granted thereunder, subject to the
terms of the Stock Incentive Plan.
Pursuant to an Option Agreement dated May 1, 1996, Charles M. Diker, a
director of Parent, Holdings and the Company, pursuant to the Stock Incentive
Plan, was granted non-qualified Stock Options to purchase 100,000 shares of
Parent Common Stock at an exercise price of $10.00 per share. One third of such
options vested on May 1, 1996, and the remaining options vest over the following
two-year period. Mr. Diker's Option Agreement provides that, prior to the
consummation of an IPO, Parent may, upon termination of Mr. Diker's service as a
director of Parent for any reason (including death), repurchase of all of the
shares of Restricted Stock held by him for fair market value as of a specified
date. Mr. Diker or his legal representative may, prior to an IPO, require Parent
to repurchase all of his Restricted Stock at fair market value (in the case of
death or disability) or otherwise at the original price paid for the shares, if
Parent terminates his service as a director of Parent for any reason. If any
successor to Parent acquires all or substantially all of the business and/or
assets of Parent, Parent may purchase all of the Stock Options then held by Mr.
Diker for the fair market value of the underlying Parent Common Stock less the
exercise price of the Stock Options. Mr. Diker is a party to the Stockholders
Agreement and any Plan Shares held by Mr. Diker will be subject to the terms of
the Stockholders Agreement in addition to the terms of his Option Agreement.
112
<PAGE> 120
OWNERSHIP OF CAPITAL STOCK
The following table sets forth certain information, as of May 31, 1996,
regarding beneficial ownership of the common stock ("Parent Common Stock") of
Holdings' parent company, AMF Holdings Inc., by each stockholder who is known by
the Company to own beneficially, more than 5% of the outstanding Parent Common
Stock, each director of the Company, each executive officer of the Company and
all directors and executive officers of the Company as a group. Except as set
forth in the footnotes to the table, each stockholder listed below has informed
the Company that such stockholder has (i) sole voting and investment power with
respect to such stockholder's shares of Parent Common Stock and (ii) record and
beneficial ownership with respect to such stockholder's shares of Parent Common
Stock.
<TABLE>
<CAPTION>
SHARES OF PARENT
COMMON STOCK
BENEFICIALLY OWNED
NAME AND ADDRESS OF -------------------------
BENEFICIAL OWNER NUMBER PERCENTAGE
----------------------------------------------------------- ---------- ----------
<S> <C> <C>
The Goldman Sachs Group, L.P.(a)........................... 26,870,000 68.7%
85 Broad Street,
New York, New York 10004
The Blackstone Group(b).................................... 5,000,000 13.1%
375 Park Avenue
New York, New York 10154
Kelso & Company(c)......................................... 5,000,000 13.1%
350 Park Avenue
New York, New York 10022
Richard A. Friedman(d)..................................... -- --
Terence M. O'Toole(e)...................................... -- --
Peter M. Sacerdote(f)...................................... -- --
Charles M. Diker........................................... 100,000 *
Paul B. Edgerley........................................... -- --
Howard A. Lipson........................................... -- --
Robert L. Morin............................................ 150,000 *
Douglas J. Stanard......................................... 150,000 *
Stephen E. Hare............................................ 150,000 *
Michael P. Bardaro......................................... -- --
William W. Flexon.......................................... -- --
All directors and executive officers as a group (11
persons)................................................. 300,000 *
</TABLE>
- ---------------
(a) Of the total number of shares beneficially owned by The Goldman Sachs Group,
L.P. ("The Goldman Sachs Group"), 870,000 shares are owned by The Goldman
Sachs Group, 16,760,476.2 shares are owned by GS Capital Partners II, L.P.,
6,662,976.2 shares are owned by GS Capital Partners II Offshore, L.P.,
618,214.3 shares are owned by Goldman, Sachs & Co. Verwaltungs GmbH, as
nominee for GS Capital Partners II Germany, C.L.P., 392,102.5 shares are
owned by Stone Street Fund 1995, L.P., 670,372.7 shares are owned by Stone
Street Fund 1996, L.P., 441,230.8 shares are owned by Bridge Street Fund
1995, L.P. and 454,627.3 shares are owned by Bridge Street Fund 1996, L.P.
The 870,000 shares beneficially owned by The Goldman Sachs Group represent
870,000 warrants to purchase shares of Parent Common Stock, which were
issued upon the closing of the Acquisition. GS Capital Partners II, L.P., GS
Capital Partners II Offshore, L.P., GS Capital Partners II Germany, C.L.P.,
Stone Street Fund 1995, L.P., Stone Street Fund 1996, L.P., Bridge Street
Fund 1995, L.P. and Bridge Street Fund 1996, L.P. are investment
partnerships that are managed by Goldman Sachs, which has full dispositive
power with respect to the holdings of such partnerships. Affiliates of The
Goldman Sachs Group are the general or managing partners of such
partnerships and have full voting power with respect to the holdings of such
partnerships.
(b) Of the total number of shares beneficially owned by The Blackstone Group,
3,593,528 shares are owned by Blackstone Capital Partners II Merchant
Banking Fund L.P., 1,050,133 shares are owned by Blackstone Offshore Capital
Partners II L.P. and 356,339 shares are owned by Blackstone Family
Investment Partnership L.P.
(c) Of the total number of shares beneficially owned by Kelso & Company,
4,700,000 shares are owned by Kelso Investment Associates V, L.P. and
300,000 are owned by Kelso Equity Partners V, L.P.
(d) Mr. Friedman, who is a general partner of Goldman Sachs, disclaims
beneficial ownership of the shares owned by The Goldman Sachs Group and its
affiliates.
113
<PAGE> 121
(e) Mr. O'Toole, who is a general partner of Goldman Sachs, disclaims beneficial
ownership of the shares owned by The Goldman Sachs Group and its affiliates.
(f) Mr. Sacerdote, who is a limited partner of Goldman Sachs, disclaims
beneficial ownership of the shares owned by The Goldman Sachs Group and its
affiliates.
* Less than 1%
STOCKHOLDERS AGREEMENT
On April 30, 1996, Parent, GSCP, Blackstone Capital Partners II Merchant
Banking Fund L.P., Blackstone Offshore Capital Partners II L.P. and Blackstone
Family Investment Partnership L.P. (collectively, "Blackstone"), Kelso Equity
Partners V, L.P. and Kelso Investment Associates V, L.P. (collectively,
"Kelso"), Bain Capital Fund V, L.P., Bain Capital Fund V-B, L.P., BCIP
Associates and BCIP Trust Associates, L.P. (collectively, "Bain" and, with
Blackstone and Kelso, the "Governance Investors"), Citicorp North America, Inc.
("Citibank"), Charles M. Diker ("Diker" and, collectively with Blackstone,
Kelso, Bain and Citibank, the "Investors"), Robert L. Morin ("Morin") and
Douglas J. Stanard ("Stanard" and, with Morin, the "Management Investors," and,
with the Investors, the "Stockholders") entered into a Stockholders Agreement
(the "Stockholders Agreement"), which regulates the relationship among Parent
and the Stockholders. Subsequently, Stephen E. Hare ("Hare") became a party to
the Stockholders Agreement as an additional Management Investor and Stockholder.
The following discussion summarizes the terms of the Stockholders Agreement that
the Company believes are material to an investor in the Notes or the Exchange
Notes. This summary is qualified in its entirety by reference to the full text
of the Stockholders Agreement, which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part, and is incorporated by reference
herein.
The Stockholders Agreement confers on GSCP the right to increase or
decrease the board of directors (the "Board") from its initial size of nine
members. GSCP has the right to nominate five directors, and to nominate a
majority (not limited to a simple majority) of the members of the Board, so long
as GSCP and its Affiliates hold a majority of the outstanding shares of Parent
Common Stock. Each Governance Investor has the right to nominate, subject to
GSCP consent, one member of the Board, so long as the number of shares held by
it and certain of its permitted transferees under the Stockholders Agreement is
equal to at least one-half the sum of the number of shares initially purchased
by it plus the number of additional shares that the Governance Investor may be
required to purchase pursuant to the "overcall" provisions of the Stockholders
Agreement described below (in each case subject to appropriate adjustment). If a
Governance Investor is no longer entitled to nominate a director, the director
is required to resign or be subject to removal by the Stockholders. Each of GSCP
and the Governance Investors has the right to recommend removal, with or without
cause, of any director nominated by it, in which case such director must resign
immediately or be subject to removal by the Stockholders. In the event of death,
removal or resignation of a director nominated by a Governance Investor, so long
as the Governance Investor continues to have the right to nominate a director
for such position, the Governance Investor has the right to nominate (subject to
GSCP consent) a director to fill the vacancy created. A quorum may be
constituted by a majority of the number of directors then in office, but not
less than one-third of the whole Board, including at least one GSCP director.
Pursuant to the "overcall" provisions of the Stockholders Agreement, each
of GSCP and the Investors (other than Mr. Diker) has agreed to purchase
additional shares of Parent Common Stock having an aggregate purchase price of
up to 20% of the amount initially invested by such funding investor (i.e.,
collectively up to a total of $75,600,000) upon the request of the Board. Any
such additional investments are required to be made pro rata by the funding
investors. The commitment to purchase additional shares terminates on May 1,
1998. Funds raised through such additional investments may only be used to
finance acquisitions of businesses or assets, capital expenditures, investments
in partnerships or joint ventures or other investments in the business of Parent
and its subsidiaries, or any similar transactions or expenditures.
114
<PAGE> 122
The Stockholders Agreement provides for the continual existence of an
Executive Committee, consisting of two directors designated by GSCP. The
Executive Committee may exercise all the powers and authority of the Board
(subject to any restrictions under Delaware law) except with respect to those
actions requiring a Special Vote and, in the case of matters requiring a prior
meeting of the Board, only after such meeting has occurred. A Special Vote is
required for (i) the issuance of capital stock below fair market value, (ii) the
grant or issuance of options or warrants exercisable or exchangeable for more
than 2,877,151 shares, (iii) entering into transactions with Affiliates of GSCP,
and (iv) amendments to the Stockholders Agreement or Parent's Charter or By-Laws
which amendments would adversely affect the rights and obligations of Blackstone
and Kelso, provided that any amendment affecting a Stockholder differently from
any other Stockholder requires such Stockholder's approval. Matters requiring a
Special Vote must be approved by a majority of the GSCP directors who are
partners or employees of Goldman Sachs and who are not employees of Parent and
its subsidiaries, and at least one Investor Director nominated by Blackstone or
Kelso (if there is one serving at such time).
Under the Stockholders Agreement, Goldman Sachs has the exclusive right to
perform all consulting, financing, investment banking and similar services for
Parent and its subsidiaries, for customary compensation and on terms customary
for similar engagements with unaffiliated third parties. Neither Parent nor its
subsidiaries are allowed to engage any person to perform such services during
the term of the Stockholders Agreement, except to the extent Goldman Sachs shall
consent thereto or shall decline, at its sole election, to perform such
services.
Certain provisions in the Stockholders Agreement relate to the possibility
that the Parent Common Stock may be the subject of an underwritten initial
public offering, pursuant to a registration statement under the Securities Act,
with aggregate gross proceeds to Parent of at least $100 million (an "IPO"). The
rights of the Stockholders under the Stockholders Agreement will terminate upon
the consummation of an IPO, other than certain rights relating to transfer,
registration rights and certain governance provisions. The remaining rights and
obligations (other than registration rights) will terminate after an IPO, upon
the first to occur of: (i) GSCP, the Investors and their Permitted Transferees
holding in the aggregate less than 50% of the sum of the number of shares of
Parent Common Stock outstanding, on a fully diluted basis, immediately after
giving effect to the transactions contemplated by the Subscription Agreement
(which agreement was entered into on the same date and by the same parties as
the Stockholders Agreement, except for the Management Investors) and the number
of additional shares, if any, issued pursuant to the overcall provisions of the
Stockholders Agreement, and (ii) GSCP, the Investors and their Permitted
Transferees holding in the aggregate less than 40% of Parent's fully diluted
shares then outstanding. Notwithstanding these provisions, in the event of any
merger, recapitalization, consolidation, reorganization or other restructuring
of the Parent as a result of which the Stockholders and their Permitted
Transferees own less than a majority of the outstanding voting power of the
entity surviving such transaction, the Stockholders Agreement terminates.
115
<PAGE> 123
CERTAIN TRANSACTIONS
Goldman Sachs and its affiliates have certain interests in the Company in
addition to being the Initial Purchaser of the Notes. Richard A. Friedman and
Terence M. O'Toole, each of whom is a general partner of Goldman Sachs, and
Peter M. Sacerdote, who is a limited partner of Goldman Sachs, are directors of
the Company. Goldman Sachs and its affiliates together currently beneficially
own a majority of the outstanding voting equity of Holdings' parent company;
thus Goldman Sachs will be deemed to be an "affiliate" of the Company. See
"Ownership of Capital Stock." Goldman Sachs received an underwriting discount of
approximately $19.0 million in connection with its purchase and resale of the
Notes. Goldman Sachs also served as financial advisor to the sellers of AMF in
connection with the Acquisition and received a fee in the form of 10-year
warrants to purchase 2.2% of the common stock of Holdings' parent company, on a
fully diluted basis. The warrants are valued for accounting purposes at
approximately $8.7 million. In addition, Goldman Sachs is entitled to the
reimbursement of its expenses.
In connection with the senior debt, Goldman Sachs acted as Syndication
Agent, Goldman Sachs and Citicorp Securities, Inc. acted as Arrangers, and
Citibank, N.A. is acting as administrative agent. Goldman Sachs received a fee
of approximately $9.5 million and was reimbursed for expenses in connection with
such services. Goldman Sachs also received a cash fee of $5.0 million from the
Company in connection with the Acquisition.
116
<PAGE> 124
DESCRIPTION OF SENIOR DEBT
The Company has entered into a Credit Agreement (the "Credit Agreement")
with Goldman Sachs, its affiliate Pearl Street, L.P. ("Pearl Street"), Citibank,
N.A. ("Citibank") and its affiliates Citicorp Securities, Inc. and Citicorp USA,
Inc. and certain other banks, financial institutions and institutional lenders
(collectively, the "Lenders") providing for (i) syndicated senior secured term
loan facilities aggregating $515.0 million (the "Term Facilities"), (ii) a
senior secured multiple-draw term facility of $100.0 million, and, upon the
Company's achieving a Pro Forma Senior Debt/EBITDA ratio of less than or equal
to 2.5 to 1, up to an additional $50.0 million (the "Acquisition Facility") and
(iii) a senior secured revolving credit facility of up to $50.0 million (the
"Working Capital Facility", and together with the Term Facilities and the
Acquisition Facility, the "Senior Facilities"). In connection with such
financing, Goldman Sachs acted as Syndication Agent, Goldman Sachs and Citicorp
Securities, Inc. acted as Arrangers, and Citibank, N.A. is acting as
administrative agent.
The execution of the Credit Agreement, the borrowings necessary to complete
the Acquisition and the delivery of required documentation thereunder occurred
simultaneously with the closing of the Acquisition.
The following summary of the material provisions of the Credit Agreement
does not purport to be complete, and is qualified by reference to the full text
of the Credit Agreement, which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
The Term Facilities consist of the following three tranches: (i) a Term
Loan Facility of $250.0 million, (ii) an AXELs(SM) Series A Facility of $190.0
million and (iii) an AXELs(SM) Series B Facility of $75.0 million. The Term
Facilities provide for quarterly amortization until final maturity. The Term
Loan Facility will mature five years, the AXELs(SM) Series A Facility will
mature seven years, and the AXELs(SM) Series B Facility will mature eight years
after the closing of the Senior Facilities. The Company will be required to make
scheduled amortization payments on the Term Facilities as follows (dollars in
millions):
<TABLE>
<CAPTION>
TERM AXELS(SM) AXELS(SM)
TWELVE MONTHS LOAN SERIES A SERIES B
ENDING MARCH 31, FACILITY FACILITY FACILITY TOTAL
- ------------------ -------- -------- -------- ------
<S> <C> <C> <C> <C>
1997 $ 35.0 $ 2.0 $ 1.2 $ 38.2
1998 40.0 2.0 1.2 43.2
1999 45.0 2.0 1.2 48.2
2000 55.0 2.0 1.2 58.2
2001 75.0 2.0 1.2 78.2
2002 -- 80.0 1.2 81.2
2003 -- 100.0 1.2 101.2
2004 -- -- 66.6 66.6
------ ------ ----- ------
$ 250.0 $190.0 $ 75.0 $515.0
====== ====== ===== ======
</TABLE>
In addition, the Company will be required to make prepayments on the Senior
Facilities under certain circumstances, including upon certain asset sales,
issuances of debt and public issuance of equity securities. The Company will
also be required to make prepayments on the Senior Facilities in an amount equal
to (i) 75% (to be reduced to 50% for years in which the Company's Total
Debt/EBITDA ratio for the prior 12 months is less than 4.0 to 1.0) of the
Company's Excess Cash Flow (as defined in the Credit Agreement) or (ii) during
each of the first three years after the closing of the Senior Facilities, if
less than the amount described in clause (i), the amount by which the Company's
Excess Cash Flow for such year exceeds $10.0 million (during the first two years
after closing) or $20.0 million (during the third year after closing). These
mandatory prepayments will be applied to prepay the Senior Facilities in the
following order: first, to the Term Facilities, ratably among each tranche, and
the Acquisition Facility, to be applied to the installments of each such
Facility on a pro rata basis, and second, to the permanent reduction of the
Working Capital
117
<PAGE> 125
Facility. Notwithstanding the foregoing, in the event that prepayments of the
AXELs(SM) Series A Facility and the AXELs(SM) Series B Facility on or prior to
the second anniversary of the closing have reached an aggregate amount of $25
million, the Lenders in such Facilities can refuse to accept additional
prepayments during such period, in which case the amounts so refused instead
shall be allocated first to the Acquisition Facility and the Term Loan Facility
on a pro rata basis, and second, to the permanent reduction of the Working
Capital Facility. The Term Loan Facility will bear interest, at the Company's
option, at Citibank's customary base rate plus 1.5% or at Citibank's Eurodollar
rate plus 2.5%. The AXELs(SM) Series A Facility will bear interest, at the
Company's option, at Citibank's customary base rate plus 1.875% or at Citibank's
Eurodollar rate plus 2.875%. The AXELs(SM) Series B Facility will bear interest,
at the Company's option, at Citibank's customary base rate plus 2.125% or at
Citibank's Eurodollar rate plus 3.125%. As shown in Note (f) to the Pro Forma
Consolidated Statements of Income, interest expense for the year ended December
31, 1995, on a pro forma basis, on the $515.0 million of Senior Debt would have
been $39.6 million.
The Company has the ability to borrow an additional $50.0 million for
general corporate purposes pursuant to the Working Capital Facility and an
additional $100.0 million, and, upon reaching a Pro Forma Senior Debt/EBITDA
ratio of less than or equal to 2.5 to 1, up to an additional $50.0 million, to
finance acquisitions and to refinance new center construction pursuant to the
Acquisition Facility, subject to the Company meeting certain pro forma financial
covenants and limitations imposed on the amount borrowed, including that the
amount borrowed under the Acquisition Facility shall not exceed 3.5 times the
Deemed EBITDA of the business to be acquired or the newly constructed center.
"Deemed EBITDA" is the product of Specified Revenues and the Average EBITDA
Margin. "Specified Revenues" means at any time (a) in the case of any
acquisition of a new center, aggregate revenues of such new center for the
immediately preceding 12-month period, and (b) in the case of any construction
of a new center, an amount equal to (i) at any time during the first full
12-months of operations, the aggregate revenues of such new center for each full
month it has operated times 12 divided by the number of full months such new
center has operated and (ii) at any time thereafter, aggregate revenues of such
new center for the immediately preceding 12-month period. "Average EBITDA
Margin" means, at any time of determination, an amount equal to (a) the sum of
consolidated EBITDA of AMF Bowling Centers and its subsidiaries and consolidated
EBITDA of AMF Worldwide and its subsidiaries divided by (b) the sum of
consolidated revenues of AMF Bowling Centers and its subsidiaries and
consolidated revenues of AMF Worldwide and its subsidiaries, in each case for
the 12-month period reflected in the Company's most recent financial statements.
The Acquisition Facility has a term of five years. The Acquisition Facility
will begin to amortize in November 1999, such that at April 30, 2000, the
outstanding principal will be reduced to $75.0 million, with final maturity at
April 30, 2001. The Acquisition Facility will bear interest until April 30,
1997, at the Company's option, at Citibank's customary base rate plus 1.5% or at
Citibank's Eurodollar rate plus 2.5%.
The Working Capital Facility has a term of five years and will be fully
revolving until final maturity. The Working Capital Facility will bear interest
until April 30, 1997, at the Company's option, at Citibank's customary base rate
plus 1.5% or at Citibank's Eurodollar rate plus 2.5%. Beginning May 1, 1997 the
margins above Citibank's customary base rate and Citibank's Eurodollar rate, at
which the Term Loan Facility, the Working Capital Facility and the Acquisition
Facility will bear interest, may be reduced pursuant to a floating performance
pricing grid which is based on the Total Debt/EBITDA ratio for the four fiscal
quarter rolling period then most recently ended.
The Senior Facilities are guaranteed by Holdings and by each of the
Company's present and future domestic Subsidiaries and are secured by all of the
stock of the Company and the Company's present and future domestic Subsidiaries
and Second-Tier Subsidiaries, and by 66% of the stock of the Company's present
and future international subsidiaries, and by substantially all of the Company's
and its present and future domestic Subsidiaries' present and future property
and assets. Any additional present or future subsidiaries of the Company that
become guarantors under
118
<PAGE> 126
the Senior Facilities will also jointly and severally guarantee the Company's
payment obligations on the Notes on a senior subordinated basis.
COVENANTS
The Senior Facilities contain certain financial covenants, as well as
additional affirmative and negative covenants, constraining the Company. The
Company must maintain a minimum EBITDA (as defined in the Credit Agreement) of
not less than the sum of (i) an amount ranging from $140 million for the Rolling
Period (each a calendar quarter together with the three consecutive immediately
preceding calendar quarters) ending September 30, 1996, to $200 million for the
Rolling Period ending September 30, 2003 and thereafter, and (ii) the EBITDA
Adjustment Amount for such Rolling Period, which is equal to 80% of the
aggregate amount of the EBITDA of each bowling center acquired or constructed by
the Company or any of its Subsidiaries after May 1, 1996 and acquired or
constructed at least 15 months prior to such time of determination.
The Company must also maintain a Cash Interest Coverage Ratio (defined in
the Credit Agreement as the ratio of (a) consolidated EBITDA of the Company and
its Subsidiaries during a Rolling Period, as modified with respect to certain
bowling centers acquired or constructed after May 1, 1996 ("Modified
Consolidated EBITDA") to (b) cash interest payable on all Debt (as defined in
the Credit Agreement) of the Company and its Subsidiaries) at an amount ranging
from not less than 2.00 for the Rolling Period ending September 30, 1996, to not
less than 2.50 for the Rolling Period ending September 30, 2004 and thereafter.
The Company is required to maintain a Fixed Charge Coverage Ratio (defined in
the Credit Agreement as the ratio of (a) Modified Consolidated EBITDA less the
sum of (i) cash taxes paid plus (ii) Capital Expenditures made by the Company
and its Subsidiaries during such Rolling Period to (b) the sum of (i) cash
interest payable on all Debt plus (ii) principal amounts of all Debt payable by
the Company and its Subsidiaries during such Rolling Period) at an amount
ranging from not less than 1.05 for the Rolling Period ending September 30,
1996, to not less than 1.10 for the Rolling Period ending March 31, 2004 and
thereafter. A Senior Debt to EBITDA Ratio (defined in the Credit Agreement as
the ratio of Consolidated Debt (other than Subordinated Debt and Hedge
Agreements, as defined in the Credit Agreement) of the Company and its
Subsidiaries to Modified Consolidated EBITDA for that Rolling Period) must be
maintained at levels ranging from not more than 3.5 for the Rolling Period
ending September 30, 1996 to not more than 1.50 for the Rolling Period ending
September 30, 2003 and thereafter. A Total Debt to EBITDA Ratio (defined in the
Credit Agreement as the ratio of consolidated total Debt (other than Hedge
Agreements) of the Company and its Subsidiaries to Modified Consolidated EBITDA)
must be maintained at levels ranging from not more than 6.95 for the Rolling
Period ended September 30, 1996 to not more than 4.00 for the Rolling Period
ended September 30, 2003 and thereafter. In each case, the above-mentioned
ratios are calculated on a quarterly basis.
The chart on the following page summarizes the financial covenants
described in the preceding paragraph.
119
<PAGE> 127
<TABLE>
<CAPTION>
ROLLING 12-MONTH PERIOD ENDING:
---------------------------------------------------------------------------------------------------------------------
3/31/97 9/30/97 9/30/98 9/30/99 9/30/00 9/30/01 9/30/02 9/30/03 9/30/04
FINANCIAL THROUGH THROUGH THROUGH THROUGH THROUGH THROUGH THROUGH THROUGH AND
COVENANT 9/30/96 12/31/96 6/30/97 6/30/98 6/30/99 6/30/00 6/30/01 6/30/02 6/30/03 6/30/04 THEREAFTER
- ----------- ------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MODIFIED
CONSOLIDATED
EBITDA(1)
Not less
than
the
following
amounts
(in $
millions)
plus
the
then
applicable
EBITDA
Adjustment
Amount(2)... 140 145 150 150 155 165 175 185 195 200 200
CASH
INTEREST
COVERAGE
RATIO(3)
Not less
than:... 2.00 2.00 2.00 2.25 2.50 2.75 3.00 2.00 2.25 2.25 2.50
FIXED
CHARGE
COVERAGE
RATIO(4)
Not less
than:... 1.05 1.05 1.05 1.10 1.15 1.20 1.20 1.05 1.10 1.10 1.10
SENIOR DEBT
TO EBITDA
RATIO(5)
Not more
than:... 3.50 3.50 3.50 3.25 2.75 2.25 1.50 1.50 1.50 1.50 1.50
TOTAL DEBT
TO EBITDA
RATIO(6)
Not more
than:... 6.95 6.95 6.75 6.60 6.50 6.25 5.50 4.75 4.25 4.00 4.00
</TABLE>
- ---------------
(1) Defined as, for any Rolling Period, Consolidated EBITDA of the Company and
its Subsidiaries for such Rolling Period, provided, however, that at any
time of determination, (i) solely with respect to any constructed New
Center, Modified Consolidated EBITDA shall be calculated using Adjusted
EBITDA of such New Center and (ii) solely with respect to any New Center
acquired within the immediately preceding 15 months, Modified Consolidated
EBITDA shall be calculated using the actual EBITDA of such New Center for
such Rolling Period. Adjusted EBITDA means, at any time, in the case of a
New Center, the product of (a) the Average EBITDA Margin calculated as of
the end of the fiscal quarter immediately preceding the fiscal quarter in
which the acquisition or the construction of the New Center occurs and (b)
the Specified Revenues of such new center. "Average EBITDA Margin" means, at
any time of determination, an amount equal to (a) the sum of Consolidated
EBITDA of AMF Bowling Centers and its subsidiaries and Consolidated EBITDA
of AMF Worldwide and its subsidiaries divided by (b) the sum of consolidated
revenues of AMF Bowling Centers and its subsidiaries and consolidated
revenues of AMF Worldwide and its subsidiaries, in each case for the
12-month period reflected in the most recent financial statements.
"Specified Revenues" means at any time (a) in the case of any acquisition of
a New Center, aggregate revenues of such New Center for the immediately
preceding 12-month period, and (b) in the case of any construction of a New
Center, an amount equal to (i) at any time during its first 12 full months
of operations, the aggregate revenues of such New Center for each full month
it has operated times twelve divided by the number of full months such New
Center has operated and (ii) at any time thereafter, aggregate revenues of
such New Center for the immediately preceding 12-month period. "New Center"
means, at any time of determination, any bowling center acquired (whether by
means of a stock or asset acquisition) or constructed by the Company or any
of its Subsidiaries after the Closing Date and less than 15 months prior to
such date of determination, provided that the time of any such acquisition
shall be the date of consummation of such acquisition and the time of any
such construction shall be the date of the opening of such bowling center
for business.
(2) Defined as 80% of the aggregate amount of EBITDA of each bowling center
acquired or constructed by the Company or any of its subsidiaries after May
1, 1996 and acquired or constructed at least 15 months prior to such time of
determination.
(3) The ratio of Modified Consolidated EBITDA to cash interest payable on all
debt of the Company and its Subsidiaries on a consolidated basis.
(4) Ratio of (A) Modified Consolidated EBITDA during the Rolling Period less the
sum of (1) cash taxes paid plus(2) Capital Expenditures made, in each case,
by the Company and its Subsidiaries during such Rolling Period to (B) the
sum of (i) cash interest payable on all debt plus (ii) principal amounts of
all debt payable (other than the principal amount of debt to the extent it
has been refinanced), in each case, by the Company and its Subsidiaries
during such Rolling Period.
(5) Ratio of Consolidated debt (other than Subordinated debt and Hedge
Agreements) of the Company and its Subsidiaries to Modified Consolidated
EBITDA.
(6) Ratio of Consolidated total debt (other than Hedge Agreements) of the
Company and its Subsidiaries to Modified Consolidated EBITDA.
Affirmative covenants under the Senior Facilities oblige the Company and
its Subsidiaries to comply with all laws and regulations, as well as to pay all
taxes not being contested in good faith, to comply with environmental laws and
permits, to maintain insurance coverage, preserve its corporate existence,
120
<PAGE> 128
permit the examination of its records and books of account by the agents or any
of the Lenders, to prepare environmental reports upon the reasonable request of
the administrative agent (in the case of a Default under the Credit Agreement or
based on the belief that hazardous materials contamination not otherwise
disclosed may be present on any property described in the mortgages), to keep
proper books of record and account, to maintain its properties in good working
condition, to comply with the terms of leaseholds and to perform and observe all
terms and provisions of each Related Document (defined as the purchase
agreement, the subordinated debt documents, the tax agreement, the stockholders
agreement and the support agreement). The Company is also required to conduct,
and cause each of its Subsidiaries to conduct, all transactions permitted under
the loan documents with any affiliates on fair and reasonable terms, to maintain
cash concentration accounts with Citibank, N.A. into which substantially all
proceeds of collateral are to be paid, and to guarantee obligations and give
security (upon the request of Citicorp USA, Inc. (together with any successor
appointed pursuant to the Credit Agreement, the "Collateral Agent"), at such
time as any new direct or indirect Subsidiary of the Company is formed or
acquired by the Company and the Guarantors (each, a "Loan Party"), or when any
property is acquired by any Loan Party). The Company has entered into, and must
maintain until the aggregate outstanding amount under the Term Facilities is
less than $400 million, interest rate hedge agreements, covering a notional
amount of not less than 50% of the commitments under all the facilities and the
other floating rate debt of the Loan Parties.
Negative covenants under the Senior Facilities prohibit the Company and its
Subsidiaries from incurring any liens (except for those created under the loan
documents or otherwise permitted under the Credit Agreement, including those
securing the Company's obligations as borrower not to exceed $5 million at any
time outstanding). The Company and its Subsidiaries are also prohibited from
incurring any debt, other than (in the case of the Company) debt owed to its
Subsidiaries or in respect of hedge agreements not entered into for speculative
purposes or (in the case of any Subsidiary) debt owed to the Company or any of
its wholly owned Subsidiaries, to the extent permitted under the Credit
Agreement or (in the case of either the Company or its Subsidiaries) debt
secured by permitted liens, capitalized leases not to exceed $10 million at any
time outstanding, any debt existing at the time of the Acquisition and
subordinated debt under the Notes, among other things. The Company and its
Subsidiaries may not incur any obligations under leases having a term of one
year or more that would cause their direct and contingent liabilities for any 12
months to exceed (i) $25 million, (ii) the product of (x) $200,000 and (y) the
number of leased bowling centers acquired by the Company or any Subsidiaries
after May 1, 1996 and (iii) in each calendar year after 1996, an amount equal to
4% of the amount permitted by this provision in the immediately preceding
calendar year. The Company is also prohibited from entering into a merger of
which it is not the survivor or to sell, lease, or otherwise transfer its asset
other than in the ordinary course of business, except as otherwise permitted by
the Credit Agreement. Investments by the Company or its Subsidiaries in any
other Person is also limited by formulas set forth in the Credit Agreement. The
negative covenants also relate to the payment of dividends, prepayments of, and
amendments of the terms of, other debt (including the Notes and the Exchange
Notes), amendment of Related Documents, ownership change, negative pledges,
partnerships, speculative transactions, capital expenditures and payment
restrictions affecting subsidiaries. The Company is also subject to certain
financial and other reporting requirements.
EVENTS OF DEFAULT
The Senior Facilities contain customary Events of Default for
highly-leveraged financings. These include:
(a) the failure of the Company to pay the principal of, interest on,
or other amounts payable in connection with, any advance under the Senior
Facilities when they become due (in the case of principal) or within three
days after they become due;
(b) the incorrectness in any material respect of any representation or
warranty of a Loan Party under or in connection with any loan document;
121
<PAGE> 129
(c) the failure of any Loan Party to perform or observe any term,
covenant or agreement with regard to the use of proceeds covenant, certain
affirmative covenants, any negative covenants, the obligation of the
Company to give notice to the administrative agent and the lenders of any
default or any event likely to have a materially adverse effect and any
financial covenants under the Credit Agreement;
(d) the failure of any Loan Party to perform any other term, covenant
or agreement in any loan document, if such failure remains unremedied for
15 days after knowledge by an officer of any Loan Party or its Subsidiaries
or notice by the administrative agent or any Lender;
(e) the failure by any Loan Party or any material subsidiary to pay
any principal of, premium or interest on or any other amount payable in
respect of any debt outstanding in a principal amount of at least $25
million or any other event shall occur that would permit the acceleration
of any such debt or such debt is accelerated;
(f) the failure of any Loan Party or any material subsidiaries to
generally pay debts as they become due, or its seeking of liquidation,
reorganization, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization, or such a proceeding
instituted against it remains undismissed and unstayed for a period of 30
days;
(g) the rendering of any judgment or order for the payment of money in
excess of $25 million against any Loan Party or any material subsidiary and
either any enforcement proceedings shall have commenced or 15 days shall
have passed during which no stay shall be in place;
(h) the rendering of any non-monetary judgment or order against any
Loan Party or any of material subsidiary that could reasonably be likely to
have a material adverse effect, and there is a period of 15 days during
which no stay of such judgment or order is in effect;
(i) any provision of any loan document after delivery for any reason
ceases to be valid and binding on or enforceable against any Loan Party
which is a party to it;
(j) any provision relating to the subordination of the debt under the
Notes and any other debt of any Loan Party or any material subsidiary that
is subordinated to the obligations of such Loan Party to the Lenders or the
agents for any reason ceases to be valid and binding on or enforceable
against any Loan Party which is a party to it;
(k) any collateral document (excluding mortgages covering collateral
which, in the aggregate, is immaterial) after delivery ceases to create a
valid and perfected first priority lien on and security interest in the
collateral purported to be protected thereby;
(l) AMF Holdings Inc. ceases to own and control legally and
beneficially all of the outstanding shares of capital stock of AMF Group
Holdings Inc.;
(m) AMF Group Holdings Inc. ceases to own and control legally and
beneficially all of the outstanding shares of capital stock of the Company;
(n) a change of control (as defined in the Credit Agreement) occurs;
(o) an ERISA event occurs with respect to a single or multiple
employer plan, and the sum of insufficiency as to such Plan, aggregated
with the insufficiency of any other plans as to which an ERISA event
occurred, exceeds $25 million;
(p) any Loan Party or any ERISA affiliate is notified by the sponsor
of a multiemployer plan that it has incurred withdrawal liability with
respect to such plan, which, aggregated with other amounts required to be
paid to multiemployer plans by the Loan Parties and ERISA affiliates,
exceeds $25 million (or requires payments exceeding $7.5 million per
annum); or
122
<PAGE> 130
(q) any Loan Party or ERISA affiliate is notified by the sponsor of a
multiemployer plan that such plan is in reorganization or being terminated,
within the meaning of Title IV of ERISA, resulting in an increase of
aggregate annual contributions in specified amounts.
Upon the occurrence of an Event of Default, the administrative agent
may declare the commitment of the Lenders terminated and may declare the
Senior Facilities and all interest thereon and all other amounts payable
under the Credit Agreement and the other loan documents due, and may also
take certain actions in respect of any outstanding letters of credit. In
the event of an actual or deemed entry of an order of relief with respect
to any Loan Party or any of its subsidiaries under the federal bankruptcy
code, the commitment of the Lenders will automatically terminate, and the
Senior Facilities and all interest thereon will automatically become due
and payable.
Other Senior Debt
A mortgage having a principal amount of approximately $2.0 million as of
March 31, 1996, secured by a bowling center in Independence, Missouri, remains
outstanding as an obligation of AMF. The original obligation was for
approximately $1.7 million, with interest at a rate of 8.81% through October 1,
2013.
AMF is obligated to make future payments under a noncompetition agreement
that provides that such obligation will be secured by AMF's bowling center in
Hickory, North Carolina. The amount remaining to be paid as of January 1, 1996
was $0.4 million, and the final payment is due in 1999. This obligation is
reflected in other liabilities on the balance sheet of AMF Bowling Group.
123
<PAGE> 131
DESCRIPTION OF EXCHANGE NOTES
GENERAL
The Exchange Senior Subordinated Notes will be issued by the Company
pursuant to the same Indenture (the "Senior Subordinated Note Indenture") among
the Company, the Guarantors and IBJ Schroder Bank & Trust Company, as trustee
(the "Senior Subordinated Note Trustee"), under which the Senior Subordinated
Notes were issued. The Exchange Senior Subordinated Discount Notes will be
issued by the Company pursuant to an Indenture (the "Senior Subordinated
Discount Note Indenture" and, together with the Senior Subordinated Note
Indenture, the "Indentures") among the Company, the Guarantors and American Bank
National Association, as trustee (the "Senior Subordinated Discount Note
Trustee" and, together with the Senior Subordinated Note Trustee, the
"Trustees"), under which the Senior Subordinated Discount Notes were issued. The
terms of the Exchange Notes include those stated in the Indentures and those
made part of the Indentures by reference to the Trust Indenture Act of 1939 (the
"Trust Indenture Act"). The Exchange Notes are subject to all such terms, and
Holders of Exchange Notes are referred to the Indentures and the Trust Indenture
Act for a statement thereof. The discussion below summarizes the terms of the
Exchange Notes that the Company believes are material to an investor in the
Exchange Notes. This summary is qualified in its entirety by reference to the
full text of the agreements underlying this discussion, copies of which are
filed as exhibits to the Registration Statement of which this Prospectus is a
part, and are incorporated by reference herein. The definitions of certain terms
used in the following summary are set forth below under the caption "-- Certain
Definitions."
As of May 31, 1996, all of the Company's Subsidiaries were Restricted
Subsidiaries. However, under certain circumstances, the Company will be able to
designate current or future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indentures.
SUBORDINATION
The payment of principal of, premium, if any, and interest, including
Liquidated Damages, if any, on the Exchange Notes will be subordinated in right
of payment, in certain circumstances as set forth in the Indentures, to the
prior payment in full of all Senior Debt, whether outstanding on the date of the
Indentures or thereafter incurred.
The Indentures provide that, upon any distribution to creditors of the
Company in a liquidation or dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property, an assignment for the benefit of creditors or any
marshalling of the Company's assets and liabilities, the holders of Senior Debt
will be entitled to receive payment in full of all Obligations due in respect of
such Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the documents relating to the applicable
Senior Debt, whether or not the claim for such interest is allowed as a claim in
such proceeding) before the Holders of Exchange Notes will be entitled to
receive any payment with respect to the Exchange Notes, and until all
Obligations with respect to Senior Debt are paid in full, any distribution to
which the Holders of Exchange Notes would be entitled will be made to the
holders of Senior Debt (except that Holders of Exchange Notes may receive
payments made from the trust described under "-- Legal Defeasance and Covenant
Defeasance").
The Indentures also provide that the Company may not make any payment upon
or in respect of the Exchange Notes (except from the trust described under "--
Legal Defeasance and Covenant Defeasance") if (i) a default in the payment of
the principal of, premium, if any, or interest on Designated Senior Debt occurs
and is continuing, or any judicial proceeding is pending to determine whether
any such default has occurred, or (ii) any other default occurs and is
continuing with respect to Designated Senior Debt that permits, or would permit,
with the passage of time or the
124
<PAGE> 132
giving of notice or both, holders of the Designated Senior Debt as to which such
default relates to accelerate its maturity and the relevant Trustee receives a
notice of such default (a "Payment Blockage Notice") from the Company or the
holders of any Designated Senior Debt. Payments on the Exchange Notes may and
shall be resumed (a) in the case of a payment default, upon the date on which
such default is cured or waived or shall have ceased to exist, unless another
default, event of default or other event that would prohibit such payment shall
have occurred and be continuing, or all Obligations in respect of such
Designated Senior Debt shall have been discharged or paid in full and (b) in
case of a nonpayment default, the earlier of the date on which such nonpayment
default is cured or waived or 179 days after the date on which the applicable
Payment Blockage Notice is received by the relevant Trustee. No new period of
payment blockage may be commenced unless and until 360 days have elapsed since
the first day of effectiveness of the immediately prior Payment Blockage Notice.
No nonpayment default that existed or was continuing on the date of delivery of
any Payment Blockage Notice to the relevant Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice unless such default shall have
been subsequently cured or waived for a period of not less than 180 days.
The Indentures further require that the Company promptly notify holders of
Senior Debt if payment of the Exchange Notes is accelerated because of an Event
of Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of Exchange Notes may recover less
ratably than creditors of the Company who are holders of Senior Debt. See "Risk
Factors." On a pro forma basis, after giving effect to the Acquisition and the
related financing transactions, the principal amount of Senior Debt outstanding
at December 31, 1995 would have been approximately $517.0 million. The
Indentures limit, subject to certain financial tests, the amount of additional
Indebtedness, including Senior Debt, that the Company and its Restricted
Subsidiaries can incur. See "--Certain Covenants -- Incurrence of Indebtedness
and Issuance of Disqualified Stock."
"Designated Senior Debt" means (i) so long as the Senior Bank Debt is
outstanding, the Senior Bank Debt, (ii) the Senior Bank Hedging Obligations and
(iii) any other Senior Debt permitted under the Indentures the principal amount
of which is $25.0 million or more and that has been designated by the Company as
"Designated Senior Debt."
"Senior Bank Debt" means all Obligations in respect of the Indebtedness
outstanding under the New Bank Credit Agreement, together with any refunding,
refinancing or replacement (in whole or part) of such Indebtedness.
"Senior Bank Hedging Obligations" means all present and future Hedging
Obligations of the Company, whether existing now or in the future, that are
secured by the New Bank Credit Agreement or any of the collateral documents
executed from time to time in connection therewith.
"Senior Debt" means (i) the Senior Bank Debt, (ii) the Senior Bank Hedging
Obligations and (iii) any other Indebtedness permitted to be incurred by the
Company under the terms of the Indentures, unless the instrument under which
such Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Exchange Notes. Notwithstanding anything
to the contrary in the foregoing, Senior Debt does not include (1) any liability
for federal, state, local or other taxes owed or owing by the Company, (2) any
Indebtedness of the Company to any of its Restricted Subsidiaries or other
Affiliates (other than Goldman, Sachs & Co. and its Affiliates, including Pearl
Street L.P.), (3) any trade payables, (4) that portion of any Indebtedness that
is incurred in violation of the Indentures, (5) Indebtedness which, when
incurred and without respect to any election under Section 1111(b) of Title 11,
United States Code, is without recourse to the Company, (6) any Indebtedness,
Guarantee or obligation of the Company which is contractually subordinate in
right of payment to any other Indebtedness, Guarantee or obligation of the
Company; provided, however, that this clause (6) does not apply to the
subordination of liens or security interests covering particular properties or
types of assets securing Senior Debt, (7) Indebtedness evidenced by the Notes or
the Exchange Notes and (8) Capital Stock.
125
<PAGE> 133
The Exchange Notes will rank pari passu or senior in right of payment to
all Subordinated Indebtedness of the Company. The Exchange Senior Subordinated
Notes and the Exchange Senior Subordinated Discount Notes will rank pari passu
with each other. On the date this Prospectus, the only Subordinated Indebtedness
of the Company outstanding is the Notes.
SENIOR SUBORDINATED GUARANTEES
The Company's payment obligations under the Exchange Notes will be jointly
and severally guaranteed on a senior subordinated basis (the "Senior
Subordinated Guarantees") by Holdings and each of the Company's direct and
indirect domestic subsidiaries. The obligations of each Guarantor under its
Senior Subordinated Guarantee will be subordinated to its Guarantee of all
Obligations under the New Bank Credit Agreement (the "Senior Guarantees") and
will be limited so as not to constitute a fraudulent conveyance under applicable
law. See, however, "Risk Factors -- Fraudulent Conveyance."
The Indentures provide that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person) another
corporation, Person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustees, under the Notes and the Indentures; (ii) immediately after giving
effect to such transaction, no Default or Event of Default exists; and (iii)
except in the case of a merger of such Guarantor with or into the Company or
another Guarantor, the Company would be permitted by virtue of the Company's pro
forma Fixed Charge Coverage Ratio to incur, immediately after giving effect to
such transaction, at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the covenant described below under
the caption "-- Incurrence of Indebtedness and Issuance of Disqualified Stock."
The Indentures provide that in the event of a sale or other disposition of
all or substantially all of the assets of any Guarantor (other than Holdings),
by way of merger, consolidation or otherwise, or a sale or other disposition
(including, without limitation, by foreclosure) of all of the Capital Stock of
any Guarantor (other than Holdings), then such Guarantor (in the event of a sale
or other disposition, by way of such a merger, consolidation or otherwise
(including, without limitation, by foreclosure), of all of the capital stock of
such Guarantor) or the corporation acquiring the property (in the event of a
sale or other disposition of all or substantially all of the assets of such
Guarantor) will be automatically released and relieved of any obligations under
its Senior Subordinated Guarantee; provided that the Net Proceeds of such sale
or other disposition are applied in accordance with the applicable provisions of
the Indentures. See "-- Repurchase at the Option of Holders -- Asset Sales." The
Indentures also provide that upon the merger, consolidation, sale or other
disposition (including, without limitation, by foreclosure) of all or
substantially all of the assets of the Company, then Holdings will be
automatically released and relieved of any obligations under its Senior
Subordinated Guarantee; provided that such merger, consolidation or sale
complies with the applicable provisions of the Indentures. See "-- Certain
Covenants -- Merger, Consolidation, or Sale of All or Substantially All Assets."
Certain of the operations of the Company are conducted through Subsidiaries
that are not Guarantors and the Company is dependent upon the cash flow of those
Subsidiaries to meet its obligations, including its obligations under the
Exchange Notes. The Exchange Notes will be effectively subordinated to all
indebtedness and other liabilities (including trade payables and capital lease
obligations) of the Company's Subsidiaries that are not Guarantors. Such
indebtedness and liabilities aggregated approximately $7.8 million (excluding
inter-company payables to the Company) at March 31, 1996. Any right of the
Company to receive assets of any of such Subsidiaries upon the latter's
liquidation or reorganization (and the consequent right of the Holders of the
Exchange Notes to participate in those assets) will be effectively subordinated
to the claims of such
126
<PAGE> 134
Subsidiary's creditors, except to the extent that the Company or a Guarantor is
itself recognized as a creditor of such Subsidiary, in which case the claims of
the Company would still be subordinate to any security in the assets of such
Subsidiary and any indebtedness of such Subsidiary senior to that held by the
Company or a Guarantor. See "Risk Factors -- Holding Company Structure" and Note
5 to the Consolidated Balance Sheet of AMF Group Holdings Inc.
PRINCIPAL, MATURITY AND INTEREST OF THE EXCHANGE SENIOR SUBORDINATED NOTES
The Exchange Senior Subordinated Notes are general unsecured obligations of
the Company, limited in aggregate principal amount, together with any
outstanding Senior Subordinated Notes, to $250.0 million and will mature on
March 15, 2006. Interest on the Exchange Senior Subordinated Notes will accrue
at the rate of 10 7/8% per annum and will be payable in cash semi-annually in
arrears on March 15 and September 15, commencing on September 15, 1996, to
Holders of record on the immediately preceding March 1 and September 1. Interest
on the Exchange Senior Subordinated Notes will accrue from the most recent date
to which interest has been paid or, if no interest has been paid, from March 21,
1996, the date of original issuance of the Notes. Interest will be computed on
the basis of a 360-day year consisting of twelve 30-day months. Principal,
premium, if any, and interest, including Liquidated Damages, if any, on the
Exchange Senior Subordinated Notes will be payable at the office or agency of
the Company maintained for such purpose within the City and State of New York
or, at the option of the Company, payment of interest, including Liquidated
Damages, if any, may be made by check mailed to the Holders of the Exchange
Senior Subordinated Notes at their respective addresses set forth in the
register of Holders of Exchange Senior Subordinated Notes; provided, however,
that all payments with respect to Global Notes and definitive Notes the Holders
of which have given wire transfer instructions to the Company at least 10
Business Days prior to the applicable payment date will be required to be made
by wire transfer of immediately available funds to the accounts specified by the
Holders thereof. Until otherwise designated by the Company, the Company's office
or agency in New York will be the office of the Senior Subordinated Note Trustee
maintained for such purpose. The Exchange Senior Subordinated Notes will be
issued in minimum denominations of $1,000 and integral multiples thereof.
PRINCIPAL, MATURITY AND INTEREST OF THE EXCHANGE SENIOR SUBORDINATED DISCOUNT
NOTES
The Exchange Senior Subordinated Discount Notes will be general unsecured
obligations of the Company, limited in aggregate principal amount at maturity,
together with any outstanding Senior Subordinated Discount Notes, to $452.0
million and will mature on March 15, 2006. Until March 15, 2001 (the "Full
Accretion Date"), no interest (other than Liquidated Damages, if applicable)
will be paid in cash on the Exchange Senior Subordinated Discount Notes, but the
Accreted Value will accrete (representing the amortization of original issue
discount) between the Issuance Date and the Full Accretion Date, on a
semi-annual bond equivalent basis using a 360-day year comprised of twelve
30-day months such that the Accreted Value shall be equal to the full principal
amount at maturity of the Exchange Senior Subordinated Discount Notes on the
Full Accretion Date. Beginning on the Full Accretion Date, interest on the
Exchange Senior Subordinated Discount Notes will accrue at the rate of 12 1/4%
per annum and will be payable in cash semi-annually in arrears on March 15 and
September 15, commencing on September 15, 2001, to Holders of record on the
immediately preceding March 1 and September 1. Interest on the Exchange Senior
Subordinated Discount Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the Full Accretion
Date. Interest will be computed on the basis of a 360-day year consisting of
twelve 30-day months. Principal, premium, if any, and interest, including
Liquidated Damages, if any, on the Exchange Senior Subordinated Discount Notes
will be payable at the office or agency of the Company maintained for such
purpose within the City and State of New York or, at the option of the Company,
payment of interest, including Liquidated Damages, if any, may be made by check
mailed to the Holders of the Exchange Senior Subordinated Discount Notes at
their respective addresses set forth in the register of Holders of Senior
Subordinated Discount Notes; provided, however, that all payments with respect
to Global Notes and definitive Notes the Holders of which have given wire
127
<PAGE> 135
transfer instructions to the Company at least 10 Business Days prior to the
applicable payment date will be required to be made by wire transfer of
immediately available funds to the accounts specified by the Holders thereof.
Until otherwise designated by the Company, the Company's office or agency in New
York will be the office of the Exchange Senior Subordinated Discount Note
Trustee maintained for such purpose. The Exchange Senior Subordinated Discount
Notes will be issued in minimum denominations of $1,000 and integral multiples
thereof.
SETTLEMENT AND PAYMENT
Payments by the Company in respect of the Exchange Notes (including
principal, premium, if any, interest and Liquidated Damages, if any) will be
made in immediately available funds as provided above. The Exchange Notes are
expected to trade in the Depository's Same-Day Funds Settlement System, and any
secondary market trading activity in the Exchange Notes will, therefore, be
required by the Depository to be settled in immediately available funds. No
assurance can be given as to the effect, if any, of such settlement arrangements
on trading activity in the Exchange Notes.
Because of time-zone differences, the securities account of Euroclear or
Cedel Bank participants (each, a "Member Organization") purchasing an interest
in a Global Note from a Participant (as defined herein) that is not a Member
Organization will be credited during the securities settlement processing day
(which must be a business day for Euroclear or Cedel Bank, as the case may be)
immediately following the DTC settlement date. Transactions in interests in a
Global Note settled during any securities settlement processing day will be
reported to the relevant Member Organization on the same day. Cash received in
Euroclear or Cedel Bank as a result of sales of interests in a Global Note by or
through a Member Organization to a Participant that is not a Member Organization
will be received with value on the DTC settlement date, but will not be
available in the relevant Euroclear or Cedel Bank cash account until the
business day following settlement in DTC.
OPTIONAL REDEMPTION
EXCHANGE SENIOR SUBORDINATED NOTES. Except as described below, the
Exchange Senior Subordinated Notes are not redeemable at the Company's option
prior to March 15, 2001. From and after March 15, 2001, the Exchange Senior
Subordinated Notes will be subject to redemption at the option of the Company,
in whole or in part, upon not less than 30 nor more than 60 days' written
notice, at the Exchange Senior Subordinated Note Redemption Prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest, including Liquidated Damages, if any, thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on March
15 of each of the years indicated below:
<TABLE>
<CAPTION>
PERCENTAGE OF
PRINCIPAL
YEAR AMOUNT
--------------------------------------------------------------- -------------
<S> <C>
2001........................................................... 105.438%
2002........................................................... 103.625%
2003........................................................... 101.813%
2004 and thereafter............................................ 100.000%
</TABLE>
Prior to March 15, 1999, the Company may, at its option, on any one or more
occasions, redeem up to $100.0 million in aggregate principal amount of Exchange
Senior Subordinated Notes at a redemption price equal to 110.875% of the
principal amount thereof, plus accrued and unpaid interest, including Liquidated
Damages, if any, thereon to the redemption date, with the net proceeds of public
or private sales of common stock of, or contributions to the common equity
capital of, the Company; provided that at least $150.0 million in aggregate
principal amount of Exchange Senior Subordinated Notes remains outstanding
immediately after the occurrence of such
128
<PAGE> 136
redemption; and provided, further, that such redemption shall occur within 60
days of the date of the closing of the related sale of common stock of, or
capital contribution to, the Company.
EXCHANGE SENIOR SUBORDINATED DISCOUNT NOTES. Except as described below,
the Senior Subordinated Discount Notes are not redeemable at the Company's
option prior to March 15, 2001. From and after March 15, 2001, the Exchange
Senior Subordinated Discount Notes will be subject to redemption at the option
of the Company, in whole or in part, upon not less than 30 nor more than 60
days' written notice, at the Exchange Senior Subordinated Discount Note
Redemption Prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest (including Liquidated Damages, if any)
thereon to the applicable redemption date, if redeemed during the twelve-month
period beginning on March 15 of each of the years indicated below:
<TABLE>
<CAPTION>
PERCENTAGE OF
PRINCIPAL
YEAR AMOUNT
--------------------------------------------------------------- -------------
<S> <C>
2001........................................................... 106.125%
2002........................................................... 104.083%
2003........................................................... 102.042%
2004 and thereafter............................................ 100.000%
</TABLE>
Prior to March 15, 1999, the Company may, at its option, on any one or more
occasions, redeem the Exchange Senior Subordinated Discount Notes at a
redemption price equal to 112.250% of the Accreted Value thereof, plus accrued
and unpaid Liquidated Damages, if any, thereon to the redemption date, with the
net proceeds of public or private sales of common stock of, or contributions to
the common equity capital of, the Company; provided that at least $150.0 million
in aggregate Accreted Value of Exchange Senior Subordinated Discount Notes
remains outstanding immediately after the occurrence of such redemption; and
provided, further, that such redemption shall occur within 60 days of the date
of the closing of the related sale of common stock of, or capital contribution
to, the Company.
SELECTION AND NOTICE
If less than all of the Exchange Senior Subordinated Notes and/or Exchange
Senior Subordinated Discount Notes, as the case may be, are to be redeemed at
any time, selection of such Exchange Notes for redemption will be made by the
applicable Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which the Exchange Notes are listed, or, if the
Exchange Notes are not so listed, on a pro rata basis, by lot or by such method
as the applicable Trustee shall deem fair and appropriate; provided that,
subject to the limitations described above, the Company may, at its option,
elect to redeem either Exchange Senior Subordinated Notes, Exchange Senior
Subordinated Discount Notes, or both Exchange Senior Subordinated Notes and
Exchange Senior Subordinated Discount Notes; and provided further, that no
Exchange Notes of $1,000 or less shall be redeemed in part.
Notices of redemption shall be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each Holder of Exchange
Notes to be redeemed at such Holder's registered address. If any Exchange Note
is to be redeemed in part only, the notice of redemption that relates to such
Exchange Note shall state the portion of the principal amount thereof to be
redeemed. A new Exchange Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Exchange Note. On and after the redemption date,
unless the Company defaults in payment of the redemption price, interest ceases
to accrue on Exchange Notes or portions of them called for redemption.
129
<PAGE> 137
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control (as defined below), each Holder
of Exchange Notes will have the right to require the Company to repurchase all
or any part (equal to $1,000 or an integral multiple thereof) of such Holder's
Exchange Notes pursuant to the offer described below (the "Change of Control
Offer") at an offer price in cash (the "Change of Control Payment") equal to
101% of the aggregate principal amount thereof plus accrued and unpaid interest,
including Liquidated Damages, if any, thereon to the date of repurchase (or if
such Change of Control Offer is with respect to the Exchange Senior Subordinated
Discount Notes prior to the Full Accretion Date, 101% of the Accreted Value
thereof on the date of repurchase plus accrued and unpaid Liquidated Damages, if
any). Within 30 days following any Change of Control, the Company will mail a
notice to each Holder describing the transaction or transactions that constitute
the Change of Control and offering to repurchase Exchange Notes pursuant to the
procedures required by the Indentures and described in such notice. The Company
will comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Exchange
Notes as a result of a Change of Control.
The Indentures provide that, prior to complying with the provisions of this
covenant, but in any event within 30 days following a Change of Control, the
Company will either repay all outstanding amounts under the New Bank Credit
Agreement or offer to repay in full all outstanding amounts under the New Bank
Credit Agreement and repay the Obligations held by each lender who has accepted
such offer or obtain the requisite consents, if any, under the New Bank Credit
Agreement to permit the repurchase of the Exchange Notes required by this
covenant. There can be no assurance that the Company will have sufficient funds,
or will obtain the requisite consent of the Lenders under the New Bank Credit
Agreement, to satisfy the Change of Control repurchase requirement if such
requirement arises.
The definition of a Change of Control includes transfers of "substantially
all" of the assets of the Company and its Restricted Subsidiaries. There is no
definitive quantitative test under New York law (the governing law of the
Indentures) as to what portion of the assets would constitute "substantially
all." Accordingly, there may be transactions that result in uncertainty as to
whether the Company is obligated to make a Change of Control Offer.
On a date that is no earlier than 30 days nor later than 60 days from the
date that the Company mails notice of the Change of Control to the Holders (the
"Change of Control Payment Date"), the Company will, to the extent lawful, (1)
accept for payment all Exchange Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agents an
amount equal to the Change of Control Payment in respect of all Exchange Notes
or portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustees for cancellation the Exchange Notes so accepted together with an
Officers' Certificate stating the aggregate principal amount of Exchange Notes
or portions thereof being purchased by the Company. The Paying Agents will
promptly mail to each Holder of Exchange Notes so tendered the Change of Control
Payment for such Exchange Notes, and the Trustees will promptly authenticate and
mail (or cause to be transferred by book entry) to each Holder a new Exchange
Note equal in principal amount to any unpurchased portion of the Exchange Notes
surrendered, if any; provided that each such new Exchange Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indentures are applicable. Except as
described above with respect to a Change of Control, the Indentures do not
contain provisions that permit the Holders of the Exchange Notes to require that
the Company repurchase or redeem the Exchange Notes in the event of a takeover,
130
<PAGE> 138
recapitalization or similar transaction. Such a transaction could occur, and
could have an effect on the Exchange Notes, without constituting a Change of
Control.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indentures applicable to a Change of Control Offer made by the Company
and purchases all Exchange Notes validly tendered and not withdrawn under such
Change of Control Offer.
The existence of a Holder's right to require the Company to repurchase such
Holder's Exchange Notes upon the occurrence of a Change of Control may deter a
third party from seeking to acquire the Company in a transaction that would
constitute a Change of Control.
ASSET SALES
The Indentures provide that the Company will not, and will not permit any
of its Restricted Subsidiaries to, cause, make or suffer to exist an Asset Sale
unless (i) the Company (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustees) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) except in the case of
a Permitted Asset Swap, at least 80% of the consideration therefor received by
the Company or such Restricted Subsidiary is in the form of cash or Cash
Equivalents; provided that the amount of (x) any liabilities (as shown on the
Company's or such Restricted Subsidiary's most recent balance sheet) of the
Company or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any guarantee
thereof) that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases the Company or such Restricted
Subsidiary from further liability and (y) any notes or other obligations
received by the Company or any such Restricted Subsidiary from such transferee
that are immediately converted by the Company or such Restricted Subsidiary into
cash (to the extent of the cash received), shall be deemed to be cash for
purposes of this provision.
Within 365 days after the Company's or any Restricted Subsidiary's receipt
of the Net Proceeds of any Asset Sale, the Company or such Restricted Subsidiary
may apply the Net Proceeds from such Asset Sale, at its option, (i) to
permanently reduce Obligations under the New Bank Credit Agreement (and to
correspondingly reduce commitments with respect thereto) or other Senior Debt or
Pari Passu Indebtedness, (ii) to secure Letter of Credit Obligations to the
extent related letters of credit have not been drawn upon or returned undrawn,
(iii) to an investment in any one or more businesses, capital expenditures or
acquisitions of other assets, in each case, used or useful in a Principal
Business, (iv) to an investment in properties or assets that replace the
properties and assets that are the subject of such Asset Sale and/or (v) in the
case of a sale of a bowling center or bowling centers, deem such Net Proceeds to
have been applied pursuant to the immediately preceding clause (iv) to the
extent of any expenditures made to acquire or construct one or more bowling
centers in the general vicinity of the bowling center(s) sold within 365 days
preceding the date of the Asset Sale. Pending the final application of any such
Net Proceeds, the Company or such Restricted Subsidiary may temporarily reduce
Indebtedness under a revolving credit facility, if any, or otherwise invest such
Net Proceeds in Cash Equivalents. The Indentures will provide that any Net
Proceeds from the Asset Sale that are not invested as provided and within the
time period set forth in the first sentence of this paragraph will be deemed to
constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $25.0 million, the Company will be required to make an offer to all
Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal
amount of Notes, that is an integral multiple of $1,000, that may be purchased
out of the Excess Proceeds at an offer price in cash in an amount equal to 100%
of the aggregate principal amount thereof, plus accrued and unpaid interest,
including Liquidated Damages, if any (or, if such Asset Sale Offer is with
respect to the Senior Subordinated Discount Notes prior to the Full Accretion
Date, 100% of the
131
<PAGE> 139
Accreted Value thereof on the date of purchase, plus accrued and unpaid
Liquidated Damages, if any), to the date fixed for the closing of such offer, in
accordance with the procedures set forth in the Indentures. The Company will
commence an Asset Sale Offer with respect to Excess Proceeds within ten Business
Days after the date that the aggregate amount of Excess Proceeds exceeds $25.0
million by mailing the notice required pursuant to the terms of the Indentures,
with a copy to the Trustees. To the extent that the aggregate amount of Exchange
Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds,
the Company may use any remaining Excess Proceeds (x) to offer to redeem
Subordinated Indebtedness (a "Subordinated Asset Sale Offer") in accordance with
the provisions of the indenture or other agreement governing such Subordinated
Indebtedness or (y) for any purpose not prohibited by the Indentures. If the
aggregate principal amount of Exchange Notes surrendered by Holders thereof
exceeds the amount of Excess Proceeds, the Trustees shall select the Notes to be
purchased on a pro rata basis, based upon the Accreted Value of Exchange Senior
Subordinated Discount Notes and the principal amount of Exchange Senior
Subordinated Notes tendered. Upon completion of any such Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Exchange Notes as a result of an Asset Sale.
The New Bank Credit Agreement prohibits the Company from purchasing any
Exchange Notes, and also provides that certain change of control events with
respect to the Company will constitute a default thereunder. Any future credit
agreements or other agreements relating to Senior Debt to which the Company
becomes a party may contain similar restrictions and provisions. In the event a
Change of Control occurs or an Asset Sale Offer is required to be made at a time
when the Company is prohibited from purchasing Exchange Notes, the Company could
seek the consent of its lenders to the purchase of Exchange Notes or could
attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing Exchange Notes. In such case, the
Company's failure to purchase tendered Exchange Notes would constitute an Event
of Default under the Indentures. In such circumstances, the subordination
provisions in the Indentures would likely restrict payments to the Holders of
Exchange Notes.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indentures provide that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any other payment or distribution on account of the
Company's or any of its Restricted Subsidiaries' Equity Interests (other than
dividends or distributions payable in Equity Interests (other than Disqualified
Stock) of the Company or dividends or distributions payable to the Company or
any Restricted Subsidiary of the Company); (ii) purchase, redeem, defease or
otherwise acquire or retire for value any Equity Interests of the Company or any
direct or indirect parent of the Company; (iii) make any principal payment on,
or purchase, redeem, defease or otherwise acquire or retire for value any
Subordinated Indebtedness, except at final maturity; or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i) through
(iv) above being collectively referred to as "Restricted Payments"), unless, at
the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and
immediately after giving pro forma effect thereto as if such Restricted
Payment had been made at the beginning of the applicable four-quarter
period, have been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in
the first paragraph
132
<PAGE> 140
of the covenant described below under the caption "-- Incurrence of
Indebtedness and Issuance of Disqualified Stock"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Indentures (including Restricted Payments permitted
by clause (i) of the next succeeding paragraph, but excluding all other
Restricted Payments permitted by the next succeeding paragraph), is less
than the sum of (i) 50% of the Consolidated Net Income of the Company for
the period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the date of the Indentures to the end of
the Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted Payment
(or, if such Consolidated Net Income for such period is a deficit, less
100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds
and the fair market value, as determined in good faith by the Board of
Directors, of marketable securities received by the Company from the issue
or sale since the date of the Indentures of Equity Interests (including
Retired Capital Stock (as defined below)) of the Company (except in
connection with the Acquisition) or of debt securities of the Company that
have been converted into such Equity Interests (other than Refunding
Capital Stock (as defined below) or Equity Interests or convertible debt
securities of the Company sold to a Restricted Subsidiary of the Company
and other than Disqualified Stock or debt securities that have been
converted into Disqualified Stock), plus (iii) 100% of the aggregate
amounts contributed to the common equity capital of the Company since the
date of the Indentures (except amounts contributed to finance the
Acquisition), plus (iv) 100% of the aggregate amounts received in cash and
the fair market value of marketable securities (other than Restricted
Investments) received from (x) the sale or other disposition of Restricted
Investments made by the Company and its Restricted Subsidiaries since the
date of the Indentures or (y) the sale of the stock of an Unrestricted
Subsidiary or the sale of all or substantially all of the assets of an
Unrestricted Subsidiary to the extent that a liquidating dividend is paid
to the Company or any Subsidiary from the proceeds of such sale, plus (v)
100% of any dividends received by the Company or a Wholly Owned Restricted
Subsidiary of the Company after the date of the Indentures from an
Unrestricted Subsidiary of the Company, plus (vi) $10.0 million.
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration such payment would
have complied with the provisions of the Indentures;
(ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company or any Restricted Subsidiary (the
"Retired Capital Stock") or any Subordinated Indebtedness, in each case,
in exchange for, or out of the proceeds of, the substantially concurrent
sale (other than to a Restricted Subsidiary of the Company) of Equity
Interests of the Company (other than any Disqualified Stock) (the
"Refunding Capital Stock"); provided that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clause (c)(ii) of
the immediately preceding paragraph;
(iii) the defeasance, redemption or repurchase of Subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness;
(iv) the redemption, repurchase or other acquisition or retirement
for value of any Equity Interests of the Company or any Restricted
Subsidiary of the Company held by any member of the Company's (or any of
its Restricted Subsidiaries') management pursuant to any management
equity subscription agreement or stock option or similar agreement;
provided that the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests shall not exceed the sum
of $5.0 million in any twelve-month period plus the aggregate cash
proceeds received by the Company during such twelve-month
133
<PAGE> 141
period from any issuance of Equity Interests by the Company to members
of management of the Company and its Restricted Subsidiaries; provided
that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement or other acquisition shall be
excluded from clause (c)(ii) of the immediately preceding paragraph;
(v) Investments in Unrestricted Subsidiaries or in Joint Ventures
having an aggregate fair market value, taken together with all other
Investments made pursuant to this clause (v) that are at that time
outstanding, not to exceed 5% of Total Assets at the time of such
Investment (with the fair market value of each Investment being measured
at the time made and without giving effect to subsequent changes in
value);
(vi) repurchases of Equity Interests deemed to occur upon exercise
or conversion of stock options, warrants, convertible securities or
other similar Equity Interests if such Equity Interests represent a
portion of the exercise or conversion price of such options, warrants,
convertible securities or other similar Equity Interests;
(vii) the making and consummation of a Subordinated Asset Sale
Offer in accordance with the provisions described under the caption
entitled "-- Repurchase at the Option of Holders -- Asset Sales"; and
(viii) any dividend or distribution payable on or in respect of any
class of Equity Interests issued by a Restricted Subsidiary of the
Company; provided that such dividend or distribution is paid on a pro
rata basis to all of the holders of such Equity Interests in accordance
with their respective holdings of such Equity Interests;
provided, further, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (iv) or (v) above, no Default or
Event of Default shall have occurred and be continuing or would occur as a
consequence thereof.
As of May 31, 1996, all of the Company's Subsidiaries are Restricted
Subsidiaries. The Company will not permit any Unrestricted Subsidiary to become
a Restricted Subsidiary except pursuant to the last sentence of the definition
of "Unrestricted Subsidiary." For purposes of designating any Restricted
Subsidiary as an Unrestricted Subsidiary, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid) in the
Subsidiary so designated will be deemed to be Restricted Payments in an amount
equal to the book value of such Investment at the time of such designation. Such
designation will only be permitted if a Restricted Payment in such amount would
be permitted at such time and if such Subsidiary otherwise meets the definition
of an Unrestricted Subsidiary. Unrestricted Subsidiaries will not be subject to
any of the restrictive covenants set forth in the Indentures.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustees) on the date of the
Restricted Payment of the asset(s) proposed to be transferred by the Company or
such Restricted Subsidiary, as the case may be, pursuant to the Restricted
Payment. Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustees an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed, which
calculations may be based upon the Company's latest available financial
statements.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK
The Indentures provide that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guaranty or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur" and correlatively, an
"incurrence" of) any Indebtedness (including Acquired Debt) and that the Company
will not issue any Disqualified Stock; provided, however, that the Company may
incur Indebtedness (including
134
<PAGE> 142
Acquired Debt) or issue shares of Disqualified Stock if the Fixed Charge
Coverage Ratio for the Company for the most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date of such incurrence would have been at least 2.00 to 1.0 if
such date is on or prior to September 15, 1997, 2.25 to 1.0 if such date is
after September 15, 1997 and on or prior to March 15, 1999 and 2.50 to 1.0
thereafter, in each case, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred or the Disqualified Stock had been issued, as the case may be,
and the application of the proceeds therefrom had occurred at the beginning of
such four-quarter period.
The foregoing provisions will not apply to:
(a) the incurrence by the Company (and the Guarantee thereof by the
Guarantors) of (i) Indebtedness under the New Bank Credit Agreement and the
issuance of letters of credit thereunder (with letters of credit being
deemed to have a principal amount equal to the aggregate maximum amount
then available to be drawn thereunder, assuming compliance with all
conditions for drawing) up to an aggregate principal amount of $715.0
million outstanding at any one time, less principal repayments of term
loans and permanent commitment reductions with respect to revolving loans
and letters of credit under the New Bank Credit Agreement made after the
date of the Indentures and (ii) additional Indebtedness under the New Bank
Credit Agreement and the issuance of additional letters of credit
thereunder (with letters of credit being deemed to have a principal amount
equal to the aggregate maximum amount then available to be drawn
thereunder, assuming compliance with all conditions for drawing) up to an
aggregate principal amount of $75.0 million outstanding at any one time
(reduced by the aggregate principal amount (or accreted value, as
applicable) of Indebtedness outstanding pursuant to clause (l) below);
(b) the incurrence by the Company or any of its Restricted
Subsidiaries of any Existing Indebtedness;
(c) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by the Exchange Notes;
(d) Indebtedness (including Capital Lease Obligations) incurred by the
Company or any of its Restricted Subsidiaries to finance the purchase,
lease or improvement of property (real or personal), assets or equipment
(whether through the direct purchase of assets or the Capital Stock of any
Person owning such assets), in an aggregate principal amount not to exceed
5% of Total Assets at any time outstanding;
(e) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including, without
limitation, letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims;
(f) intercompany Indebtedness between or among the Company and any of
its Restricted Subsidiaries and Guarantees by a Restricted Subsidiary of
the Company of Indebtedness of any other Restricted Subsidiary of the
Company or the Company;
(g) Hedging Obligations that are incurred (1) for the purpose of
fixing or hedging interest rate risk with respect to any Indebtedness that
is permitted by the terms of the Indentures to be outstanding or (2) for
the purpose of fixing or hedging currency exchange rate risk with respect
to any currency exchanges;
(h) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
in the ordinary course of business;
(i) the incurrence by the Company or any of the Guarantors of
Indebtedness in connection with the acquisition of assets or a new
Restricted Subsidiary; provided that such Indebtedness
135
<PAGE> 143
was incurred by the prior owner of such assets or such new Restricted
Subsidiary prior to such acquisition by the Company or such Restricted
Subsidiary and was not incurred in connection with, or in contemplation of,
such acquisition; and provided further that the Fixed Charge Coverage Ratio
for the Company for the most recently ended four full fiscal quarters for
which internal financial statements are available immediately preceding the
date of such transaction would have been at least 2.00 to 1.0 if such date
is on or prior to September 15, 1997, 2.25 to 1.0 if such date is after
September 15, 1997 and on or prior to March 15, 1999 and 2.50 to 1.0
thereafter, in each case, determined on a pro forma basis, as if such
transaction had occurred at the beginning of such four-quarter period and
such Indebtedness or Disqualified Stock and the Consolidated Cash Flow of
such merged or acquired Person had been included for all purposes in such
pro forma calculation;
(j) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace,
defease or refund, Indebtedness that was permitted by the Indentures to be
incurred;
(k) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company; and
(l) the incurrence by the Company of additional Indebtedness not
otherwise permitted hereunder in an amount under this clause (l) not to
exceed $75.0 million in aggregate principal amount (or accreted value, as
applicable) outstanding at any one time (reduced by the aggregate principal
amount of Indebtedness outstanding pursuant to clause (a)(ii) above).
NO SENIOR SUBORDINATED DEBT
The Indentures provide that (i) the Company will not directly or indirectly
incur, create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinate or junior in right of payment to any Senior
Debt and senior in any respect in right of payment to the Exchange Notes and
(ii) no Guarantor will directly or indirectly incur, create, issue, assume,
guarantee or otherwise become liable for any Indebtedness that is subordinate or
junior in right of payment to the Senior Guarantees and senior in any respect in
right of payment to the Senior Subordinated Guarantees.
Except for the limitations on the incurrence of debt described above under
the caption "Incurrence of Indebtedness and Issuance of Disqualified Stock," the
Indentures do not limit the amount of debt that is pari passu with the Exchange
Notes.
LIENS
The Indentures provide that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien that secures obligations under any Pari Passu
Indebtedness or Subordinated Indebtedness on any asset or property now owned or
hereafter acquired by the Company or any of its Restricted Subsidiaries, or on
any income or profits therefrom, or assign or convey any right to receive income
therefrom to secure any Pari Passu Indebtedness or Subordinated Indebtedness,
unless the Exchange Notes are equally and ratably secured with the obligations
so secured or until such time as such obligations are no longer secured by a
Lien; provided, that in any case involving a Lien securing Subordinated
Indebtedness, such Lien is subordinated to the Lien securing the Exchange Notes
to the same extent that such Subordinated Indebtedness is subordinated to the
Exchange Notes.
136
<PAGE> 144
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indentures provide that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries or (iii) sell, lease or transfer any of
its properties or assets to the Company or any of its Restricted Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of (a)
Existing Indebtedness as in effect on the date of the Indentures, (b) the New
Bank Credit Agreement and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings thereof,
provided that the New Bank Credit Agreement and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacement or
refinancings thereof are no more restrictive taken as a whole with respect to
such dividend and other payment restrictions than those terms described in an
exhibit to the Indentures, (c) the Indentures and the Exchange Notes, (d)
applicable law, (e) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such Indebtedness
was incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indentures to be incurred, (f) by
reason of customary non-assignment or net worth provisions in leases and other
agreements entered into in the ordinary course of business and consistent with
past practices, (g) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the nature described in
clause (iii) above on the property so acquired, (h) Permitted Refinancing
Indebtedness, provided that the restrictions contained in the agreements
governing such Permitted Refinancing Indebtedness are no more restrictive than
those contained in the agreements governing the Indebtedness being refinanced,
(i) other Indebtedness permitted to be incurred subsequent to the date of the
Indentures pursuant to the provisions of the covenant described under
"-- Incurrence of Indebtedness and Issuance of Disqualified Stock"; provided
that any such restrictions are customary with respect to the type of
Indebtedness being incurred (under the relevant circumstances), (j) any Mortgage
Financing or Mortgage Refinancing that imposes restrictions on the real property
securing such Indebtedness, (k) any Permitted Investment, (l) contracts for the
sale of assets, including, without limitation customary restrictions with
respect to a Restricted Subsidiary of the Company pursuant to an agreement that
has been entered into for the sale or disposition of all or substantially all of
the Capital Stock or assets of such Restricted Subsidiary or (m) customary
provisions in joint venture agreements and other similar agreements.
MERGER, CONSOLIDATION, OR SALE OF ALL OR SUBSTANTIALLY ALL ASSETS
The Indentures provide that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Exchange Notes, the Indentures and the
137
<PAGE> 145
Pledge and Escrow Agreements pursuant to supplemental indentures in form
reasonably satisfactory to the applicable Trustee; (iii) immediately after such
transaction no Default or Event of Default exists; and (iv) except in the case
of a merger of the Company with or into a Wholly Owned Restricted Subsidiary of
the Company, the Company or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made will, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant described above under the caption "-- Incurrence
of Indebtedness and Issuance of Disqualified Stock." Notwithstanding the
foregoing clauses (iii) and (iv), (a) any Restricted Subsidiary may consolidate
with, merge into or transfer all or part of its properties and assets to the
Company and (b) the Company may merge with an Affiliate incorporated solely for
the purpose of reincorporating the Company in another jurisdiction.
TRANSACTIONS WITH AFFILIATES
The Indentures provide that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such
Affiliate Transaction is on terms that are no less favorable to the Company or
the relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person and (ii) the Company delivers to the Trustees (a) with respect
to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $5.0 million, a resolution of the
Board of Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above and that such Affiliate
Transaction has been approved by a majority of the disinterested members of the
Board of Directors (if there are any disinterested members of the Board of
Directors) and (b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, or with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $5.0
million as to which there are no disinterested members of the Board of
Directors, an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing.
The foregoing provisions will not apply to the following: (i) transactions
between or among the Company and/or any of its Restricted Subsidiaries; (ii)
Restricted Payments or Permitted Investments permitted by the provisions of the
Indentures described above under "-- Restricted Payments"; (iii) the payment of
all fees, expenses and other amounts relating to the Acquisition; (iv) the
payment of reasonable and customary regular fees to, and indemnity provided on
behalf of, officers, directors, employees or consultants of the Company or any
Restricted Subsidiary of the Company; (v) the transfer or provision of
inventory, goods or services by the Company or any Restricted Subsidiary of the
Company in the ordinary course of business to any Restricted Subsidiary of the
Company on terms that are customary in the industry or consistent with past
practices; (vi) the execution of, or the performance by the Company or any of
its Restricted Subsidiaries of its obligations under the terms of, any financial
advisory, financing, underwriting or placement agreement or any other agreement
relating to investment banking or financing activities with Goldman Sachs or any
of its Affiliates including, without limitation, in connection with acquisitions
or divestitures, in each case to the extent that such agreement was approved by
a majority of the disinterested members of the Board of Directors in good faith;
(vii) payments, advances or loans to employees that are approved by a majority
of the disinterested members of the Board of Directors of the Company in good
faith; (viii) the performance of any agreement as in
138
<PAGE> 146
effect as of the date of the Indentures or any amendment thereto or any
transaction contemplated thereby (including pursuant to any amendment thereto so
long as any such amendment is not disadvantageous to the Holders of the Exchange
Notes in any material respect); (ix) the existence of, or the performance by the
Company or any of its Restricted Subsidiaries of its obligations under the terms
of, any stockholders agreement (including any registration rights agreement or
purchase agreement related thereto) to which it is a party as of the date of the
Indentures and any similar agreements which it may enter into thereafter,
provided, however, that the existence of, or the performance by the Company or
any of its Restricted Subsidiaries of obligations under, any future amendment to
any such existing agreement or under any similar agreement entered into after
the date of the Indentures shall only be permitted by this clause (ix) to the
extent that the terms of any such amendment or new agreement are not otherwise
disadvantageous to the Holders of the Exchange Notes in any material respect;
(x) transactions permitted by, and complying with, the provisions of the
covenant described under "-- Merger, Consolidation, or Sale of All or
Substantially All Assets;" and (xi) transactions with suppliers or other
purchases or sales of goods or services, in each case in the ordinary course of
business (including, without limitation, pursuant to joint venture agreements)
and otherwise in compliance with the terms of the Indentures which are fair to
the Company or its Restricted Subsidiaries, in the reasonable determination of a
majority of the disinterested members of the Board of Directors of the Company
or an executive officer thereof, or are on terms at least as favorable as might
reasonably have been obtained at such time from an unaffiliated party.
ISSUANCES OF GUARANTEES OF INDEBTEDNESS
The Indentures provide that the Company will not permit any Restricted
Subsidiary, directly or indirectly, to Guarantee or pledge any assets to secure
the payment of any other Indebtedness unless such Restricted Subsidiary either
(i) is a Guarantor, or (ii) simultaneously executes and delivers supplemental
indentures to the Indentures providing for the Guarantee of the payment of all
Obligations with respect to the Exchange Notes by such Restricted Subsidiary,
which Guarantee shall be senior to such Restricted Subsidiary's Guarantee of or
pledge to secure any other Indebtedness that constitutes Subordinated
Indebtedness and subordinated to such Restricted Subsidiary's Guarantee of or
pledge to secure any other Indebtedness that constitutes Senior Debt to the same
extent as the Notes are subordinated to Senior Debt. In addition, the Indentures
provide that (x) if the Company shall, after the date of the Indentures, create
or acquire any new First-Tier Subsidiary, then such newly created or acquired
First-Tier Subsidiary shall execute a Senior Subordinated Guarantee and deliver
an opinion of counsel in accordance with the terms of the Indentures, (y) if any
First-Tier Subsidiary shall, after the date of the Indentures, create or acquire
any new Second-Tier Subsidiary, then such newly created or acquired Second-Tier
Subsidiary shall execute a Senior Subordinated Guarantee and deliver an opinion
of counsel in accordance with the terms of the Indentures and (z) if the Company
shall (whether before or after the date of the Indentures) create or acquire any
new Subsidiary (other than a First-Tier Subsidiary or Second-Tier Subsidiary)
that becomes a guarantor under the New Bank Credit Agreement, then such newly
created or acquired Subsidiary shall execute a Senior Subordinated Guarantee and
deliver an opinion of counsel in accordance with the terms of the Indentures.
Notwithstanding the foregoing, any such Senior Subordinated Guarantee shall
provide by its terms that it shall be automatically and unconditionally released
and discharged upon certain mergers, consolidations, sales and other
dispositions (including, without limitation, by foreclosure) pursuant to the
terms of the Indentures. See "-- Senior Subordinated Guarantees." The form of
such Senior Subordinated Guarantee is attached as an exhibit to each of the
Indentures.
ACTIVITIES OF HOLDINGS
In addition to the restrictions set forth above, the Indentures provide
that Holdings may not (i) hold any assets or incur any Indebtedness or (ii)
engage in any business activities; except that Holdings may (x) hold all, but
not less than all, of the Capital Stock of the Company and (y) be a
139
<PAGE> 147
co-obligor and/or guarantor with respect to Indebtedness if the Company is a
primary obligor or guarantor of such Indebtedness and the net proceeds of such
Indebtedness are lent to the Company or one or more of its Restricted
Subsidiaries.
REPORTS
The Indentures provide that, whether or not required by the rules and
regulations of the Commission, so long as any Exchange Notes are outstanding,
the Company will, commencing after consummation of the Acquisition, furnish to
the Holders of Exchange Notes (i) all quarterly and annual financial information
that would be required to be contained in a filing with the Commission on Forms
10-Q and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants and (ii) all current reports
that would be required to be filed with the Commission on Form 8-K if the
Company were required to file such reports. In addition, whether or not required
by the rules and regulations of the Commission, following the consummation of
the Acquisition, the Company will file a copy of all such information and
reports with the Commission for public availability (unless the Commission will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request. In addition, the Company and
the Guarantors have agreed that, for so long as any Exchange Notes remain
outstanding, they will furnish to the Holders of the Exchange Notes and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indentures provide that each of the following constitutes an Event of
Default with respect to the Exchange Senior Subordinated Notes or the Exchange
Senior Subordinated Discount Notes, as the case may be: (i) default for 30 days
in the payment when due of interest, including Liquidated Damages, if any, on
the Exchange Notes (whether or not prohibited by the subordination provisions of
the Indentures); (ii) default in payment when due of the principal of or
premium, if any, on the Notes (whether or not prohibited by the subordination
provisions of the Indentures); (iii) failure by the Company for 30 days after
notice from either Trustee or the Holders of at least 25% in principal amount of
the then outstanding Exchange Senior Subordinated Notes or Exchange Senior
Subordinated Discount Notes, as the case may be, to comply with the provisions
described under "-- Escrow of Proceeds; Special Mandatory Redemption,"
"-- Change of Control," "-- Restricted Payments," "-- Incurrence of Indebtedness
and Issuance of Disqualified Stock" or "-- Merger, Consolidation, or Sale of All
or Substantially All Assets;" (iv) failure by the Company for 60 days after
notice from either Trustee or the Holders of at least 25% in principal amount of
the then outstanding Exchange Senior Subordinated Notes or Exchange Senior
Subordinated Discount Notes, as the case may be, to comply with any of its other
agreements in the Indentures or the Exchange Notes; (v) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of the
Indentures, which default results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
the maturity of which has been so accelerated, aggregates $25.0 million or more;
(vi) failure by the Company or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $25.0 million, which judgments are not paid,
discharged or stayed for a period of 60 days; (vii) certain events of bankruptcy
or insolvency with respect to the Company or any of its Restricted Subsidiaries;
(viii) failure by the Company to comply with the provisions of the Pledge and
Escrow Agreements; and (ix) except as permitted by the Indentures, any Senior
Subordinated Guarantee shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force
140
<PAGE> 148
and effect (except by its terms) or any Guarantor, or any Person acting on
behalf of any Guarantor, shall deny or disaffirm its obligations under its
Senior Subordinated Guarantee.
If any Event of Default occurs and is continuing, any Trustee or the
Holders of at least 25% in principal amount of the then outstanding Exchange
Senior Subordinated Notes or Exchange Senior Subordinated Discount Notes, as the
case may be, may declare all the Exchange Senior Subordinated Notes or Exchange
Senior Subordinated Discount Notes, as the case may be, to be due and payable
immediately. Upon such declaration the principal, interest, premium, if any, and
Liquidated Damages, if any, shall be due and payable immediately; provided,
however, that so long as Senior Debt or any commitment therefor is outstanding
under the New Bank Credit Agreement, any such notice or declaration shall not be
effective until the earlier of (a) five Business Days after such notice is
delivered to the Representative for the Senior Bank Debt or (b) the acceleration
of any Indebtedness under the New Bank Credit Agreement. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Restricted Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Restricted Subsidiary, all outstanding
Exchange Notes will become due and payable without further action or notice.
Holders of the Exchange Notes may not enforce the Indentures or the Exchange
Notes except as provided in the Indentures. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Exchange Notes
may direct the applicable Trustee in its exercise of any trust or power. Either
Trustee may withhold from Holders of the Exchange Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest, including Liquidated Damages, if any) if
it determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Exchange Notes pursuant to
the optional redemption provisions of the applicable Indenture, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by law upon the acceleration of the Exchange Notes. If an Event of
Default occurs prior to March 15, 2001 by reason of any willful action (or
inaction) taken (or not taken) by or on behalf of the Company with the intention
of avoiding the prohibition on redemption of the Exchange Notes prior to March
15, 2001, then the premium specified in the applicable Indenture shall also
become immediately due and payable to the extent permitted by law upon the
acceleration of the Exchange Notes.
The Holders of a majority in aggregate principal amount of the Exchange
Senior Subordinated Notes or the Exchange Senior Subordinated Discount Notes, as
the case may be, then outstanding by notice to the applicable Trustee may on
behalf of the Holders of all of the Exchange Senior Subordinated Notes or the
Exchange Senior Subordinated Discount Notes, as the case may be, waive any
existing Default or Event of Default and its consequences under the applicable
Indenture except a continuing Default or Event of Default in the payment of
interest, including Liquidated Damages, if any, on, or the principal and
premium, if any, of, the Exchange Senior Subordinated Notes or the Exchange
Senior Subordinated Discount Notes, as the case may be.
The Company is required to deliver to each Trustee annually a statement
regarding compliance with the respective Indentures, and the Company is required
upon becoming aware of any Default or Event of Default, to deliver to each
Trustee a statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Exchange Notes, the Indentures or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of
141
<PAGE> 149
Exchange Notes by accepting an Exchange Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Exchange Notes.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all
obligations of the Company and the Guarantors discharged with respect to the
outstanding Exchange Senior Subordinated Notes and/or the outstanding Exchange
Senior Subordinated Discount Notes, as the case may be, and the Senior
Subordinated Guarantees ("Legal Defeasance") except for (i) the rights of
Holders of outstanding Exchange Notes to receive payments in respect of the
principal of, premium, if any, and interest, including Liquidated Damages, if
any, on such Exchange Notes when such payments are due from the trust referred
to below, (ii) the Company's obligations with respect to the Exchange Notes
concerning issuing temporary Exchange Notes, registration of Exchange Notes,
mutilated, destroyed, lost or stolen Exchange Notes and the maintenance of an
office or agency for payment and money for security payments held in trust,
(iii) the rights, powers, trusts, duties and immunities of the applicable
Trustee, and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the applicable Indenture. In addition, the
Company may, at its option and at any time, elect to have the obligations of the
Company and the Guarantors released with respect to certain covenants that are
described in the Senior Subordinated Note Indenture or the Senior Subordinated
Discount Note Indenture, and the Senior Subordinated Guarantees ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Exchange Senior
Subordinated Notes or Exchange Senior Subordinated Discount Notes, as the case
may be, and the Senior Subordinated Guarantees. In the event Covenant Defeasance
occurs, certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "-- Events of Default and
Remedies" will no longer constitute an Event of Default with respect to the
Exchange Senior Subordinated Notes or Exchange Senior Subordinated Discount
Notes, as the case may be, and the Senior Subordinated Guarantees.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company or the Guarantors must irrevocably deposit with the appropriate
Trustee, in trust, for the benefit of the Holders of the Exchange Senior
Subordinated Notes or Exchange Senior Subordinated Discount Notes, as the case
may be, cash in U.S. dollars, non-callable Government Securities, or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest, including Liquidated Damages, if
any, on the outstanding Exchange Senior Subordinated Notes or Exchange Senior
Subordinated Discount Notes, as the case may be, on the stated maturity or on
the applicable redemption date, as the case may be, and the Company or the
Guarantors must specify whether the Exchange Senior Subordinated Notes or
Exchange Senior Subordinated Discount Notes, as the case may be, are being
defeased to maturity or to a particular redemption date; (ii) in the case of
Legal Defeasance, the Company or the Guarantors shall have delivered to the
appropriate Trustee an opinion of counsel in the United States reasonably
acceptable to such Trustee confirming that (A) the Company or the Guarantors
have received from, or there has been published by, the Internal Revenue Service
a ruling or (B) since the date of the applicable Indenture, there has been a
change in the applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel shall confirm that, the Holders
of the outstanding Exchange Senior Subordinated Notes or Exchange Senior
Subordinated Discount Notes, as the case may be, will not recognize income, gain
or loss for federal income tax purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal Defeasance had
not occurred; (iii) in the case of Covenant Defeasance, the Company or the
Guarantors shall have delivered to the appropriate Trustee an opinion of counsel
in the United States reasonably acceptable to such Trustee confirming that the
Holders of the outstanding, Exchange Senior Subordinated Notes or Exchange
Senior Subordinated Discount Notes, as the case may be, will not
142
<PAGE> 150
recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit (other than a
Default or Event of Default resulting from the borrowing of funds to be applied
to such deposit) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after the
date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default under, any material
agreement or instrument (other than the applicable Indenture) to which the
Company or any of its Restricted Subsidiaries is a party or by which the Company
or any of its Restricted Subsidiaries is bound; (vi) the Company or the
Guarantors must have delivered to the appropriate Trustee an opinion of counsel
to the effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii) the
Company or the Guarantors must deliver to the appropriate Trustee an Officers'
Certificate stating that the deposit was not made by the Company or the
Guarantors, as applicable, with the intent of preferring the Holders of Exchange
Senior Subordinated Notes or Exchange Senior Subordinated Discount Notes, as the
case may be, over the other creditors of the Company or the Guarantors, as
applicable, with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or the Guarantors, as applicable, or others; and (viii)
the Company or the Guarantors must deliver to the appropriate Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Exchange Notes in accordance with the
Indentures. The Registrars and the Trustees may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indentures. The Company is not required to transfer or exchange
any Exchange Note selected for redemption. Also, the Company is not required to
transfer or exchange any Exchange Note for a period of 15 days before a
selection of Exchange Notes to be redeemed.
The registered Holder of an Exchange Note will be treated as the owner of
it for all purposes.
BOOK-ENTRY, DELIVERY AND FORM
The Exchange Notes initially issued in exchange for the Notes generally
will be represented by one or more fully-registered global notes (collectively,
the "Global Exchange Note"). Notwithstanding the foregoing, Notes held in
certificated form will be exchanged solely for Exchange Notes in certificated
form, as discussed below. The Global Exchange Note will be deposited upon
issuance with The Depository Trust Company (the "Depository") and registered in
the name of the Depository or a nominee of the Depository (the "Global Exchange
Note Registered Owner"). Except as set forth below, the Global Exchange Note may
be transferred, in whole and not in part, only to another nominee of the
Depository or to a successor of the Depository or its nominee.
The Depository is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depository's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depository's
Participants include securities brokers and dealers (including the Initial
Purchaser), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depository's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depository's Indirect Participants") that clear
through or maintain a
143
<PAGE> 151
custodial relationship with a Participant, either directly or indirectly.
Persons who are not Participants may beneficially own securities held by or on
behalf of the Depository only through the Depository's Participants or the
Depository's Indirect Participants. The ownership interest and transfer of
ownership interest of each actual purchaser of each security held by or on
behalf of the Depository are recorded on the records of the Participants and
Indirect Participants.
The Depository has also advised the Issuers that pursuant to procedures
established by it, (i) upon deposit of the Global Exchange Note, the Depository
will credit the accounts of Participants designated by the Exchange Agent with
portions of the principal amount of the Global Exchange Note and (ii) ownership
of such interests in the Global Exchange Note will be shown on, and the transfer
of ownership thereof will be effected only through, records maintained by the
Depository (with respect to the Participants) or by the Participants and the
Indirect Participants (with respect to other owners of beneficial interests in
the Global Exchange Note). The laws of some states require that certain persons
take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer Exchange Notes is limited to that extent.
For certain other restrictions on the transferability of the Exchange Notes, see
"Risk Factors -- Restrictions on Transfer."
Except as described below, owners of interests in the Global Exchange Note
will not have Exchange Notes registered in their names, will not receive
physical delivery of Exchange Notes in definitive form and will not be
considered the registered owners or holders thereof under the Indentures for any
purpose.
Payments in respect of the principal of and premium, if any, and interest
on any Exchange Notes registered in the name of the Global Exchange Note
Registered Owner will be payable by the Trustees to the Global Exchange Note
Registered Owner in their capacity as the registered Holder under the
Indentures. Under the terms of the Indentures, the Company and the Trustees will
treat the persons in whose names the Exchange Notes, including the Global
Exchange Note, are registered as the owners thereof for the purpose of receiving
such payments and for any and all other purposes whatsoever. Consequently,
neither the Company, the Trustees nor any agent of the Company or the Trustees
has or will have any responsibility or liability for (i) any aspect of the
Depository's records or any Participant's records relating to or payments made
on account of beneficial ownership interests in the Global Exchange Note, or for
maintaining, supervising or reviewing any of the Depository's records or any
Participant's records relating to the beneficial ownership interests in the
Global Exchange Note or (ii) any other matter relating to the actions and
practices of the Depository or any of its Participants. The Depository has
advised the Issuers that its current practice, upon receipt of any payment in
respect of securities such as the Exchange Notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in principal amount of beneficial interests in the relevant security as
shown on the records of the Depository unless the Depository has reason to
believe it will not receive payment on such payment date. Payments by the
Participants and the Indirect Participants to the beneficial owners of Exchange
Notes will be governed by standing instructions and customary practices and will
be the responsibility of the Participants or the Indirect Participants and will
not be the responsibility of the Depository, the Trustees or the Company.
Neither the Company nor the Trustees will be liable for any delay by the
Depository or any of its Participants in identifying the beneficial owners of
the Exchange Notes, and the Company and the Trustees may conclusively rely on
and will be protected in relying on instructions from the Global Exchange Note
Registered Owner for all purposes.
The Global Exchange Note is exchangeable for definitive Exchange Notes if
(i) the Depository notifies the Company that it is unwilling or unable to
continue as Depository of the Global Exchange Note and the Company thereupon
fails to appoint a successor Depository, (ii) the Company, at its option,
notifies the Trustees in writing that it elects to cause the issuance of the
Exchange Notes in definitive registered form, (iii) there shall have occurred
and be continuing an Event of Default or any event which after notice or lapse
of time or both would be an Event of Default with respect to the
144
<PAGE> 152
Exchange Notes or (iv) as provided in the following paragraph. Such definitive
Exchange Notes shall be registered in the names of the owners of the beneficial
interests in the Global Exchange Note as provided by the Participants. Exchange
Notes issued in definitive form will be in fully registered form, without
coupons, in minimum denominations of $1,000 and integral multiples thereof. Upon
issuance of Exchange Notes in definitive form, the Trustees are required to
register the Exchange Notes in the name of, and cause the Exchange Notes to be
delivered to, the person or persons (or the nominee thereof) identified as the
beneficial owners as the Depository shall direct.
Subject to the restrictions on the transferability of the Exchange Notes
described in "Risk Factors -- Restrictions on Transfer," an Exchange Note in
definitive form will be issued (i) in the Exchange Offer solely in exchange for
certificated Notes or (ii) following the Exchange Offer, upon the resale, pledge
or other transfer of any Exchange Note or interest therein to any person or
entity that does not participate in the Depository. The exchange of certificated
notes in the Exchange Offer may be made only by presentation of the Notes, duly
endorsed, together with a duly completed Letter of Transmittal and other
required documentation as described under "The Exchange Offer -- Procedures for
Tendering" and "-- Guaranteed Delivery Procedures." Transfers of certificated
Exchange Notes may be made only by presentation of Exchange Notes, duly
endorsed, to the Trustees for registration of transfer on the Note Register
maintained by the Trustees for such purposes.
The information in this section concerning the Depository and the
Depository's book-entry system has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in
the Global Exchange Notes may, upon request to the appropriate Trustee, exchange
such beneficial interest for Exchange Notes evidenced by registered, definitive
certificates ("Certificated Securities"). Upon any such issuance, the
appropriate Trustee is required to register such Certificated Securities in the
name of, and cause the same to be delivered to, such person or persons (or the
nominee of any thereof). In addition, if (i) the Company notifies the
appropriate Trustee in writing that the Depository is no longer willing or able
to act as a depositary and the Company is unable to locate a qualified successor
within 90 days or (ii) the Company, at its option, notifies the appropriate
Trustee in writing that it elects to cause the issuance of Exchange Notes in the
form of Certificated Securities under the applicable Indenture, then, upon
surrender by the Global Exchange Note Holder of its Global Exchange Notes,
Exchange Notes in such form will be issued to each person that the Global
Exchange Note Holder and the Depository identify as being the beneficial owner
of the related Exchange Notes.
Neither the Company nor the Trustees will be liable for any delay by the
Global Exchange Note Holder or the Depository in identifying the beneficial
owners of Exchange Notes and the Company and the Trustees may conclusively rely
on, and will be protected in relying on, instructions from the Global Exchange
Note Holder or the Depository for all purposes.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company, the Guarantors and the Initial Purchaser entered into the
Registration Rights Agreement on March 21, 1996. Pursuant to the Registration
Rights Agreement, the Company and the Guarantors agreed to file with the
Commission on or prior to 30 days after the Acquisition Closing Date the
Exchange Offer Registration Statement on the appropriate form under the
Securities Act with respect to the Exchange Notes. Upon the effectiveness of the
Exchange Offer Registration Statement, the Company will offer to the Holders of
Transfer Restricted Securities pursuant to the Exchange Offer who are able to
make certain representations the opportunity to exchange their Transfer
Restricted Securities for Exchange Notes. If (i) the Company and the
145
<PAGE> 153
Guarantors are not required to file the Exchange Offer Registration Statement or
permitted to consummate the Exchange Offer because the Exchange Offer is not
permitted by applicable law or Commission policy or (ii) any Holder of Transfer
Restricted Securities notifies the Company on or prior to the 20th Business Day
following consummation of the Exchange Offer that it alone or together with
Holders who hold in the aggregate at least $1.0 million in principal amount (or
Accreted Value, as applicable) of Notes (A) is prohibited by law or Commission
policy from participating in the Exchange Offer or (B) may not resell the
Exchange Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and the prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales or (C)
is a broker-dealer and owns Notes acquired directly from the Company or an
affiliate of the Company, the Company and the Guarantors will file with the
Commission a Shelf Registration Statement to cover resales of the Notes by the
Holders thereof who satisfy certain conditions relating to the provision of
information in connection with the Shelf Registration Statement. The Company and
the Guarantors will use their best efforts to cause the applicable registration
statement to be declared effective as promptly as possible by the Commission.
For purposes of the foregoing, "Transfer Restricted Securities" means each Note
until (i) the date on which such Note has been exchanged by a person other than
a broker-dealer for an Exchange Note in the Exchange Offer, (ii) following the
exchange by a broker-dealer in the Exchange Offer of a Note for an Exchange
Note, the date on which such Exchange Note is sold to a purchaser who receives
from such broker-dealer on or prior to the date of such sale a copy of the
prospectus contained in the Exchange Offer Registration Statement, (iii) the
date on which such Note has been effectively registered under the Securities Act
and disposed of in accordance with the Shelf Registration Statement or (iv) the
date on which such Note is distributed to the public pursuant to Rule 144 under
the Securities Act. Notwithstanding the foregoing, at any time after
Consummation (as defined in the Registration Rights Agreement) of the Exchange
Offer, the Company and the Guarantors may allow the Shelf Registration Statement
to cease to be effective and usable if (i) the Board of Directors of the Company
determines in good faith that such action is in the best interests of the
Company, and the Company notifies the Holders within a certain period of time
after the Board of Directors makes such determination or (ii) the prospectus
contained in the Shelf Registration Statement contains an untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided that the period referred to in the Registration Rights
Agreement during which the Shelf Registration Statement is required to be
effective and usable will be extended by the number of days during which such
registration statement was not effective or usable pursuant to the foregoing
provisions.
The Registration Rights Agreement provides that (i) the Company and the
Guarantors will file an Exchange Offer Registration Statement with the
Commission on or prior to 30 days after the Acquisition Closing Date, (ii) the
Company and the Guarantors will use their best efforts to have the Exchange
Offer Registration Statement declared effective by the Commission on or prior to
90 days after the date on which such Exchange Offer Registration Statement is
filed with the Commission (which 90-day period shall be extended for a number of
days equal to the number of Business Days, if any, that the Commission is
officially closed during such period), (iii) unless the Exchange Offer would not
be permitted by applicable law or Commission policy, the Company and the
Guarantors will commence the Exchange Offer and use their best efforts to issue
on or prior to 30 days after the date on which the Exchange Offer Registration
Statement was declared effective by the Commission, Exchange Notes in exchange
for all Notes tendered prior thereto in the Exchange Offer and (iv) if obligated
to file the Shelf Registration Statement, the Company and the Guarantors will
use their best efforts to file the Shelf Registration Statement with the
Commission on or prior to 30 days after such filing obligation arises and to
cause the Shelf Registration Statement to be declared effective by the
Commission on or prior to 90 days after such filing obligation arises. If (a)
the Company and the Guarantors fail to file either of the Registration
Statements required by the Registration Rights Agreement on or before the date
specified for such filing, (b) either of such Registration Statements is not
declared effective by the Commission on or prior to the date specified
146
<PAGE> 154
for such effectiveness (the "Effectiveness Target Date"), (c) the Company and
the Guarantors fail to consummate the Exchange Offer within 30 days of the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement, or (d) subject to the last sentence of the preceding paragraph, the
Shelf Registration Statement or the Exchange Offer Registration Statement is
declared effective but thereafter ceases to be effective or usable in connection
with resales of Transfer Restricted Securities during the periods specified in
the Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then, subject to the last sentence
of the preceding paragraph, the Company will pay Liquidated Damages to each
Holder of Transfer Restricted Securities, with respect to the first 90-day
period immediately following the occurrence of such Registration Default in an
amount equal to $0.05 per week per $1,000 in principal amount (or, in the case
of the Senior Subordinated Discount Notes prior to the Full Accretion Date,
Accreted Value) of Notes constituting Transfer Restricted Securities held by
such Holder. The amount of the Liquidated Damages will increase by an additional
$0.05 per week per $1,000 in principal amount (or, in the case of the Senior
Subordinated Discount Notes prior to the Full Accretion Date, Accreted Value) of
Notes constituting Transfer Restricted Securities with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages of $0.50 per week per $1,000 in principal
amount (or Accreted Value, as applicable) of Notes constituting Transfer
Restricted Securities. All accrued Liquidated Damages will be paid by the
Company in cash on each Damages Payment Date to the Global Note Holder (and any
Holder of Certificated Securities who has given wire transfer instructions to
the Company at least 10 Business Days prior to the Damages Payment Date) by wire
transfer of immediately available funds and to all other Holders of Certificated
Securities by mailing checks to their registered address. Following the cure of
all Registration Defaults, the accrual of Liquidated Damages will cease.
Holders of Notes will be required to make certain representations to the
Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Notes included in
the Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the full text of the Registration Rights
Agreement, which has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part.
CONSENT OF THE HOLDERS
Except as described below under "-- Amendment, Supplement and Waiver," the
Notes and the Exchange Notes will be considered collectively to be a single
class for all purposes under the applicable Indenture, including, without
limitation, waivers, amendments, redemptions and Repurchase Offers, and for
purposes of this "Description of Notes" (except under the caption,
"-- Registration Rights; Liquidated Damages") all reference herein to "Exchange
Notes" shall be deemed to refer collectively to the Exchange Notes and any
Notes, unless the context otherwise requires.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indentures
and the Exchange Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the Exchange Senior
Subordinated Notes or Exchange Senior Subordinated Discount Notes, as the case
may be, then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, such
Exchange Notes), and any existing default or compliance with any provision of
the Indentures or the Exchange Notes may be waived with the consent of the
Holders of a majority in principal amount of the then
147
<PAGE> 155
outstanding Exchange Senior Subordinated Notes or Exchange Senior Subordinated
Discount Notes, as the case may be (including consents obtained in connection
with a tender offer or exchange offer for such Exchange Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Exchange Notes held by a non-consenting Holder): (i) reduce
the principal amount of Exchange Notes whose Holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Exchange Note or alter the provisions with respect to the
redemption of the Exchange Notes (other than provisions relating to the
covenants described above under "-- Repurchase at the Option of Holders"), (iii)
reduce the rate of or change the time for payment of interest, including
Liquidated Damages, if any, on any Exchange Note, (iv) waive a Default or Event
of Default in the payment of principal of or premium, if any, or interest,
including Liquidated Damages, if any, on the Exchange Notes (except a rescission
of acceleration of the Exchange Senior Subordinated Notes or Exchange Senior
Subordinated Discount Notes, as the case may be, by the Holders of at least a
majority in aggregate principal amount thereof and a waiver of the payment
default that resulted from such acceleration), (v) make any Exchange Note
payable in money other than that stated in the Exchange Notes, (vi) make any
change in the provisions of the Indentures relating to waivers of past Defaults
or the rights of Holders of Exchange Notes to receive payments of principal of
or premium, if any, or interest, including Liquidated Damages, if any, on the
Exchange Notes, (vii) waive a redemption payment with respect to any Exchange
Note (other than a payment required by one of the covenants described above
under "-- Repurchase at the Option of Holders") or (viii) make any change in the
foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of
Exchange Notes, the Company and the appropriate Trustee may amend or supplement
the Indentures or the Exchange Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Exchange Notes in addition to or in
place of certificated Exchange Notes, to provide for the assumption of the
Company's obligations to Holders of Exchange Notes in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the Holders of Exchange Notes or that does not adversely affect the
legal rights under the Indentures of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indentures under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indentures contain certain limitations on the rights of the Trustees,
should either Trustee become a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Trustees will be permitted to
engage in other transactions; however, if either Trustee acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding
Exchange Senior Subordinated Notes or Exchange Senior Subordinated Discount
Notes, as the case may be, will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
applicable Trustee, subject to certain exceptions. The Indentures provide that
in case an Event of Default shall occur (which shall not be cured), the Trustees
will be required, in the exercise of their power, to use the degree of care of a
prudent man in the conduct of his own affairs. Subject to such provisions,
neither Trustee will be under any obligation to exercise any of its rights or
powers under the Indentures at the request of any Holder, unless such Holder
shall have offered to the appropriate Trustee security and indemnity
satisfactory to it against any loss, liability or expense.
148
<PAGE> 156
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indentures. Reference
is made to the Indentures for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Accreted Value" means, as of any date of determination prior to the Full
Accretion Date, the sum of (a) the initial offering price of each Exchange
Senior Subordinated Discount Note and (b) the portion of the excess of the
principal amount of each Exchange Senior Subordinated Discount Note over such
initial offering price which shall have been accreted thereon through such date,
such amount to be so accreted on a daily basis at 12 1/4% per annum of the
initial offering price of the Exchange Senior Subordinated Discount Notes,
compounded semi-annually on each March 15 and September 15 from the date of
issuance of the Exchange Senior Subordinated Discount Notes through the date of
determination; provided that on and after the Full Accretion Date the Accreted
Value shall be equal to the principal amount of the outstanding Exchange Senior
Subordinated Discount Note.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person, and (ii) Indebtedness secured by
a Lien encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"AMF" means the AMF worldwide bowling businesses, including AMF Bowling,
Inc., AMF Bowling Centers, Inc., the AMF worldwide bowling centers and their
subsidiaries.
"Asset Sale" means:
(i) the sale, conveyance, transfer or other disposition (whether in a
single transaction or a series of related transactions) of property or assets
(including by way of a sale and leaseback) of the Company or any Restricted
Subsidiary (each referred to in this definition as a "disposition") or
(ii) the issuance or sale of Equity Interests of any Restricted Subsidiary
(whether in a single transaction or a series of related transactions),
in each case, other than:
(a) a disposition of Cash Equivalents or goods held for sale in the
ordinary course of business or obsolete equipment in the ordinary course of
business consistent with past practices of the Company;
(b) the disposition of all or substantially all of the assets of the
Company in a manner permitted pursuant to the provisions described above under
the covenant entitled "-- Merger, Consolidation, or Sale of All or Substantially
All Assets" or any disposition that constitutes a Change of Control pursuant to
the Indentures;
(c) any disposition that is a Restricted Payment or Permitted Investment
that is permitted under the covenant described above under "-- Restricted
Payments";
149
<PAGE> 157
(d) any disposition, or related series of dispositions, of assets with an
aggregate fair market value of less than $2.5 million;
(e) any sale of Equity Interest in, or Indebtedness or other securities of,
an Unrestricted Subsidiary; and
(f) foreclosures on assets.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof, (iii) certificates of deposit and
eurodollar time deposits with maturities of one year or less from the date of
acquisition, bankers' acceptances with maturities not exceeding one year and
overnight bank deposits, in each case with any domestic bank having capital and
surplus in excess of $500.0 million and a Keefe Bank Watch Rating of "B" or
better, (iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii) above
entered into with any financial institution meeting the qualifications specified
in clause (iii) above and (v) commercial paper having the highest rating
obtainable from Moody's Investors Service, Inc. or Standard & Poor's Corporation
and in each case maturing within one year after the date of acquisition.
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease, transfer, conveyance or other disposition (other than
by way of merger or consolidation), in one or a series of transactions, of all
or substantially all of the assets of the Company and its Restricted
Subsidiaries, taken as a whole, to any "person" (as such term is used in Section
13(d)(3) of the Exchange Act) other than the Permitted Holders and their Related
Parties;
(ii) the Company becomes aware (by way of a report or any other filing
pursuant to Section 13(d) of the Exchange Act, proxy, vote, written notice or
otherwise) of the acquisition by any Person or group (within the meaning of
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor
provision), including any group acting for the purpose of acquiring, holding or
disposing of securities (within the meaning of Rule 13d-5(b)(1) under the
Exchange Act), other than the Permitted Holders or any of their Related Parties,
in a single transaction or in a related series of transactions, by way of
merger, consolidation or other business combination or purchase of beneficial
ownership (within the meaning of Rule 13d-3 under the Exchange Act, or any
successor provision) of 50% or more of the Voting Stock of the Company or
Holdings, and beneficially owns more of such Voting Stock than the Permitted
Holders and their Related Parties; or
(iii) a majority of the members of the Board of Directors of the Company
cease to be Continuing Directors.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period, to the
extent that such provision for
150
<PAGE> 158
taxes was deducted in computing such Consolidated Net Income, plus (iii)
consolidated interest expense of such Person and its Restricted Subsidiaries for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation, amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other non-cash charges (excluding any such non-cash charge to the extent that it
represents an accrual of or reserve for cash charges in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Restricted Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash charges were deducted in computing
such Consolidated Net Income.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) for such period of any Person
that is not a Restricted Subsidiary or that is accounted for by the equity
method of accounting shall be included only to the extent of the amount of
dividends or distributions paid in cash to the referent Person or a Wholly Owned
Restricted Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary
shall be excluded to the extent that the declaration or payment of dividends or
similar distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded, (iv) the cumulative effect of a change in
accounting principles shall be excluded and (v) the Net Income of any
Unrestricted Subsidiary shall be excluded, whether or not distributed to the
Company or one of its Restricted Subsidiaries.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors who (i) was a member of such Board of Directors on the
date of the Indentures or (ii) was nominated for election or elected to such
Board of Directors with, or whose election to such Board of Directors was
approved by, the affirmative vote of a majority of the Continuing Directors who
were members of such Board of Directors at the time of such nomination or
election or (iii) is any designee of the Permitted Holders or their Affiliates
or was nominated by the Permitted Holders or their Affiliates or any designees
of the Permitted Holders or their Affiliates on the Board of Directors.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
on which the Exchange Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
151
<PAGE> 159
"Existing Indebtedness" means Indebtedness of AMF and its Restricted
Subsidiaries (other than Indebtedness under the New Bank Credit Agreement) in
existence on the date of the Indentures, until such amounts are repaid.
"First-Tier Subsidiaries" means each of the Subsidiaries directly owned by
the Company.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the Company or
any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues Preferred Stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of Preferred Stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the Company or any of its Restricted Subsidiaries, including
through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period and Consolidated
Cash Flow for such reference period shall be calculated (A) without giving
effect to clause (iii) of the proviso set forth in the definition of
Consolidated Net Income and (B) subject to clause (ii) of the definition of
"Consolidated Net Income," by treating a portion of the consolidated revenue for
such period of any acquired entity that derives at least 90% of its revenues
from the ownership and operation of bowling centers as Consolidated Cash Flow of
such entity, regardless of the actual operating results of such entity, such
portion being the percentage of the consolidated revenues of the Company's
domestic bowling center operations that constituted Consolidated Cash Flow for
the most recently ended four full fiscal quarters for which internal financial
statements are available and (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, and
(iii) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the referent Person
or any of its Restricted Subsidiaries following the Calculation Date.
"Fixed Charges" means, with respect to any Person for any period, the sum
of (i) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations) and (ii) the consolidated interest expense of such
Person and its Restricted Subsidiaries that was capitalized during such period,
and (iii) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a
Lien on assets of such Person or one of its Restricted Subsidiaries (whether or
not such Guarantee or Lien is called upon) and (iv) the product of (a) all cash
dividend payments (and non-cash dividend payments in the case of a Person that
is a Restricted Subsidiary) paid to any Person other than the Company or a
Restricted Subsidiary on any series of Preferred Stock of such Person, times (b)
a fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate of
such Person paying the dividend, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
152
<PAGE> 160
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indentures.
"Government Securities" means securities that are (a) direct obligations of
the United States of America for the timely payment of which its full faith and
credit is pledged or (b) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such Government Security
or a specific payment of principal of or interest on any such Government
Security held by such custodian for the account of the holder of such depository
receipt; provided that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
Government Security or the specific payment of principal of or interest on the
Government Security evidenced by such depository receipt.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantors" means each of (i) Holdings, (ii) each of the First-Tier
Subsidiaries, (iii) each of the Second-Tier Subsidiaries and (iv) any other
Restricted Subsidiary of the Company that executes a Senior Subordinated
Guarantee in accordance with the provisions of the Indentures, and, in each
case, their respective successors and assigns. As a result of additional
Subsidiaries becoming Guarantors at the time of the Acquisition, the Guarantors
now consist of AMF Group Holdings Inc., a Delaware corporation of which the
Company is a wholly owned subsidiary, and each of the Company's direct and
indirect domestic subsidiaries.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) currency exchange or interest rate swap agreements,
currency exchange or interest rate cap agreements and currency exchange or
interest rate collar agreements and (ii) other agreements or arrangements
designed to protect such Person against fluctuations in currency exchange or
interest rates.
"Holder" means a holder of any of the Exchange Notes or Notes.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any indebtedness of any other Person.
"Independent Financial Advisor" means an accounting, appraisal, investment
banking firm or consultant of nationally recognized standing that is not an
Affiliate of the Company and that is, in the
153
<PAGE> 161
judgment of the Company's Board of Directors, qualified to perform the task for
which it has been engaged.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP; provided that
an acquisition of Equity Interests or other securities by the Company for
consideration consisting of common equity securities of the Company shall not be
deemed to be an Investment. If the Company or any Subsidiary of the Company
sells or otherwise disposes of any Equity Interests of any direct or indirect
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, the Company no longer owns, directly or indirectly, greater than
50% of the outstanding Equity Interests of such Subsidiary, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of such Subsidiary not
sold or disposed of.
"Joint Ventures" means all corporations, partnerships, associations or
other business entities (i) that are engaged in a Principal Business and (ii) of
which 50% of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by the Company or one or more Restricted Subsidiaries
(or a combination thereof).
"Letter of Credit Obligations" means all Obligations in respect of
Indebtedness of the Company or any of its Restricted Subsidiaries with respect
to letters of credit issued pursuant to the New Bank Credit Agreement which
Indebtedness shall be deemed to consist of (a) the aggregate maximum amount then
available to be drawn under all such letters of credit (the determination of
such maximum amount to assume compliance with all conditions for drawing), and
(b) the aggregate amount that has then been paid by, and not reimbursed to, the
issuers under such letters of credit.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Mortgage Financing" means the incurrence by the Company or a Restricted
Subsidiary of the Company of any Indebtedness secured by a mortgage or other
Lien on real property acquired or improved by the Company or any Restricted
Subsidiary of the Company after the date of the Indentures.
"Mortgage Refinancing" means the incurrence by the Company or a Restricted
Subsidiary of the Company of any Indebtedness secured by a mortgage or other
Lien on real property subject to a mortgage or other Lien existing on the date
of the Indentures or created or incurred subsequent to the date of the
Indentures as permitted by the terms of the Indentures and owned by the Company
or any Restricted Subsidiary of the Company.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of Preferred Stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or
154
<PAGE> 162
nonrecurring gain (but not loss), together with any related provision for taxes
on such extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and brokerage and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness (other than Senior Bank Debt) secured by a Lien on
the asset or assets that were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"New Bank Credit Agreement" means the credit agreement to be entered into
by and among the Company and the financial institutions party thereto providing
a portion of the financing for the Acquisition, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed, refunded,
replaced or refinanced (in whole or in part) from time to time.
"Non-Recourse Debt" means Indebtedness of an Unrestricted Subsidiary (i) as
to which neither the Company nor any of its Restricted Subsidiaries (a) provides
credit support of any kind (including any undertaking, agreement or instrument
that would constitute Indebtedness), (b) is directly or indirectly liable (as a
guarantor or otherwise), or (c) constitutes the lender; and (ii) no default with
respect to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officers' Certificate" means a certificate signed on behalf of the
Company, by two officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements set
forth in the Indentures.
"Pari Passu Indebtedness" means indebtedness which ranks pari passu in
right of payment to the Notes.
"Permitted Asset Swap" means any one or more transactions in which the
Company or any of its Restricted Subsidiaries exchanges assets for consideration
consisting of cash and/or assets that are used or useful in a Principal Business
and/or a controlling equity interest in a person engaged in a Principal
Business.
"Permitted Holders" means Goldman, Sachs & Co. and any of its Affiliates.
"Permitted Investments" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company; (b) any Investment in cash and Cash
Equivalents; (c) any Investment by the Company or any Restricted Subsidiary of
the Company in a Person, if as a result of such Investment (A) such Person
becomes a Restricted Subsidiary of the Company or (B) such Person, in one
transaction or a series of related transactions, is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Restricted Subsidiary of the
Company; (d) any Investment made as a result of the receipt of
155
<PAGE> 163
consideration not constituting cash or Cash Equivalents from an Asset Sale that
was made pursuant to and in compliance with the covenant described above under
"-- Repurchase at the Option of Holders -- Asset Sales;" (e) any Investment
existing on the date of the Indentures; (f) Permitted Asset Swaps; (g) any
Investment by Restricted Subsidiaries in other Restricted Subsidiaries and
Investments by Subsidiaries that are not Restricted Subsidiaries in other
Subsidiaries that are not Restricted Subsidiaries; (h) advances to employees not
in excess of $5.0 million outstanding at any one time; (i) any Investment
acquired by the Company or any of its Restricted Subsidiaries (A) in exchange
for any other Investment or accounts receivable held by the Company or any such
Restricted Subsidiary in connection with or as a result of a bankruptcy,
workout, reorganization or recapitalization of the issuer of such other
Investment or accounts receivable or (B) as a result of a foreclosure by the
Company or any of its Restricted Subsidiaries with respect to any secured
Investment or other transfer of title with respect to any secured Investment in
default; (j) Hedging Obligations; (k) loans and advances to officers, directors
and employees for business-related travel expenses, moving expenses and other
similar expenses, in each case incurred in the ordinary course of business; (l)
Investments the payment for which consists exclusively of Equity Interests
(exclusive of Disqualified Stock) of the Company; and (m) additional Investments
having an aggregate fair market value, taken together with all other Investments
made pursuant to this clause (m) that are at that time outstanding, not to
exceed 5% of Total Assets at the time of such Investment (with the fair market
value of each Investment being measured at the time made and without giving
effect to subsequent changes in value).
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
in whole or in part; provided that: (i) the principal amount (or accreted value,
if applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount (or accreted value, if applicable) of the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded (plus the amount
of reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Exchange Notes, such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and is subordinated in right of payment to, the Exchange Notes on terms
at least as favorable to the Holders of Exchange Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by
the Company or by the Restricted Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock" means any Equity Interest with preferential right of
payment of dividends or upon liquidation, dissolution, or winding-up.
"Principal Business" means (i) the design, manufacture and sale of bowling
and bowling center equipment and allied products, including without limitation,
pinspotters, scoring equipment, masking panels, seating, lane maintenance
machines, bumper bowling systems, electronic foul detectors, back office support
systems, bowling pins, wood and synthetic lanes, ball returns, ball lifts, ball
cleaners, other equipment used to equip or outfit a bowling center, spare and
replacement parts, maintenance equipment and supplies, bowling balls, bags,
shoes, shirts, pool and billiard tables and cues, shuffleboard and other gaming
tables, and any other equipment and products used or useful in the operation of
bowling centers, (ii) the ownership and operation of bowling centers, in the
156
<PAGE> 164
United States and throughout the world, including without limitation bowling
operations, shoe rental, food and beverage sales and services, operation of
lounges and bars at or within a bowling center (including without limitation
sales and service of alcoholic beverages and provision of music and cabaret
activities), operation of pro shops (including without limitation sales and
service of merchandise), billiards and other table games, video and arcade
games, play centers, movie viewing, gaming activities, such as Pull-Tab,
lottery, video poker and keno, and any other activities which are or may become
associated with bowling centers, and (iii) any activity or business incidental,
directly related or similar to those set forth in clauses (i) or (ii) of this
definition, or any business or activity that is a reasonable extension,
development or expansion thereof or ancillary thereto.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Regulation S Exchange Global Notes" means the Regulation S Temporary
Exchange Global Notes or the Regulation S Permanent Exchange Global Notes, as
applicable.
"Regulation S Permanent Exchange Global Notes" means a permanent global
note that is deposited with and registered in the name of the Depository or its
nominee, representing a series of Exchange Senior Subordinated Notes and a
permanent global note that is deposited with and registered in the name of the
Depository or its nominee, representing a series of Exchange Senior Subordinated
Discount Notes, in each case, sold in reliance on Regulation S.
"Regulation S Temporary Global Exchange Notes" means a temporary global
note that is deposited with and registered in the name of the Depository or its
nominee, representing a series of Exchange Senior Subordinated Notes and a
temporary global note that is deposited with and registered in the name of the
Depository or its nominee, representing a series of Exchange Senior Subordinated
Discount Notes, in each case, sold in reliance on Regulation S.
"Related Parties" means any Person controlled by the Permitted Holders,
including any partnership of which any of the Permitted Holders or their
Affiliates is a general partner.
"Repurchase Offer" means an offer made by the Company to purchase all or
any portion of a Holder's Exchange Notes pursuant to the provisions described
under the covenants entitled "-- Repurchase at the Option of Holders -- Change
of Control" or "-- Repurchase at the Option of Holders -- Asset Sales."
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not (i) an Unrestricted Subsidiary or (ii) a direct or indirect
Subsidiary of an Unrestricted Subsidiary; provided, however, that upon the
occurrence of any Unrestricted Subsidiary ceasing to be an Unrestricted
Subsidiary, such Subsidiary shall be included in the definition of Restricted
Subsidiary.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 144A Global Notes" means a permanent global note that is deposited
with and registered in the name of the Depository or its nominee, representing a
series of Senior Subordinated Notes and a permanent global note that is
deposited with and registered in the name of the Depository or its nominee,
representing a series of Senior Subordinated Discount Notes, in each case, sold
in reliance on Rule 144A.
"Second-Tier Subsidiaries" means each of the Subsidiaries directly owned by
the First-Tier Subsidiaries.
"Senior Guarantees" means the Guarantees by the Guarantors of Obligations
under the New Bank Credit Agreement.
"Senior Subordinated Guarantees" means the Guarantees by the Guarantors of
the Obligations under the Indentures and the Exchange Notes.
157
<PAGE> 165
"Significant Restricted Subsidiary" means any Restricted Subsidiary that
would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect
on the date of the Indentures.
"Special Redemption Price" has the meaning set forth under "-- Escrow of
Proceeds; Special Mandatory Redemption."
"Subordinated Indebtedness" means any Indebtedness of the Company or any of
its Restricted Subsidiaries which is expressly by its terms subordinated in
right of payment to any other Indebtedness.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or one or more Subsidiaries
of such Person (or any combination thereof).
"Total Assets" means, with respect to any Person, the total consolidated
assets of such Person and its Restricted Subsidiaries, as shown on the most
recent balance sheet of such Person.
"Unrestricted Subsidiary" means (i) any Subsidiary (other than the
Guarantors or any successor to any of them) that is designated by the Board of
Directors as an Unrestricted Subsidiary pursuant to a Board Resolution; but only
to the extent that such Subsidiary: (a) has no Indebtedness other than
Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company; (c) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (x) to
subscribe for additional Equity Interests or (y) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results; (d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Company or any of
its Restricted Subsidiaries; and (e) has at least one director on its board of
directors that is not a director or executive officer of the Company or any of
its Restricted Subsidiaries and has at least one executive officer that is not a
director or executive officer of the Company or any of its Restricted
Subsidiaries. Any such designation by the Board of Directors shall be evidenced
to the Trustees by filing with the Trustees a certified copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by the covenant described above under "Certain Covenants -- Restricted
Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the Indentures and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant described under
"-- Incurrence of Indebtedness and Issuance of Disqualified Stock," the Company
shall be in default of such covenant). The Board of Directors of the Company may
at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under the covenant described
under "Certain Covenants -- Incurrence of Indebtedness and Issuance of
Disqualified Stock," and (ii) no Default or Event of Default would be in
existence following such designation.
158
<PAGE> 166
"Voting Stock" means, with respect to any Person, any class or series of
capital stock of such Person that is ordinarily entitled to vote in the election
of directors thereof at a meeting of stockholders called for such purpose,
without the occurrence of any additional event or contingency.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" is any Wholly Owned Subsidiary that is
a Restricted Subsidiary.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
DESCRIPTION OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF AN INVESTMENT IN THE EXCHANGE NOTES
The following summary describes certain material United States ("U.S.")
federal income tax consequences relevant to the purchase, ownership and
disposition of Exchange Notes as of the date hereof. Unless otherwise indicated,
this summary deals only with United States Holders who hold such Exchange Notes
as capital assets. The following discussion does not purport to deal with all
aspects of U.S. federal income taxation that may be relevant to such holders,
nor does it address U.S. federal income tax consequences which may be relevant
to certain types of holders, such as dealers in securities or currencies,
financial institutions, life insurance companies, persons holding Exchange Notes
as a part of hedging or conversion transaction or a straddle or United States
Holders whose "functional currency" is not the U.S. dollar, that are subject to
special treatment under the Internal Revenue Code of 1986, as amended (the
"Code"). Furthermore, the discussion below is based upon the provisions of the
Code, and regulations, rulings and judicial decisions thereunder as of the date
hereof, and such authorities may be repealed, revoked or modified so as to
result in U.S. federal income tax consequences different from those discussed
below. PERSONS CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF EXCHANGE
NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME
TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR INTERNATIONAL TAXING
JURISDICTION.
As used herein, a "United States Holder" of an Exchange Note means a holder
that is a citizen or resident of the United States, a corporation, partnership
or other entity created or organized in or under the laws of the United States
or any political subdivision thereof, or an estate or trust the income of which
is subject to United States federal income taxation regardless of its source. A
"Non-United States Holder" is any holder that is not a United States Holder.
UNITED STATES HOLDERS
PAYMENTS OF INTEREST AND ORIGINAL ISSUE DISCOUNT
Exchange Senior Subordinated Notes. Interest on an Exchange Senior
Subordinated Note generally will be taxable to a United States Holder as
ordinary income at the time it is paid or accrued in accordance with the United
States Holder's method of accounting for tax purposes.
159
<PAGE> 167
Exchange Senior Subordinated Discount Notes. For federal income tax
purposes, the exchange of Senior Subordinated Discount Notes for Exchange Senior
Subordinated Discount Notes will not be considered to alter the tax consequences
of ownership of Senior Subordinated Discount Notes. Therefore, the Exchange
Senior Subordinated Discount Notes will be considered to have been issued with
original issue discount ("OID") within the meaning of Section 1273(a) of the
Code. The amount of such OID equaled the difference between (i) the sum of all
amounts payable on the Senior Subordinated Discount Notes (including the
interest payable on such debentures) and (ii) the "issue price" of the Senior
Subordinated Discount Notes. The "issue price" of the Senior Subordinated
Discount Notes was the first price at which a substantial amount of the Senior
Subordinated Discount Notes was sold (excluding sales to bond houses, brokers or
similar persons acting in the capacity of underwriter, placement agent or
wholesaler).
A United States Holder of the Exchange Senior Subordinated Discount Notes
must include such OID in income on an economic accrual basis (using the constant
yield method of accrual described in Section 1272(a) of the Code) and in advance
of the receipt of the cash to which such OID is attributable, regardless of such
holder's method of tax accounting. Under that method, a United States Holder
generally will have to include in income increasingly greater amounts of OID in
successive accrual periods. The Company is required to provide information
returns stating the amount of OID accrued on Exchange Senior Subordinated
Discount Notes held of record by persons other than corporations and other
exempt holders.
Since the yield-to-maturity on the Exchange Senior Subordinated Discount
Notes exceeds the sum of (x) the "applicable federal rate" (as determined under
Section 1274(d) of the Code) in effect for the month in which the Senior
Subordinated Discount Notes were issued (the "AFR") and (y) 5%, the Exchange
Senior Subordinated Discount Notes are considered "applicable high yield
discount obligations" under Section 163(i) of the Code. As a result, the Company
will not be allowed to take a deduction for interest (including OID) accrued on
the Exchange Senior Subordinated Discount Notes for U.S. federal income tax
purposes until such time as the Company actually pays such interest (including
OID) in cash or in other property (other than stock or debt of the Company or a
person deemed to be related to the Company under Section 453(f)(1) of the Code).
Since the yield-to-maturity on the Exchange Senior Subordinated Discount
Notes exceeds the sum of (x) the AFR and (y) 6% (such excess shall be referred
to hereinafter as the "Disqualified Yield"), the deduction for interest
(including OID) accrued on the Exchange Senior Subordinated Discount Notes will
be permanently disallowed (regardless of whether the Company actually pays such
interest or OID in cash or in other property) for U.S. federal income tax
purposes to the extent (approximately 0.27%) such interest or OID is
attributable to the Disqualified Yield on the Exchange Senior Subordinated
Discount Notes ("Dividend-Equivalent Interest"). For purposes of the
dividends-received deduction, such Dividend-Equivalent Interest will be treated
as a dividend to the extent it is deemed to have been paid out of the Company's
current or accumulated earnings and profits. Accordingly, a United States Holder
of an Exchange Senior Subordinated Discount Note that is a corporation may be
entitled to take a dividends-received deduction with respect to any Dividend-
Equivalent Interest received by such corporate holder on such Exchange Senior
Subordinated Discount Note.
ACQUISITION PREMIUM
Exchange Senior Subordinated Notes. If a United States Holder acquires an
Exchange Senior Subordinated Note or has acquired a Senior Subordinated Note, in
each case, for an amount more than its redemption price, the Holder may elect to
amortize such bond premium on a yield to maturity basis.
Exchange Senior Subordinated Discount Notes. A United States Holder who
acquires an Exchange Senior Subordinated Discount Note or has acquired a Senior
Subordinated Discount Note, in each case, for an amount less than the sum of all
amounts payable after the purchase date
160
<PAGE> 168
but greater than its "adjusted issue price" immediately before such purchase
will be considered to have purchased such Senior Subordinated Discount Note (and
its successor Exchange Senior Subordinated Discount Note) or Exchange Senior
Subordinated Discount Note at an "acquisition premium." The "adjusted issue
price" is equal to the instrument's issue price increased by all previously
accrued OID and reduced by the amount of all previous payments. Under the
acquisition premium rules of the Code, the amount of OID which such United
States Holder must include in its gross income with respect to such Exchange
Senior Subordinated Discount Note for any taxable year will be reduced by the
portion of such acquisition premium properly allocable to such year.
MARKET DISCOUNT
A purchase of an Exchange Note in a subsequent resale may be affected by
the market discount provisions of the Code. These rules generally provide that
subject to a statutorily defined de minimis exception, if a United States Holder
purchases an Exchange Note (or purchased a Note) at a "market discount," as
defined below, and thereafter recognizes gain upon a disposition of the Exchange
Note (including dispositions by gift or redemption), the lesser of such gain (or
appreciation, in the case of gift) or the portion of the market discount that
has accrued ("accrued market discount") while the Exchange Note (and its
predecessor Note, if any) was held by such United States Holder will be treated
as ordinary interest income at the time of disposition rather than as capital
gain. For an Exchange Senior Subordinated Note or a Senior Subordinated Note,
"market discount" is the excess of the stated redemption price at maturity over
the tax basis immediately after its acquisition by a United States Holder. For
an Exchange Senior Subordinated Discount Note or a Senior Subordinated Discount
Note, "market discount" is the excess of the adjusted issue price of the
Exchange Senior Subordinated Discount Note or the Senior Subordinated Discount
Note over its tax basis immediately after its acquisition by a United States
Holder. Market discount generally will accrue ratably during the period from the
date of acquisition to the maturity date of the Exchange Note, unless the United
States Holder elects to accrue such discount on the basis of the constant yield
method.
In lieu of including the accrued market discount in income at the time of
disposition, a United States Holder of an Exchange Note acquired at a market
discount (or acquired in exchange for a Note acquired at a market discount) may
elect to include the accrued market discount in income currently either ratably
or using the constant yield method. Once made, such an election applies to all
other obligations that the United States Holder purchases at a market discount
during the taxable year for which the election is made and in all subsequent
taxable years of the United States Holder, unless the Internal Revenue Service
consents to a revocation of the election. If an election is made to include
accrued market discount in income currently, the basis of an Exchange Note in
the hands of the United States Holder will be increased by the accrued market
discount thereon as it is includible in income.
SALE, RETIREMENT OR OTHER TAXABLE DISPOSITION OF EXCHANGE NOTES
A United States Holder will recognize gain or loss on the sale, retirement
or other taxable disposition of an Exchange Note equal to the difference between
the amount realized by the United States Holder upon such sale, retirement or
disposition (less any portion of such amount that is allocable to accrued
interest or OID, which amount generally will be taxable to a Holder as ordinary
income) and the United States Holder's adjusted tax basis in such Exchange Note.
Such gain or loss will be capital gain or loss and will be long-term capital
gain or loss if at the time of such sale, retirement or disposition, the United
States Holder held the Exchange Note for more than one year. Under current law,
net capital gains of individuals are, under certain circumstances, taxed at
lower rates than items of ordinary income. The deductibility of capital losses
is subject to limitations.
161
<PAGE> 169
LIQUIDATED DAMAGES
The Company intends to take the position that the Liquidated Damages
described above under "Description of Exchange Notes -- Registration Rights;
Liquidated Damages" will be taxable to the holder as ordinary income in
accordance with the holder's method of accounting for tax purposes. The Internal
Revenue Service, however, may take a different position, which could affect the
timing of the holder's income and the amount and timing of the Company's
deduction with respect to the Liquidated Damages.
NON-UNITED STATES HOLDERS
U.S. Withholding Taxes. Subject to the discussion of backup withholding set
forth below, payments of principal, premium, if any, and interest (including
OID) on the Exchange Notes to a Non-United States Holder who is the beneficial
owner of an Exchange Note will not be subject to the 30% U.S. withholding tax;
provided, in the case of a payment of premium, if any, and interest (including
OID) and Liquidated Damages, if any, that (i) the beneficial owner of the
Exchange Note does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote
within the meaning of section 871(h)(3) of the Code and the regulations
thereunder, (ii) such beneficial owner is not a controlled foreign corporation
that is related to the Company through stock ownership, (iii) such beneficial
owner is not a bank whose receipt of interest on an Exchange Note is described
in section 881(c)(3)(A) of the Code and (iv) such beneficial owner satisfies the
statement requirement (described generally below) set forth in section 871(h)
(in the case of individuals) or section 881(c) (in the case of foreign
corporations) of the Code and the regulations thereunder.
To satisfy the statement requirement referred to in (iv) above, the
beneficial owner of an Exchange Note, or a financial institution holding the
Exchange Note on behalf of such owner, must provide, in accordance with
specified procedures, the Company or its paying agent, as the case may be, with
a statement to the effect that the beneficial owner is not a U.S. person.
Pursuant to current Temporary Treasury regulations, those requirements will be
met if (1) the beneficial owner provides his name and address, signs under
penalties of perjury and certifies, that he is not a U.S. person (which
certification may be made on an Internal Revenue Service Form W-8 (or successor
form)) or (2) a financial institution holding the Exchange Note on behalf of the
beneficial owner certifies, under penalties of perjury, that such statement has
been received by it and furnishes the Company or its paying agent, as the case
may be, with a copy thereof. Under the proposed Treasury regulations that have
not yet been put into effect, a Non-United States Holder can satisfy the
statement requirement without providing an Internal Revenue Service Form W-8 (or
successor form) if the Non-United States Holder holds the Exchange Notes through
an offshore account of a U.S. intermediary, provided the intermediary has
documentary evidence regarding the Non-United States Holder's status.
If a Non-United States Holder cannot satisfy the requirements of the
"portfolio interest" exception described above, payments of premium, if any, and
interest (including OID) made to Non-U.S. Holders by the Company (or its paying
agent) with respect to the Exchange Notes will be subject to a 30% U.S.
withholding tax unless the beneficial owner of the Exchange Note provides the
Company or its paying agent, as the case may be, with, and keeps current, (i) a
properly executed Internal Revenue Service Form 1001 (or successor form)
claiming an exemption from U.S. withholding tax under a U.S. income tax treaty
or (ii) a properly executed Internal Revenue Service Form 4224 (or successor
form) claiming such premium and/or interest is exempt from U.S. withholding tax
because such premium and/or interest is effectively connected with the conduct
of a U.S. trade or business by the Non-U.S. Holder. Proposed Treasury
regulations that have not yet been put into effect combine Internal Revenue
Service Form 1001 and Internal Revenue Service Form 4224 into a single new
Internal Revenue Service Form W-8 which will serve as the withholding
certificate for establishing most claims of withholding tax relief.
162
<PAGE> 170
No U.S. withholding taxes will be imposed on any gain realized by a
Non-U.S. Holder upon the sale, retirement or other taxable disposition of its
Exchange Notes.
U.S. Federal Income Taxes. If a Non-United States Holder of an Exchange
Note is engaged in a trade or business in the United States and premium, if any,
or interest (including OID) paid on such Exchange Note is effectively connected
with the conduct of such U.S. trade or business, the Non-United States Holder,
although exempt from the U.S. withholding tax discussed above, will be subject
to U.S. federal income tax on such effectively connected income on a net income
basis in the same manner as if such Holder were a United States Holder. See
"United States Holders" above. In addition, if such Non-United States Holder is
a foreign corporation, it may be subject to a branch profits tax equal to 30% of
its effectively connected earnings and profits for the taxable year, subject to
adjustments. For this purpose, such premium, if any, and interest (including
OID) will be included in such foreign corporation's effectively connected
earnings and profits.
Any gain realized by a Non-United States Holder on the sale, retirement or
other taxable disposition of an Exchange Note generally will not be subject to
U.S. federal income tax unless (i) such gain is effectively connected with a
trade or business carried on in the U.S. by such Non-United States Holder, or
(ii) in the case of a Non-United States Holder who is an individual, such
individual is present in the United States for 183 days or more in the taxable
year of such sale, retirement or disposition, and certain other conditions are
met.
U.S. Estate Taxes. An Exchange Note beneficially owned by an individual
who is a Non-United States Holder at the time of his or her death generally will
not be subject to U.S. federal estate tax as a result of such individual's
death, provided that (i) such individual does not actually or constructively own
10% or more of the total combined voting power of all classes of stock of the
Company entitled to vote within the meaning of section 871(h)(3) of the Code,
and (ii) interest payments (including payments of OID) with respect to such
Exchange Note would not have been, if received at the time of such individual's
death, effectively connected with the conduct of a U.S. trade or business by
such individual.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments of principal, interest, OID and premium paid on the Exchange Notes and
to the proceeds of the sale of an Exchange Note made to United States Holders
other than certain exempt recipients (such as corporations). A 31% backup
withholding tax will apply to such payments if the United States Holder fails to
provide a taxpayer identification number or certification of exempt status or
fails to report its full dividend and interest income.
No information reporting or backup withholding will be required with
respect to payments made by the Company or any paying agent to Non-United States
Holders if a statement described in (iv) under "-- Non-United States
Holders -- U.S. Withholding Taxes" has been received and the payor does not have
actual knowledge that the beneficial owner is a United States Person.
In addition, Temporary Treasury regulations provide that backup withholding
and information reporting will not apply if payments of principal, interest, OID
or premium on an Exchange Note are paid or collected by a foreign office of a
custodian, nominee or other foreign agent on behalf of the beneficial owner of
such Exchange Note, or if a foreign office of a foreign broker (as defined in
applicable Treasury regulations) pays the proceeds of the sale of an Exchange
Note to the owner thereof. However, under the proposed Treasury regulations that
have not yet been put into effect, information reporting will apply to payments
of principal, interest, OID or premium on an Exchange Note with respect to an
offshore account unless the Holder provides a statement described in (iv) under
"-- Non-United States Holders -- U.S. Withholding Taxes" or the Company obtains,
reviews and maintains documentary evidence sufficient to establish that the
Holder is a Non-United States Holder. Temporary Treasury regulations also
provide that if, however, such nominee, custodian, agent or broker is, for
United States federal income tax purposes, a U.S. Person, a
163
<PAGE> 171
controlled foreign corporation or a foreign person that derives 50% or more of
its gross income for certain periods from the conduct of a trade or business in
the United States, such payments will not be subject to backup withholding but
will be subject to information reporting, unless (1) such custodian, nominee,
agent or broker has documentary evidence in its records that the beneficial
owner is not a U.S. Person and certain other conditions are met or (2) the
beneficial owner otherwise establishes an exemption. Temporary Treasury
regulations provide that the Treasury is considering whether backup withholding
will apply with respect to such payments of principal, interest, or the proceeds
of a sale that are not subject to backup withholding under the current
regulations.
Payments of principal, interest, OID and premium on an Exchange Note to the
beneficial owner of an Exchange Note by a United States office of a custodian,
nominee or agent, or the payment by the United States office of a broker of the
proceeds of sale of an Exchange Note, will be subject to both backup withholding
and information reporting unless the beneficial owner provides the statement
referred to in (iv) above and the payor does not have actual knowledge that the
beneficial owner is a United States Person or otherwise establishes an
exemption.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against such Holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Notes where such Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until November , 1996 (90 days after
commencement of the Exchange Offer), all dealers effecting transactions in the
Exchange Notes may be required to deliver a Prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to the purchaser or to or through brokers or dealers who
may receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells the Exchange Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letters of Transmittal state that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay certain expenses
incident to the Exchange Offer, other than commission or concessions of any
164
<PAGE> 172
brokers or dealers, and will indemnify the holders of the Exchange Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer agrees that,
upon receipt of notice from the Company of the happening of any event which
makes any statement in the Prospectus untrue in any material respect or which
requires the making of any changes in the Prospectus in order to make the
statements therein not misleading (which notice the Company agrees to deliver
promptly to such broker-dealer), such broker-dealer will suspend use of the
Prospectus until the Company has amended or supplemented the Prospectus to
correct such misstatement or omission and has furnished copies of the amended or
supplemental Prospectus to such broker-dealer.
EXPERTS
The combined financial statements of AMF Bowling Group as of December 31,
1995 and 1994 and for each of the three years in the period ended December 31,
1995 included in this Prospectus have been so included in reliance on the report
of Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The consolidated financial statements of Fair Lanes, Inc. as of September
29, 1994 and June 30, 1994 and for the three months ended September 29, 1994 and
year ended June 30, 1994 included in this Prospectus have been so included in
reliance on the report of, Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
The consolidated statements of loss, stockholder's equity and cash flows of
Fair Lanes, Inc. and subsidiaries for the year ended June 24, 1993 have been
included herein and in the registration statement in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
The audited consolidated balance sheet of Holdings as of March 7, 1996
included in this Prospectus, has been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and is included herein, in reliance upon the authority of said firm as
experts in giving said report.
VALIDITY OF EXCHANGE NOTES
The validity of the Exchange Notes will be passed upon for the Company by
Wachtell, Lipton, Rosen & Katz, New York, New York, counsel to the Company.
165
<PAGE> 173
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
COMBINED FINANCIAL STATEMENTS OF AMF BOWLING GROUP
Report of Independent Accountants................................................. F-2
Combined Balance Sheets as of December 31, 1995 and 1994.......................... F-3
Combined Statements of Income for the Years Ended December 31, 1995, 1994 and
1993........................................................................... F-4
Combined Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and
1993........................................................................... F-5
Combined Statements of Changes in Stockholders' Equity for the Years Ended
December 31, 1995, 1994 and 1993............................................... F-6
Notes to Combined Financial Statements............................................ F-7
Condensed Combined Balance Sheets as of March 31, 1996 and December 31, 1995
(Unaudited).................................................................... F-39
Condensed Combined Statements of Income for the Three Months Ended March 31, 1996
and 1995 (Unaudited)........................................................... F-40
Condensed Combined Statements of Cash Flows for the Three Months Ended March 31,
1996 and 1995 (Unaudited)...................................................... F-41
Condensed Combined Statements of Changes in Stockholders' Equity for the Three
Months Ended March 31, 1996 (Unaudited)........................................ F-42
Notes to Condensed Combined Financial Statements (Unaudited)...................... F-43
CONSOLIDATED FINANCIAL STATEMENTS OF FAIR LANES, INC. (DEBTOR-IN-POSSESSION) AND
SUBSIDIARIES
Report of Independent Accountants................................................. F-55
Independent Auditors' Report...................................................... F-56
Consolidated Balance Sheets as of September 29, 1994 and June 30, 1994............ F-57
Consolidated Statements of Loss for the Three Months Ended September 29, 1994 and
the Years Ended June 30, 1994 and June 24, 1993................................ F-58
Consolidated Statements of Cash Flows for the Three Months Ended September 29,
1994 and the Years Ended June 30, 1994 and June 24, 1993....................... F-59
Consolidated Statements of Stockholder's Equity for the Three Months Ended
September 29, 1994 and the Years Ended June 30, 1994 and June 24, 1993......... F-60
Notes to Consolidated Financial Statements........................................ F-61
CONSOLIDATED FINANCIAL STATEMENTS OF AMF GROUP HOLDINGS INC.
Report of Independent Public Accountants.......................................... F-72
Consolidated Balance Sheet as of March 7, 1996.................................... F-73
Notes to Consolidated Balance Sheet............................................... F-74
Condensed Pro Forma Consolidating Income Statement for the Year Ended December 31,
1995........................................................................... F-87
Consolidated Balance Sheet as of March 31, 1996 (Unaudited)....................... F-88
Consolidated Income Statement for the Period from Inception through March 31, 1996
(Unaudited).................................................................... F-89
Consolidated Statement of Cash Flows for the Period from Inception through March
31, 1996 (Unaudited)........................................................... F-90
Notes to Unaudited Consolidated Financial Statements.............................. F-91
Condensed Pro Forma Consolidating Balance Sheet as of March 31, 1996.............. F-101
Condensed Pro Forma Consolidating Income Statement for the Three Months Ended
March 31, 1996................................................................. F-102
</TABLE>
F-1
<PAGE> 174
REPORT OF INDEPENDENT ACCOUNTANTS
To the Boards of Directors
and the Stockholders
AMF Bowling Group
In our opinion, the accompanying combined balance sheets and the related
combined statements of income, of cash flows and of changes in stockholders'
equity present fairly, in all material respects, the financial position of AMF
Bowling Group at December 31, 1995 and 1994 and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of AMF Bowling Group's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Norfolk, Virginia
March 1, 1996, except as to the
fifth paragraph under Litigation
and claims -- Note 9, which is
as of March 6, 1996 and
Sale transaction under Note 16,
which is as of May 1, 1996
F-2
<PAGE> 175
AMF BOWLING GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 9,732 $ 8,174
Accounts and notes receivable, net of allowance for doubtful
accounts of $3,373 and $1,898, respectively..................... 39,026 50,646
Accounts and notes receivable -- affiliates........................ 3,979 2,191
Inventories........................................................ 39,821 34,120
Prepaid expenses and other......................................... 5,182 3,684
-------- --------
Total current assets....................................... 97,740 98,815
Notes receivable -- affiliates....................................... 22,941 21,607
Property and equipment, net.......................................... 259,724 269,636
Other assets......................................................... 19,973 20,132
-------- --------
Total assets............................................... $400,378 $410,190
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 23,641 $ 33,310
Book overdrafts.................................................... 2,362 3,799
Accrued expenses and deposits...................................... 30,328 34,532
Accounts and notes payable -- affiliates........................... 1,989 15,510
Long-term debt, current portion.................................... 1,084 3,288
Income taxes payable............................................... 7,129 10,075
-------- --------
Total current liabilities.................................. 66,533 100,514
Long-term debt....................................................... 19,550 25,078
Notes payable -- affiliates.......................................... 146,727 145,459
Other liabilities.................................................... 6,030 6,765
-------- --------
Total liabilities.......................................... 238,840 277,816
-------- --------
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock....................................................... 1,538 1,536
Paid-in capital.................................................... 63,781 57,975
Retained earnings.................................................. 101,080 76,165
Equity adjustment from foreign currency translation................ (3,400) (3,302)
Notes receivable stock subscription................................ (1,461) --
-------- --------
Total stockholders' equity................................. 161,538 132,374
-------- --------
Total liabilities and stockholders' equity................. $400,378 $410,190
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 176
AMF BOWLING GROUP
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Operating revenue:
Sales of products and services........................ $563,998 $515,426 $424,810
Revenue from operating lease activities............... 926 2,360 2,763
-------- -------- --------
Total operating revenue....................... 564,924 517,786 427,573
-------- -------- --------
Operating expenses:
Cost of sales......................................... 186,660 197,734 154,943
Bowling center operations............................. 201,985 138,038 123,934
Selling, general and administrative................... 51,866 57,336 46,096
-------- -------- --------
Total operating expenses...................... 440,511 393,108 324,973
-------- -------- --------
Operating income.............................. 124,413 124,678 102,600
Nonoperating income (expenses):
Interest expense...................................... (15,711) (7,394) (5,001)
Other expenses, net................................... (1,043) (1,188) (523)
Interest income....................................... 2,184 526 897
Foreign currency transaction loss..................... (979) (867) (425)
-------- -------- --------
Income before income taxes.............................. 108,864 115,755 97,548
Income tax expense...................................... 12,098 16,452 15,127
-------- -------- --------
Net income.................................... $ 96,766 $ 99,303 $ 82,421
======== ======== ========
</TABLE>
PRO FORMA FINANCIAL INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Income before income taxes and
pro forma adjustments................................. $108,864 $115,755 $ 97,548
Pro forma C Corporation -- tax provision................ 40,616 42,972 35,219
-------- -------- --------
Pro forma net income.................................... $ 68,248 $ 72,783 $ 62,329
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 177
AMF BOWLING GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
---------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 96,766 $ 99,303 $ 82,421
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 39,139 24,776 21,421
Deferred income taxes.............................. (830) (19) (574)
Loss on sale of property and equipment, net........ 567 911 803
Changes in assets and liabilities, net of effects
from companies acquired:
Accounts and notes receivable, net............... 10,630 (9,014) (10,862)
Receivables and payables -- affiliates........... 6,147 4,725 3,543
Inventories...................................... (5,996) (1,411) (1,603)
Other assets and liabilities..................... (101) (1,000) 793
Accounts payable and accrued expenses............ (18,741) 3,838 8,597
Income taxes payable............................. (2,830) (2,390) 189
-------- -------- --------
Net cash provided by operating activities..... 124,751 119,719 104,728
-------- -------- --------
Cash flows from investing activities:
Acquisitions of operating units, net of cash
acquired........................................... -- (17,307) (2,469)
Purchase of property and equipment.................... (29,965) (17,788) (14,687)
Proceeds from sales of property and equipment......... 1,410 1,535 1,355
Other................................................. 229 941 (8)
-------- -------- --------
Net cash used for investing activities........ (28,326) (32,619) (15,809)
-------- -------- --------
Cash flows from financing activities:
Payments on credit note agreements, net............... (11,057) (3,689) (20,065)
Distributions to stockholders......................... (71,851) (78,170) (76,968)
Payment of long-term debt............................. (10,285) (1,104) (8,689)
Payment for redemption of stock....................... (3,960) -- --
Proceeds (payments) on notes payable --
stockholders, net.................................. (3,793) (8,560) 9,293
Capital contributions by stockholders................. 8,329 2,109 5,000
Other................................................. (2,056) (212) (240)
-------- -------- --------
Net cash used for financing activities........ (94,673) (89,626) (91,669)
Effect of exchange rates on cash.............. (194) 2,759 (271)
-------- -------- --------
Net increase (decrease) in cash......................... 1,558 233 (3,021)
Cash at beginning of year............................... 8,174 7,941 10,962
-------- -------- --------
Cash at end of year..................................... $ 9,732 $ 8,174 $ 7,941
======== ======== ========
</TABLE>
See Note 11 for supplemental disclosures to the Combined Statements of Cash
Flows.
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 178
AMF BOWLING GROUP
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
EQUITY
ADJUSTMENT
FROM FOREIGN TOTAL
COMMON PAID-IN RETAINED CURRENCY STOCKHOLDERS'
STOCK CAPITAL EARNINGS TRANSLATION OTHER EQUITY
------ ------- -------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992.... $1,536 $41,714 $ 37,708 $ (4,641) $ (433) $ 75,884
Net income -- 1993.......... -- -- 82,421 -- -- 82,421
Distribution to
stockholders............. -- -- (74,556) -- -- (74,556)
Decrease in equity
adjustment from foreign
currency translation..... -- -- -- (748) -- (748)
Payment of notes receivable
officer/stockholder...... -- -- -- -- 433 433
Capital contributions....... -- 5,000 -- -- -- 5,000
------ ------- -------- ------- ------- --------
Balance, December 31, 1993.... 1,536 46,714 45,573 (5,389) -- 88,434
Net income -- 1994.......... -- -- 99,303 -- -- 99,303
Distribution to
stockholders............. -- -- (78,170) -- -- (78,170)
Increase in equity
adjustment from foreign
currency translation..... -- -- -- 2,087 -- 2,087
Capital contributions....... -- 2,109 -- -- -- 2,109
The Reece Corporation
merger................... -- 9,184 9,459 -- -- 18,643
Other....................... -- (32) -- -- -- (32)
------ ------- -------- ------- ------- --------
Balance, December 31, 1994.... 1,536 57,975 76,165 (3,302) -- 132,374
Net income -- 1995.......... -- -- 96,766 -- -- 96,766
Distribution to
stockholders............. -- -- (71,851) -- -- (71,851)
Redemption of stock......... -- (3,960) -- -- -- (3,960)
Decrease in equity
adjustment from foreign
currency translation..... -- -- -- (98) -- (98)
Sale of stock............... 2 1,479 -- -- (1,479) 2
Capital contributions....... -- 8,329 -- -- -- 8,329
Other....................... -- (42) -- -- 18 (24)
------ ------- -------- ------- ------- --------
Balance, December 31, 1995.... $1,538 $63,781 $101,080 $ (3,400) $(1,461) $ 161,538
====== ======= ======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 179
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS)
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
AMF Bowling Group ("the Combined Companies") consists of the following
entities which are controlled by the Virginia Investment Trusts ("the Trusts").
S CORPORATIONS
- - AMF Bowling, Inc. ("AMF Bowling")
- - AMF Bowling Centers, Inc. ("AMF Bowling Centers")
- - AMF Beverage Company of Oregon, Inc.
- - King Louie Lenexa, Inc.
- - AMF Bowling Centers (Aust) International Inc.
- - AMF Bowling Centers (Canada) International Inc.
- - AMF BCO -- France One, Inc.
- - AMF BCO -- France Two, Inc.
- - AMF Bowling Centers (Hong Kong) International Inc.
- - AMF Bowling Centers International, Inc. -- Japan
- - AMF Bowling Mexico Holding Inc.
- - Boliches AMF, Inc.
- - AMF Bowling Centers II, Inc. -- Switzerland
- - AMF BCO -- U.K. One, Inc.
- - AMF BCO -- U.K. Two, Inc.
- - AMF BCO -- China, Inc.
- - AMF Bowling Centers China, Inc.
OTHER
- - AMF Catering Services Pty, Ltd.
- - Bush River Corporation
The Combined Companies operate 285 bowling centers at December 31, 1995 in
the United States and in nine foreign countries and manufacture and distribute a
full line of bowling and leisure related products. The principal markets for
bowling and leisure related equipment are domestic and foreign independent
bowling center operators. The accompanying combined financial statements have
been prepared for the purpose of presenting the financial position and results
of operations of the bowling related operations of the various entities
controlled by the Trusts.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying combined financial statements have been prepared on the
accrual basis of accounting and conform in all material respects to accounting
principles generally accepted in the United States. The accompanying combined
financial statements are stated in U.S. dollars. All significant intercompany
and intracompany balances and transactions have been eliminated in the
accompanying combined financial statements.
F-7
<PAGE> 180
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. The more significant estimates made by management include allowances for
obsolete inventory, uncollectible accounts receivable and litigation and claims,
as well as product warranty costs. Actual results could differ from those
estimates.
FISCAL YEAR
The entities included in the accompanying combined financial statements
operate on fiscal years ending on December 31, except for AMF Bowling Centers,
which operated on a 52-week period ended on the last Sunday in December during
1993 and 1994, and the Fair Lanes operation which operated on a fiscal period
ended on December 29, 1994. For 1995, AMF Bowling Centers, including the
acquired Fair Lanes operation, adopted a calendar month-end; accordingly, the
results of operations for the period ended December 31, 1995 include AMF Bowling
Centers' operations for the period December 26, 1994 (December 30, 1994 with
respect to Fair Lanes operations) through December 31, 1995.
REVENUE RECOGNITION
Revenue is generally recognized from the sale of products at the time the
products are shipped. For larger contract orders, the Combined Companies
generally require that customers submit a deposit as a condition of accepting
the order. For nonaffiliate international sales, the Combined Companies
generally require the customer to obtain a letter of credit prior to shipment.
WARRANTY COSTS
AMF Bowling offers warranties for its various products and provides, by a
current charge to income, an amount it estimates will be needed to cover future
warranty obligations for products sold. Warranty expense aggregated $2,748,
$4,963 and $3,468 for the years ended December 31, 1995, 1994 and 1993,
respectively.
CASH AND CASH EQUIVALENTS
For the purpose of the statement of cash flows, the Combined Companies
consider all highly liquid debt instruments purchased with an original maturity
of three months or less at the date of purchase to be cash equivalents.
INVENTORIES
Manufacturing inventory is valued at the lower of cost or market, cost
being determined using the last-in, first-out (LIFO) method for domestic
inventories and the first-in, first-out (FIFO) method for foreign inventories.
Bowling center inventory is valued at the lower of cost or market with the
cost being determined using the actual or average cost method.
F-8
<PAGE> 181
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for maintenance and
repairs which do not improve or extend the life of an asset are charged to
expense as incurred; major renewals or betterments are capitalized to the
property accounts. Upon retirement or sale of an asset, its cost and related
accumulated depreciation are removed from the property accounts, and any gain or
loss is recognized.
Property and equipment are depreciated over their estimated useful lives
using straight-line and accelerated methods. Estimated useful lives of property
and equipment for financial reporting purposes are as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................... 5 - 40 years
Bowling and related equipment................................. 5 - 10 years
Manufacturing equipment....................................... 2 - 7 years
Furniture and fixtures........................................ 3 - 8 years
</TABLE>
INCOME TAXES
Certain of the Combined Companies included in the accompanying combined
financial statements have elected S Corporation status under the Internal
Revenue Code (see Note 1). As an S Corporation, the companies may be liable for
U.S. federal income taxes under certain circumstances and liable for state
income taxes in certain jurisdictions; all other domestic income taxes are the
responsibility of the Combined Companies' stockholders.
The foreign branches of the S Corporations and other foreign entities file
income tax returns and pay taxes in their respective countries. The stockholders
receive a tax credit, subject to certain limitations, in their U.S. federal
income tax returns for foreign taxes paid by the foreign branches of the S
Corporations and certain other foreign entities.
Effective January 1, 1993, the Combined Companies adopted, on a prospective
basis, Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting
for Income Taxes." SFAS No. 109 mandates the liability method for computing
deferred income taxes. Because the Combined Companies have elected S Corporation
status, deferred income taxes are only provided with respect to state and
foreign income taxes. Adoption did not have a material effect on the
accompanying combined financial statements.
RESEARCH AND DEVELOPMENT COSTS
Expenditures relating to the development of new products, including
significant improvements and refinements to existing products, are expensed as
incurred. The amounts charged against income were approximately $3,600, $3,075
and $1,325 for the years ended December 31, 1995, 1994 and 1993, respectively.
ADVERTISING COSTS
Costs incurred for producing and communicating advertising are expensed
when incurred. The amounts charged against income were approximately $12,250,
$10,400 and $8,800 for the years ended December 31, 1995, 1994 and 1993,
respectively.
F-9
<PAGE> 182
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
FOREIGN CURRENCY
In accordance with SFAS No. 52, "Foreign Currency Translation," all assets
and liabilities of the Combined Companies' foreign operations are translated
from foreign currencies into U.S. dollars at year-end exchange rates. Revenue
and expenses of foreign operations are translated using average exchange rates
that existed during the year and reflect currency exchange gains and losses
resulting from transactions conducted in other than local currencies.
Adjustments resulting from the translation of financial statements of foreign
operations into U.S. dollars are included in the equity adjustment from foreign
currency translation on the accompanying combined balance sheets. Gains and
losses arising from transactions in foreign currencies are included as a
separate item in the accompanying combined statements of income.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments including cash and cash
equivalents, accounts receivable, accounts payable and short-term debt
approximated fair value at December 31, 1995 and 1994 because of the short
maturity of these instruments. The carrying value of long-term receivables and
payables approximated fair value as of December 31, 1995 and 1994 based upon
market rates for similar instruments.
NONCOMPETE AGREEMENTS
The Combined Companies have noncompete agreements with various individuals.
The assets are recorded at cost or at the present value of payments to be made
under these agreements, discounted at annual rates ranging from 8%-10%. The
assets are included in other noncurrent assets and are amortized on a
straight-line basis over the terms of the agreements. Noncompete obligations at
December 31, 1995 and 1994 were approximately $3,300 and $5,400, respectively.
Annual maturities on non-compete obligations as of December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
PERIOD ENDING
DECEMBER 31,
- ------------------------------------------------------------------------------------
<S> <C>
1996................................................................................ 900
1997................................................................................ 700
1998................................................................................ 700
1999................................................................................ 400
2000................................................................................ 100
Thereafter.......................................................................... 500
------
$3,300
======
</TABLE>
NOTE 3 -- RELATED PARTY TRANSACTIONS
The Combined Companies have significant related party transactions with
several companies which are affiliated through common ownership and with certain
of its officers, directors and stockholders. A summary of the significant
balances and transactions with related parties follows.
F-10
<PAGE> 183
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
Accounts and notes receivable -- affiliates, including accrued interest, at
December 31, 1995 and 1994 consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
------- -------
<S> <C> <C>
Accounts receivable -- affiliates............................ $ 2,084 $ 515
======= =======
Notes receivable -- AMF Reece................................ $12,910 $12,148
Notes receivable -- stockholders............................. 11,130 10,128
Note receivable -- AMF Machinery Systems (AMS)............... 796 1,007
------- -------
24,836 23,283
Current maturities........................................... (1,895) (1,676)
------- -------
$22,941 $21,607
======= =======
</TABLE>
Notes receivable -- AMF Reece represents various notes, plus accrued and
unpaid interest income, between AMF Bowling and AMF Reece, an affiliated
company. The notes earn interest monthly based on the LIBOR rate plus 0.75%,
which was 6.48% at December 31, 1995. Interest income for the year ended
December 31, 1995 was $762.
Notes receivable -- stockholders represents notes of $9,394 plus accrued
and unpaid interest income, between the Combined Companies and its stockholders.
The notes bear interest at the LIBOR, plus 0.75%, which was 6.48% at December
31, 1995. Interest income for the years ended December 31, 1995, 1994 and 1993
was $602, $70 and $55, respectively.
Accounts and notes payable -- affiliates at December 31, 1995 and 1994
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
-------- --------
<S> <C> <C>
Accounts payable -- stockholders........................... $ 322 $ 1,872
Accounts payable -- AMS.................................... 1,619 1,349
Accounts payable -- CCA Industries......................... 48 96
-------- --------
$ 1,989 $ 3,317
======== ========
Notes payable -- stockholders.............................. $117,022 $123,065
Note payable -- Fair Lanes, Inc............................ 24,096 20,827
Notes payable -- AMS....................................... 5,609 5,462
Capital lease obligations -- Commonwealth Leasing
Corporation (CLC)........................................ -- 8,298
-------- --------
146,727 157,652
Current maturities......................................... -- (12,193)
-------- --------
Long-term portion.......................................... $146,727 $145,459
======== ========
</TABLE>
Notes payable -- stockholders includes $88,323, plus accrued and unpaid
interest, at December 31, 1995 ($80,350 at December 31, 1994) of 9.5% notes of
Fair Lanes, Inc. ("Fair Lanes") which were acquired by certain stockholders in
conjunction with the acquisition of Fair Lanes (Note 14). The note balance
includes interest from the period July 15, 1994 through January 15, 1995 which
was paid through the issuance of additional notes. The notes were assumed by AMF
Bowling Centers in connection with the acquisition of the assets of Fair Lanes
on July 2, 1995. The
F-11
<PAGE> 184
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
notes are payable in 2001. Interest expense for the years ended December 31,
1995 and 1994 was approximately $8,053 and $1,900, respectively.
Notes payable -- stockholders includes $16,773, plus accrued and unpaid
interest, on a $60,000 revolving line of credit between AMF Bowling Centers and
its stockholders which matures on December 31, 1998 and bears interest at the
lesser of the prime rate or the LIBOR rate plus 0.50% (6.23% at December 31,
1995). Interest expense on these notes was $562, $1,922 and $1,945 for the years
ended December 31, 1995, 1994 and 1993, respectively.
Also, included in notes payable -- stockholders is a $1,943 note, plus
accrued and unpaid interest, which represents the balance outstanding on a
$16,000 revolving line of credit between AMF Bowling and its stockholders. The
line bears interest at the prime rate (8.5% at December 31, 1995). Interest
expense on this note was $179 for the year ended December 31, 1995.
The average amount outstanding under the various lines of credit was $7,865
during fiscal 1995 and $34,733 during fiscal 1994. The maximum amount
outstanding under these agreements was $21,246 during fiscal 1995 and $43,403
during fiscal 1994. The average interest rate on the outstanding debt was 7.5%
during fiscal 1995 and 5.56% during fiscal 1994.
Note payable -- Fair Lanes relates to the acquisition of Fair Lanes' net
assets by AMF Bowling Centers from the AMF stockholders. The note bears interest
at prime and is payable on December 31, 1998. Interest expense for the year
ended December 31, 1995 was $1,187. The note bears interest at the prime rate
(8.5% at December 31, 1995).
The notes payable of $5,609 to AMS consist of various notes plus accrued
and unpaid interest which bear interest at 8.5%-11% and are payable on demand.
Interest expense on these notes was $417, $380 and $532 for the years ended
December 31, 1995, 1994 and 1993, respectively.
OTHER RELATED PARTY TRANSACTIONS
The Combined Companies were charged $1,622, $1,198 and $2,270 in management
fees for certain consulting and administrative services performed by affiliated
companies during the years ended December 31, 1995, 1994 and 1993, respectively.
In May 1995, the Combined Companies began purchasing health insurance from
CCA Industries, an affiliated company, on a fully insured basis. Total premiums
for the period from May 1995 to December 31, 1995 aggregated $889.
During the year ended December 31, 1995, Fair Lanes acquired equipment
which was leased from CLC, an affiliated company, for $1,367. The difference
between the capitalized lease obligation and the purchase price was treated as
an adjustment of the note payable -- Fair Lanes.
The Combined Companies purchased $1,429, $984 and $688 of used bowling
equipment from CLC during the years ended 1995, 1994 and 1993, respectively.
The Combined Companies charged service fees and sales commissions of $53,
$126 and $50 to CLC during the years ended December 31, 1995, 1994 and 1993,
respectively. These charges have been treated as reductions in selling, general
and administrative expenses.
The Combined Companies lease equipment from CCA Financial, an affiliated
company. Rent expense for the years ended December 31, 1995, 1994 and 1993 was
$444, $550 and $550, respectively.
F-12
<PAGE> 185
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
NOTE 4 -- INVENTORIES
Inventories at December 31, 1995 and 1994 consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
Raw materials.............................................. $ 10,590 $ 10,278
Work-in-progress........................................... 1,522 1,684
Finished goods and spare parts............................. 24,920 18,362
Merchandise inventory...................................... 4,045 4,596
------- -------
41,077 34,920
Inventory valuation reserves............................... (1,256) (800)
------- -------
$ 39,821 $ 34,120
======= =======
</TABLE>
Inventories were determined using the following methods at December 31,
1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
LIFO (Domestic manufacturing).............................. $ 24,389 $ 22,324
FIFO (Foreign manufacturing)............................... 11,387 7,200
Other (Merchandise inventory).............................. 4,045 4,596
------- -------
$ 39,821 $ 34,120
======= =======
</TABLE>
If LIFO inventories had been valued at current costs, they would have been
greater by $2,496 and $2,467 at December 31, 1995 and 1994, respectively.
NOTE 5 -- PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1994 consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
Land....................................................... $ 25,692 $ 24,179
Buildings and improvements................................. 138,448 130,221
Equipment, furniture and fixtures.......................... 251,936 236,990
Construction in progress................................... 1,925 537
--------- ---------
418,001 391,927
Less: accumulated depreciation............................. (158,277) (122,291)
--------- ---------
$ 259,724 $ 269,636
========= =========
</TABLE>
Depreciation expense was $37,889, $23,184 and $19,029 for the years ended
December 31, 1995, 1994 and 1993, respectively.
F-13
<PAGE> 186
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
NOTE 6 -- ACCRUED EXPENSES AND DEPOSITS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
Accrued compensation....................................... $ 7,152 $ 9,140
League bowling accounts.................................... 6,368 6,376
Other...................................................... 16,808 19,016
------- -------
$ 30,328 $ 34,532
======= =======
</TABLE>
NOTE 7 -- LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1994 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
Notes payable to bank -- guaranteed............................ $ 3,764 $ --
Mortgage and equipment notes................................... 14,469 15,496
Fair Lanes -- 9.5% note payable................................ -- 10,000
Industrial development bond.................................... 1,354 1,450
Note payable to bank........................................... -- 315
Other.......................................................... 1,047 1,105
------- -------
20,634 28,366
Current maturities............................................. (1,084) (3,288)
------- -------
Long-term portion.............................................. $19,550 $25,078
======= =======
</TABLE>
Notes payable to bank -- guaranteed represents a credit agreement entered
into between AMF Bowling Centers and a bank under which up to $32,750 may be
borrowed. An additional $25,000 may be borrowed from one or more additional
financial institutions. The notes bear interest at a rate equal to the lesser of
the prime rate or the LIBOR rate plus 0.50% (6.23% at December 31, 1995). The
notes are secured by certain tangible personal property of AMF Bowling Centers
and are guaranteed by certain stockholders. The bank credit agreement matures on
April 15, 1997, with the bank's commitment reduced by $3,750 in fiscal 1996
prior to final maturity. The bank credit agreement places certain limitations on
AMF Bowling Centers such that AMF Bowling Centers cannot sell assets or obtain
new debt. The agreement also requires AMF Bowling Centers to meet certain
financial covenants, including maximum debt to equity ratios, minimum tangible
net worth requirements and minimum earnings to charge ratios.
The mortgage and equipment notes are secured by first deeds of trust on
various bowling centers. The notes generally require monthly payments and mature
at various times through October 2008. Interest rates on these notes are
generally fixed and range from 3% to 12%.
The Industrial Development Bond is secured by a first deed of trust on one
of the bowling centers. The bond bears interest at a fluctuating rate based on
the prime rate of the lending bank (6.947% at December 31, 1995). Monthly
principal and interest payments are due through August 2001.
Note payable to bank represents a credit agreement between AMF Bowling and
a bank under which up to $15,000 may be borrowed. This arrangement is due to
expire on April 30, 1996. There were no borrowings at December 31, 1995 under
the agreement. Interest is payable monthly at the
F-14
<PAGE> 187
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
lower of the bank's prime rate or the adjusted LIBOR plus 0.50% (6.23% at
December 31, 1995). This agreement requires certain financial covenants to be
met, including maximum debt to equity ratios, minimum tangible net worth
requirements and minimum earnings to charge ratios.
AMF Bowling has a $3,500 revolving credit line with a bank which will
expire on June 30, 1996. No balance was outstanding at December 31, 1995.
Interest on outstanding borrowings is payable quarterly at the lower of the
bank's prime interest rate or the adjusted LIBOR rate plus 0.50% (6.23% at
December 31, 1995). Under this line were two standby letters of credit with
amounts outstanding at December 31, 1995 of $1,138, expiring on December 1,
1996, and of $12, expiring on August 19, 1996.
The average amount outstanding under the various lines of credit was
$21,807 during fiscal 1995 and $4,801 during fiscal 1994. The maximum amount
outstanding under these credit arrangements was $39,454 during fiscal 1995 and
$27,334 during fiscal 1994. The average interest rate on these credit
arrangements was 6.43% during fiscal 1995 and 6.06% during fiscal 1994.
AMF Bowling has available a foreign exchange line of $5,000 and a letter of
credit line of $1,000. No balances were outstanding at December 31, 1995. One
standby letter of credit with an amount at December 31, 1995 of $535, expiring
on January 18, 1996, and four import letters of credit totaling $142 were
outstanding under these lines.
Annual maturities of long-term debt as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
PERIOD ENDING
DECEMBER 31,
- -------------
<S> <C> <C>
1996............................................................... $ 1,084
1997............................................................... 6,150
1998............................................................... 1,077
1999............................................................... 778
2000............................................................... 4,198
Thereafter......................................................... 7,347
-------
$20,634
=======
</TABLE>
NOTE 8 -- INCOME TAXES
Income (loss) before income taxes consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
United States............................. $ 77,931 $ 75,807 $63,665
Foreign................................... 30,933 39,948 33,883
------- -------- -------
$108,864 $115,755 $97,548
======= ======== =======
</TABLE>
F-15
<PAGE> 188
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
The income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
CURRENT TAX EXPENSE
U.S. federal........................................ $ -- $ -- $ --
State and local..................................... 1,065 481 828
Foreign............................................. 11,961 15,450 14,902
------- ------- -------
Total current....................................... 13,026 15,931 15,730
------- ------- -------
DEFERRED TAX EXPENSE (BENEFIT)
U.S. federal........................................ -- -- --
State and local..................................... (32) -- --
Foreign............................................. (896) 521 (603)
------- ------- -------
Total deferred...................................... (928) 521 (603)
------- ------- -------
Total provisions.................................... $12,098 $16,452 $15,127
======= ======= =======
</TABLE>
Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
DEFERRED TAX ASSETS
Current assets................................................. $ 1,198 $ 1,009
Noncurrent assets.............................................. 799 122
------- -------
Total deferred tax assets...................................... 1,997 1,131
------- -------
DEFERRED TAX LIABILITIES
Noncurrent liabilities......................................... (1,998) (2,005)
------- -------
Total deferred tax liabilities................................. (1,998) (2,005)
------- -------
Net deferred tax liabilities................................... $ (1) $ (874)
======= =======
</TABLE>
The primary determination of the deferred tax assets are book accruals not
deductible for tax purposes, such as the allowance for bad debts, inventory
reserves and various other accruals. Deferred tax liabilities are a result of
accelerated depreciation methods used for tax purposes.
F-16
<PAGE> 189
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
The provision for income taxes differs from the amount computed by applying
the statutory rate of 35% for the periods December 31, 1995 and 1994 and 34% for
the year ended December 31, 1993 to income before taxes. The principal reasons
for this difference are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Tax at federal statutory rate................... $ 38,102 $ 40,514 $ 33,166
Increase (decrease) in rates resulting from:
S Corporation election for U.S. federal tax
purposes................................... (38,102) (40,514) (33,166)
State and local taxes......................... 1,033 481 828
Foreign income taxes.......................... 11,065 15,971 14,299
-------- -------- --------
Total......................................... $ 12,098 $ 16,452 $ 15,127
======== ======== ========
</TABLE>
PRO FORMA PROVISION FOR INCOME TAXES (UNAUDITED) -- SEE NOTE 16
In the event the proposed transaction is consummated, the Combined
Companies will no longer be treated as an S Corporation for income tax purposes
in the United States, and in certain state jurisdictions.
Accordingly, the combined statements of income include a pro forma
adjustment for income taxes which would have been recorded if the Combined
Companies had not been an S Corporation, based on tax laws in effect during
these periods. The pro forma adjustment was computed separately for each entity
and then combined, except for purposes of computing the utilization of foreign
tax credits which were considered in the aggregate for the Combined Companies.
Pro forma income tax provisions are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
CURRENT
U.S. federal.................................... $ 26,404 $ 24,368 $ 18,480
State and local................................. 3,491 3,730 3,088
Foreign......................................... 11,961 15,450 14,902
-------- -------- --------
Total current................................... 41,856 43,548 36,470
-------- -------- --------
DEFERRED
U.S. federal.................................... (317) (979) (570)
State and local................................. (27) (118) (78)
Foreign......................................... (896) 521 (603)
-------- -------- --------
Total deferred.................................. (1,240) (576) (1,251)
-------- -------- --------
Total provisions................................ $ 40,616 $ 42,972 $ 35,219
======== ======== ========
</TABLE>
F-17
<PAGE> 190
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
Temporary differences and carryforwards which give rise to pro forma
deferred tax assets and liabilities at December 31, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
DEFERRED TAX ASSETS
Current assets................................................. $ 6,178 $ 7,938
Noncurrent assets.............................................. 7,124 4,158
------- -------
Total deferred tax assets...................................... 13,302 12,096
------- -------
DEFERRED TAX LIABILITIES
Noncurrent liabilities......................................... (2,707) (2,624)
------- -------
Total deferred tax liabilities................................. (2,707) (2,624)
------- -------
Net deferred tax assets........................................ $10,595 $ 9,472
======= =======
</TABLE>
Pro forma deferred income taxes relate primarily to timing differences
between financial and income tax reporting for depreciation and certain accruals
which are not currently deductible for income tax purposes.
A reconciliation of the Combined Companies' pro forma United States income
tax provision computed by applying the statutory United States federal income
tax rate of 35% (34% in 1993) to the Combined Companies' income before income
taxes is presented in the following table:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Increases (reductions) resulting from:
United States federal income taxes at
statutory rate............................. $ 38,102 $ 40,514 $ 33,166
State taxes, net.............................. 2,272 2,304 1,948
Foreign income taxes.......................... 11,065 15,971 14,299
Foreign tax credits........................... (11,065) (15,971) (14,299)
Other business credits........................ -- (79) (2)
Nondeductible items........................... 171 134 20
Environmental tax............................. 102 103 87
Other......................................... (31) (4) --
------- -------- --------
$ 40,616 $ 42,972 $ 35,219
======= ======== ========
</TABLE>
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
LEASES
The Combined Companies lease certain facilities and equipment under
operating leases which expire at various dates through 2011. These leases
generally contain renewal options and require the Combined Companies to pay
taxes, insurance, maintenance and other expenses in addition to the minimum
annual rentals. Certain leases require contingent payments based on usage of
equipment above certain specified levels. Such contingent rentals amounted to
$1,517, $1,275 and $1,100 for the years ended December 31, 1995, 1994 and 1993,
respectively.
F-18
<PAGE> 191
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
Future minimum rental payments under the operating lease agreements as of
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
PERIOD ENDING
DECEMBER 31,
- -------------
<S> <C> <C>
1996.............................................................. $ 17,500
1997.............................................................. 13,800
1998.............................................................. 11,400
1999.............................................................. 9,900
2000.............................................................. 6,900
Thereafter........................................................ 47,900
-------
$107,400
=======
</TABLE>
Total rent expense under operating leases aggregated approximately $19,250,
$15,650 and $14,325 for the years ended December 31, 1995, 1994 and 1993,
respectively.
LITIGATION AND CLAIMS
AMF Bowling's Pins and Lanes division was the defendant in an
administrative proceeding related to a labor dispute. This claim was resolved in
favor of the division during 1995 and the related reserve of approximately
$1,100 was reversed and was recorded as a reduction of selling, general and
administrative expenses in the accompanying combined statement of income for the
year ended December 31, 1995.
AMF Bowling terminated its Korean distributorship agreement. The Korean
distributor filed suit against the company in Korea seeking an injunction
against AMF Bowling's Seoul Korea branch to prevent AMF Bowling from selling
bowling and bowling related products in Korea. On February 16, 1996, the Korean
court dismissed the litigation on jurisdictional grounds. Such decision is
subject to appeal.
On January 10, 1996, the Korean distributor filed a second suit in the
Supreme Court of the State of New York against AMF Bowling and AMF Bowling
Centers. The suit alleges a number of complaints related to the conduct and
termination of the Korean distributorship agreement and alleges that the
defendants caused the Korean distributor's insolvency. The Korean distributor is
seeking compensatory damages of at least $41,759 and punitive damages of at
least $100,000 or ten times the amount of compensatory damages awarded,
whichever is greater, under each of seven causes of action set forth in the
suit.
Management believes that the Korean distributorship agreement was properly
terminated and the actions against AMF Bowling and AMF Bowling Centers are
without merit. Management intends to vigorously defend against this claim. Under
the terms of the proposed sale agreement (Note 16), the current AMF shareholders
have agreed to indemnify the buyers for any loss related to this litigation.
On March 5, 1996, the defendant in an action entitled Northland Bowl and
Sports Center, Inc. and Recreation Associates, II v. Golden Giant, Inc., d/b/a
Golden Giant Building Systems, Court of Common Pleas, Centre County, Pa. (Index
No. 96-75), asserted a third-party claim against AMF Bowling and other parties.
Defendant, Golden Giant, a construction company, was previously named as
defendant by a bowling center (not owned or operated by the Combined Companies)
in connection with the collapse of the center's roof in early 1994. Golden Giant
has now named AMF Bowling, charging it with negligence and breach of implied
warranty for installing scoring monitors
F-19
<PAGE> 192
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
(four years before the roof collapsed) on a portion of the building that
allegedly could not adequately support the additional weight of the equipment.
The bowling center plaintiff claims total damages in amounts exceeding $3,500,
and Golden Giant asserts that, if plaintiff is entitled to any recovery, it
should be in whole or part against AMF Bowling.
AMF Bowling is involved in a patent infringement suit. The plaintiff in the
case, a competitor of AMF Bowling's Century division, obtained a summary
judgment on the issue of liability in December 1994. The court recently issued
an order which will permit AMF to appeal. The plaintiff claims damages in the
range of $3,000 to $9,000. A trial on damages will not occur unless and until
the liability issue is resolved against AMF Bowling. Management believes the
claim is without merit and intends to vigorously contest the claim.
AMF Bowling Centers and AMF Bowling are defendants in a wrongful death suit
related to an employee. The employee's estate is seeking compensatory damages up
to $3,000 plus $3,000 in punitive damages. However, the plaintiff's counsel has
verbally offered to settle the case for $350. Management believes the claim is
without merit and expects to vigorously contest the claim.
In addition, the Combined Companies are involved in certain other lawsuits
and claims arising out of normal business operations. The majority of these
relate to accidents at the Combined Companies' bowling centers. Management
believes that the ultimate resolution of such matters will not materially affect
the Combined Companies' results of operations or financial position.
While the ultimate outcome of the litigation and claims against the
Combined Companies cannot presently be determined, management believes the
Combined Companies have made adequate provision for possible losses. At December
31, 1995, the Combined Companies had recorded reserves aggregating approximately
$2,800 for litigation and claims, which are included in accrued expenses in the
accompanying combined balance sheet.
NOTE 10 -- EMPLOYEE BENEFIT PLANS
The Combined Companies have a defined contribution (401k) plan to which
domestic employees may make voluntary contributions based on their compensation.
Under the provisions of the plan, the Combined Companies can, at their option,
match a discretionary percentage of employee contributions and make an
additional contribution as determined by their Board of Directors. Contributions
vest 100% after a five-year period. The amounts charged to expense under this
plan were $1,122, $901 and $909 for the years ended December 31, 1995, 1994 and
1993, respectively.
One of the Combined Companies has a Stock Performance Plan ("the Plan") for
certain key employees. Under the terms of the Plan, eligible employees earn
Stock Performance Units as a result of the Company meeting certain operating
performance conditions, as defined by the Plan, relating to (1) sales, (2) cash
flow and (3) operating results. Benefits under the Plan vest over a five-year
period and will be paid in installments over a 10-year period without interest
(or less under certain conditions or if specified by the Company's Board of
Directors) upon the termination of an eligible employee. The Plan can be
terminated or amended at any time by the Company's Board of Directors. The
amount charged to expense under this plan was $622, $311 and $266 for the years
ended December 31, 1995, 1994 and 1993, respectively. The agreement contains a
provision which would accelerate the payout of the benefits from 10 years to
five years upon a change of control event and would require that interest be
paid on the unpaid balance.
Certain of the Combined Companies' foreign operations have employee benefit
plans covering selected employees. These plans vary as to the funding, including
local government, employee and employer funding. Each company has provided for
pension expense and made contributions to
F-20
<PAGE> 193
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
these plans in accordance with the requirements of the plans and local country
practices. The amounts charged to expense under these plans aggregated $806,
$701 and $570 for the years ended December 31, 1995, 1994 and 1993,
respectively.
NOTE 11 -- SUPPLEMENTAL DISCLOSURES TO THE COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Cash paid during the year for:
Interest.......................................... $ 5,909 $ 4,306 $ 3,987
Income taxes...................................... $16,922 $17,593 $15,032
</TABLE>
NOTE 12 -- BUSINESS SEGMENTS
The Combined Companies operate in two major lines of business: operation of
bowling centers and manufacturing of bowling and related products. Information
concerning operations in these business segments for the years ended December
31, 1995, 1994 and 1993, and identifiable assets at December 31, 1995 and 1994,
is presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenue from unaffiliated customers
Bowling Centers
Domestic........................... $192,400 $121,600 $ 94,600
International...................... 99,900 103,800 98,000
-------- -------- --------
292,300 225,400 192,600
Manufacturing......................... 272,600 292,400 235,000
-------- -------- --------
$564,900 $517,800 $427,600
======== ======== ========
Intersegment sales
Bowling Centers
Domestic........................... $ -- $ -- $ --
International...................... -- -- --
-------- -------- --------
-- -- --
Manufacturing......................... 13,900 9,300 8,600
-------- -------- --------
$ 13,900 $ 9,300 $ 8,600
======== ======== ========
Operating income
Bowling Centers
Domestic........................... $ 26,500 $ 17,600 $ 14,700
International...................... 23,700 26,400 21,200
-------- -------- --------
50,200 44,000 35,900
Manufacturing......................... 75,700 80,900 67,700
Eliminations.......................... (1,500) (200) (1,000)
-------- -------- --------
$124,400 $124,700 $102,600
======== ======== ========
</TABLE>
F-21
<PAGE> 194
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Identifiable assets
Bowling Centers
Domestic........................... $224,500 $233,400
International...................... 64,600 62,500
-------- --------
289,100 295,900
Manufacturing......................... 119,800 119,000
Eliminations.......................... (8,500) (4,700)
-------- --------
$400,400 $410,200
======== ========
Depreciation and amortization expense
Bowling Centers
Domestic........................... $ 29,100 $ 14,700 $ 11,800
International...................... 7,500 7,100 6,800
-------- -------- --------
36,600 21,800 18,600
Manufacturing......................... 3,600 3,700 3,400
Eliminations.......................... (1,000) (700) (600)
-------- -------- --------
$ 39,200 $ 24,800 $ 21,400
======== ======== ========
Capital expenditures
Bowling Centers
Domestic........................... $ 17,800 $ 10,400 $ 4,400
International...................... 10,200 4,300 9,300
-------- -------- --------
28,000 14,700 13,700
Manufacturing......................... 4,500 4,100 2,600
Eliminations.......................... (2,500) (1,000) (1,600)
-------- -------- --------
$ 30,000 $ 17,800 $ 14,700
======== ======== ========
</TABLE>
Sales to two distributors located in the Far East represented approximately
29% and 42% of total manufacturing operating revenues in 1995 and 1994,
respectively. In 1993, sales to one distributor represented approximately 24% of
total manufacturing operating revenues.
F-22
<PAGE> 195
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
NOTE 13 -- GEOGRAPHIC SEGMENTS
Information about the Combined Companies' operations in different
geographic areas for the years ended December 31, 1995, 1994 and 1993, and
identifiable assets at December 31, 1995 and 1994, are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net operating revenue:
United States............................. $371,362 $296,273 $233,492
Japan..................................... 50,315 58,165 55,454
Hong Kong................................. 40,757 55,067 33,436
Korea..................................... 6,020 -- --
Australia................................. 47,102 43,945 41,199
United Kingdom............................ 26,128 27,647 28,059
Mexico.................................... 7,774 15,255 13,760
Sweden.................................... 9,982 9,746 8,411
Canada.................................... 598 664 1,110
Spain..................................... 2,668 2,566 4,068
Other European countries.................. 16,073 17,725 17,223
Eliminations.............................. (13,855) (9,267) (8,639)
-------- -------- --------
$564,924 $517,786 $427,573
======== ======== ========
</TABLE>
Net operating revenue for the United States manufacturing operation has
been reduced by $60,980, $69,163 and $50,070 for the years ended December 31,
1995, 1994 and 1993, respectively, to reflect the elimination of intracompany
sales between the domestic manufacturing operation and the manufacturing foreign
sales and service branches.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Operating income
United States............................. $ 92,170 $ 83,278 $ 67,006
Japan..................................... 8,827 13,273 13,689
Hong Kong................................. 6,144 5,164 3,312
Korea..................................... (1,174) -- --
Australia................................. 13,317 11,996 10,498
United Kingdom............................ 2,437 3,744 3,856
Mexico.................................... 1,447 4,326 3,947
Sweden.................................... 1,535 1,685 1,496
Canada.................................... -- 3 (396)
Spain..................................... (95) 325 (65)
Other European countries.................. 1,281 1,054 199
Eliminations.............................. (1,476) (170) (942)
-------- -------- --------
$124,413 $124,678 $102,600
======== ======== ========
</TABLE>
F-23
<PAGE> 196
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
Operating income for the United States manufacturing operation has been
reduced by $938, $1,636 and $606 for the years ended December 31, 1995, 1994 and
1993, respectively, to reflect the elimination of intracompany gross profit
between the domestic manufacturing operation and the manufacturing foreign sales
and service branches.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
-------- --------
<S> <C> <C>
Identifiable assets
United States............................................ $311,266 $316,704
Japan.................................................... 22,137 19,149
Hong Kong................................................ 8,531 8,764
Korea.................................................... 2,918 --
Australia................................................ 31,574 32,477
United Kingdom........................................... 11,785 16,321
Mexico................................................... 4,471 6,431
Sweden................................................... 2,619 2,729
Canada................................................... 1,174 1,185
Spain.................................................... 1,971 2,098
Other European countries................................. 8,480 8,988
China.................................................... 2,024 --
Eliminations............................................. (8,572) (4,656)
-------- --------
$400,378 $410,190
======== ========
</TABLE>
Identifiable assets for the foreign sales and service branches have been
reduced by $4,432 and $3,494 at December 31, 1995 and 1994, respectively, to
reflect the elimination of intracompany gross profit in inventory between the
domestic manufacturing operations and the manufacturing foreign sales and
service branches.
NOTE 14 -- BUSINESS COMBINATIONS
Effective December 31, 1994, The Reece Corporation, a related company, was
merged into AMF Bowling. The merger was accounted for at historical cost as a
capital contribution. The Reece Corporation activities for 1995, 1994 and 1993
were not material to the combined financial statements.
Effective August 31, 1994, AMF Bowling acquired certain assets and
liabilities of Legendary Billiards, Inc. ("Legendary") for $215. Legendary is a
manufacturer of billiard cues. The acquisition was accounted for under the
purchase method, and the results of operations are included in the financial
statements from the date of acquisition.
Effective June 30, 1993, AMF Bowling acquired certain assets and
liabilities of Playmaster-Renaissance, Inc. ("Playmaster") for $2,469.
Playmaster is a manufacturer of billiard equipment. The acquisition was
accounted for under the purchase method, and the results of operations are
included in the financial statements from the date of acquisition.
Pro forma results of operations for the Legendary and Playmaster
acquisitions have not been presented because the effects of these acquisitions
were not material.
F-24
<PAGE> 197
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
Fair Lanes, Inc. (Fair Lanes) operated 106 bowling centers in the United
States and Puerto Rico. On June 22, 1994, Fair Lanes and its parent, Fair Lanes
Entertainment, Inc. (FLE), each filed voluntary petitions for relief under
Chapter 11 of Title 11 of the United States Code (Chapter 11). Fair Lanes'
operating subsidiaries did not file for Chapter 11 protection. At the time of
filing, liabilities subject to compromise consisted of Fair Lanes' $138,000
senior secured notes, which were publicly traded, and FLE's debt in the form of
$48,000 variable rate and zero coupon notes (these notes were also publicly
traded). The Bankruptcy Court approved the plan of reorganization effective
September 29, 1994 whereby the holders of FLE's $48,000 of notes received
approximately 6% of Fair Lanes' equity and the holders of Fair Lanes' $138,000
of notes received approximately 94% of Fair Lanes' equity and $90,350 of new
9.5% notes. The former Fair Lanes' equityholders' interests were eliminated as a
result of the reorganization. Through September 29, 1994, AMF's shareholders had
purchased old Fair Lanes' and FLE's notes which resulted in the AMF shareholders
obtaining approximately 56% of the voting shares of Fair Lanes. One other
shareholder held approximately 35% of the new stock and the remaining 9% was
held by other shareholders. The AMF shareholders were able to acquire the shares
held by the 35% shareholder on January 7, 1996 and an additional 2% of the
shares from other shareholders in open market purchases. On February 7, 1996,
the AMF shareholders affected a cash merger and bought out the remaining
shareholders.
The Fair Lanes' acquisition was accounted for as a purchase. As a result of
the relatively short acquisition period and the fact that the minority
shareholders' interest was not affected for losses during the acquisition
period, the combined financial statements include the results of operations for
periods subsequent to September 29, 1994.
The assets acquired and liabilities assumed were recorded at their
estimated fair value as follows:
<TABLE>
<S> <C>
Current assets.................................................. $ 3,059
Property and equipment.......................................... 141,785
Other assets.................................................... 12,643
Current liabilities............................................. (22,672)
Long-term liabilities........................................... (116,174)
---------
Purchase price.................................................. $ 18,641
=========
</TABLE>
The following summary presents unaudited pro forma combined results of
operations as if the acquisition of Fair Lanes occurred at the beginning of
1994, and includes adjustments related to depreciation of fixed assets and
interest expense on debt assuming the initial purchase price allocation occurred
as of January 1, 1994. In addition, expenses related to the Chapter 11
reorganization have been eliminated. The pro forma results are for illustrative
purposes only, and do not purport to be indicative of the actual results which
would have occurred had the transaction been consummated as of January 1, 1994,
nor are they indicative of future results of operations. The pro forma results
do not reflect changes in the business which have occurred subsequent to the
date of acquisition.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
------------
<S> <C>
Operating revenue.............................................. $590,459
Operating income............................................... 113,411
Income before income taxes..................................... 94,949
</TABLE>
F-25
<PAGE> 198
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
NOTE 15 -- STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------------------------------------------------------------
COMMON STOCK NOTES
----------------------- RECEIVABLE TOTAL
ISSUED AND COMMON PAID IN RETAINED DEFERRED STOCK STOCKHOLDERS'
AUTHORIZED OUTSTANDING STOCK CAPITAL EARNINGS TRANSLATION SUBSCRIPTION EQUITY
---------- ----------- ------ ------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AMF Bowling, Inc............... 10,000 950.6689 $ 1 $28,213 $ 54,463 $ 593 $ -- $ 83,270
AMF Bowling Centers, Inc....... 15,000 9,485.1000 9 29,122 13,436 -- (726) 41,841
AMF Beverage Company of Oregon,
Inc.......................... 10,000 94.8510 -- -- 382 -- -- 382
King Louie Lenexa, Inc......... 30,000 94.8510 -- -- 859 -- -- 859
AMF Bowling Centers (Aust.)
International Inc............ 10,000 948.5100 1 492 25,251 (74) (503) 25,167
AMF Bowling Centers (Canada)
International Inc............ 10,000 948.5100 1 2,109 (1,286) 85 -- 909
AMF BCO - France One, Inc...... 10,000 1,000.0000 1 31 681 (44) -- 669
AMF BCO - France Two, Inc...... 10,000 1,000.0000 1 83 1,842 (119) -- 1,807
AMF Bowling Centers (Hong Kong)
International, Inc........... 10,000 948.5100 1 57 2,420 -- (62) 2,416
AMF Bowling Centers
International, Inc.
(Japan)...................... 10,000 9,485.1000 10 156 4,285 611 (170) 4,892
AMF Bowling Mexico Holding,
Inc.......................... 1,000 75.6972 1,507 226 2,753 (3,258) -- 1,228
Boliches AMF, Inc.............. 10,000 100.0000 1 60 814 (815) -- 60
AMF Bowling Centers II Inc.
(Switzerland)................ 1,000 100.0000 1 -- 617 61 -- 679
AMF BCO - U.K. One, Inc........ 10,000 100.0000 1 129 (186) (113) -- (169)
AMF BCO - U.K. Two, Inc........ 10,000 100.0000 1 352 (509) (310) -- (466)
AMF BCO - China, Inc........... 10,000 1,000.0000 1 577 (97) (4) -- 477
AMF Bowling Centers China,
Inc.......................... 10,000 1,000.0000 1 2,174 (367) (13) -- 1,795
Bush River Corporation......... 100,000 18,895.1919 -- -- 230 -- -- 230
Eliminations................... -- -- -- -- (4,508) -- -- (4,508)
------- -------- ------- ------- -------- --------
Totals......................... $1,538 $63,781 $101,080 $(3,400) $ (1,461) $161,538
======= ======== ======= ======= ======== ========
</TABLE>
F-26
<PAGE> 199
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-------------------------------------------------------------------------------------------------
COMMON STOCK NOTES
------------------------ RECEIVABLE TOTAL
ISSUED AND COMMON PAID IN RETAINED DEFERRED STOCK STOCKHOLDERS'
AUTHORIZED OUTSTANDING STOCK CAPITAL EARNINGS TRANSLATION SUBSCRIPTION EQUITY
---------- ----------- ------- ------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AMF Bowling, Inc............... 10,000 970.2237 $ 1 $32,173 $40,894 $ 72 $ -- $ 73,140
AMF Bowling Centers, Inc....... 15,000 9,390.2500 9 22,813 8,668 -- -- 31,490
AMF Beverage Company of Oregon,
Inc.......................... 10,000 93.9025 -- -- 155 -- -- 155
King Louie Lenexa, Inc......... 30,000 93.9025 -- -- 755 -- -- 755
AMF Bowling Centers (Aust.)
International Inc............ 10,000 939.0250 1 -- 19,486 (675) -- 18,812
AMF Bowling Centers (Canada)
International Inc............ 10,000 939.0250 1 2,109 (1,232) 85 -- 963
AMF BCO - France One, Inc...... 10,000 1,000.0000 1 31 522 (70) -- 484
AMF BCO - France Two, Inc...... 10,000 1,000.0000 1 82 1,410 (188) -- 1,305
AMF Bowling Centers (Hong Kong)
International, Inc. ......... 10,000 939.0250 1 -- 1,833 -- -- 1,834
AMF Bowling Centers
International, Inc.
(Japan)...................... 10,000 9,390.2500 10 -- 2,848 882 -- 3,740
AMF Bowling Mexico Holding,
Inc.......................... 1,000 75.6972 1,507 226 3,519 (2,461) -- 2,791
Boliches AMF, Inc.............. 10,000 100.0000 1 60 954 (573) -- 442
AMF Bowling Centers II Inc.
(Switzerland)................ 1,000 100.0000 1 -- 672 12 -- 685
AMF BCO - U.K. One, Inc........ 10,000 100.0000 1 129 (407) (104) -- (381)
AMF BCO - U.K. Two, Inc........ 10,000 100.0000 1 352 (1,110) (282) -- (1,039)
Bush River Corporation......... 100,000 18,706.2400 -- -- 231 -- -- 231
Eliminations................... -- -- -- -- (3,033) -- -- (3,033)
------- -------- ------- ------- -------- --------
Totals......................... $1,536 $57,975 $76,165 $(3,302) $ -- $132,374
======= ======== ======= ======= ======== ========
</TABLE>
NOTE 16 -- SUBSEQUENT EVENTS
OTHER
Effective February 29, 1996, the stock of AMF Bowling, S.A. was distributed
to the shareholders of Boliches AMF, Inc. and AMF Bowling Mexico Holding, Inc.
AMF Bowling, S.A. operates two bowling centers in Spain and had total assets and
stockholders' equity of approximately $1,800 and $900, respectively, at December
31, 1995.
Cash distributions to shareholders from January 1, 1996 to March 1, 1996
aggregated $6,381.
F-27
<PAGE> 200
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
SALE TRANSACTION
On February 16, 1996, the stockholders of the Combined Companies executed a
Stock Purchase Agreement, subject to certain closing conditions, to sell the
stock and certain assets of the individual companies to an entity organized by
GS Capital Partners II, L.P. (the "Purchaser"). On May 1, 1996, the sale
transaction was completed.
In conjunction with the acquisition of the Combined Companies, AMF Group
Inc. issued Senior Subordinated Notes and Senior Subordinated Discount Notes on
March 21, 1996. On May 1, 1996, AMF Group Inc. executed a bank credit agreement
and certain additional subsidiaries of AMF Group Inc. became guarantors of the
Senior Subordinated Notes and the Senior Subordinated Discount Notes. These
financing arrangements provide for guarantees by the following companies which
became indirect subsidiaries of AMF Group Inc., which is the borrower and issuer
of the notes evidencing such indebtedness. Guarantor companies include the
following:
- AMF Bowling Centers, Inc.
- Bush River Corporation
- King Louie Lenexa, Inc.
- AMF Beverage Company of Oregon, Inc.
- AMF Bowling, Inc.
- AMF Bowling Centers (Aust) International Inc.
- AMF Bowling Centers (Canada) International Inc.
- AMF BCO -- France One, Inc.
- AMF BCO -- France Two, Inc.
- AMF Bowling Centers (Hong Kong), International Inc.
- AMF Bowling Centers International, Inc. (Japan)
- AMF Bowling Mexico Holding Inc.
- Boliches AMF, Inc.
- AMF BCO -- U.K. One, Inc.
- AMF BCO -- U.K. Two, Inc.
- AMF BCO -- China, Inc.
- AMF Bowling Centers China, Inc.
Included with the guarantor companies is AMF Bowling Centers II, Inc.
(Switzerland) which sold assets of one bowling center to a newly formed
subsidiary of AMF Group Inc., which became a guarantor.
F-28
<PAGE> 201
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
Non-guarantor companies include the following foreign subsidiaries of certain of
the guarantor companies:
- AMF Bowling (Unlimited)
- Worthington North Properties Limited
- AMF Bowling France SNC
- AMF Bowling de Paris SNC
- AMF Bowling de Lyon La Part Dieu SNC
- AMF Bowling S.A.
- Boliches y Compania
- Operadora Mexicana de Boliches, S.A.
- Promotora de Boliches, S.A. de C.V.
- Inmeubles Obispado, S.A.
- Inmeubles Minerva, S.A.
- Boliches Mexicano, S.A.
- AMF Bowling Centers (China) Company
- AMF Garden Hotel Bowling Center Company
Included in the non-guarantor companies is AMF Bowling S.A. which sold assets of
two bowling centers in Spain to a newly formed subsidiary of AMF Group Inc.,
which became a guarantor company.
The following condensed combining information presents:
- Condensed combining balance sheets as of December 31, 1995 and 1994 and
the related condensed combining statements of income and of cash flows
for the years ended December 31, 1995, 1994 and 1993.
- Elimination entries necessary to combine the entities comprising the
Combined Companies.
F-29
<PAGE> 202
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
CONDENSED COMBINING BALANCE SHEETS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 8,843 $ 889 $ -- $ 9,732
Accounts and notes receivable, net of
allowance for doubtful accounts....... 37,499 1,527 -- 39,026
Accounts and notes
receivable -- affiliates.............. 4,477 7,465 (7,963) 3,979
Inventories.............................. 38,042 1,779 -- 39,821
Prepaid expenses and other............... 3,944 1,238 -- 5,182
-------- ------- ------- --------
Total current assets.................. 92,805 12,898 (7,963) 97,740
Notes receivable -- affiliates............. 22,941 -- -- 22,941
Property and equipment, net................ 250,637 10,582 (1,495) 259,724
Other assets............................... 29,869 822 (10,718) 19,973
-------- ------- ------- --------
Total assets.......................... $396,252 $24,302 $(20,176) $400,378
======== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................... $ 22,313 $ 1,403 $ (75) $ 23,641
Book overdrafts.......................... 2,362 -- -- 2,362
Accrued expenses and deposits............ 28,203 2,125 -- 30,328
Accounts and notes
payable -- affiliates................. 1,821 7,033 (6,865) 1,989
Long-term debt, current portion.......... 1,084 -- -- 1,084
Income taxes payable..................... 5,930 1,199 -- 7,129
-------- ------- ------- --------
Total current liabilities............. 61,713 11,760 (6,940) 66,533
Long-term debt............................. 19,550 -- -- 19,550
Notes payable -- affiliates................ 146,639 1,076 (988) 146,727
Other liabilities.......................... 5,282 748 -- 6,030
-------- ------- ------- --------
Total liabilities..................... 233,184 13,584 (7,928) 238,840
-------- ------- ------- --------
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock............................. 1,538 3,941 (3,941) 1,538
Paid-in capital.......................... 63,781 4,153 (4,153) 63,781
Retained earnings........................ 102,610 7,300 (8,830) 101,080
Equity adjustment from foreign currency
translation........................... (3,400) (4,676) 4676 (3,400)
Notes receivable stock subscription...... (1,461) -- -- (1,461)
-------- ------- ------- --------
Total stockholders' equity............ 163,068 10,718 (12,248) 161,538
-------- ------- ------- --------
Total liabilities and stockholders'
equity.............................. $396,252 $24,302 $(20,176) $400,378
======== ======= ======= ========
</TABLE>
F-30
<PAGE> 203
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
CONDENSED COMBINING BALANCE SHEETS
DECEMBER 31, 1994
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 6,653 $ 1,521 $ -- $ 8,174
Accounts and notes receivable, net of
allowance for doubtful accounts....... 47,867 2,779 -- 50,646
Accounts and notes
receivable -- affiliates.............. 610 1,669 (88) 2,191
Inventories.............................. 32,321 1,799 -- 34,120
Prepaid expenses and other............... 2,963 721 -- 3,684
-------- ------- ------- --------
Total current assets.................. 90,414 8,489 (88) 98,815
Notes receivable -- affiliates............. 21,607 -- -- 21,607
Property and equipment, net................ 259,892 10,992 (1,248) 269,636
Other assets............................... 28,008 776 (8,652) 20,132
-------- ------- ------- --------
Total assets.......................... $399,921 $20,257 $ (9,988) $410,190
======== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................... $ 31,999 $ 1,311 $ -- $ 33,310
Book overdrafts.......................... 3,799 -- -- 3,799
Accrued expenses and deposits............ 31,859 2,673 -- 34,532
Accounts and notes
payable -- affiliates................. 11,200 4,398 (88) 15,510
Long-term debt, current portion.......... 3,288 -- -- 3,288
Income taxes payable..................... 7,989 2,086 -- 10,075
-------- ------- ------- --------
Total current liabilities............. 90,134 10,468 (88) 100,514
Long-term debt............................. 25,078 -- -- 25,078
Notes payable -- affiliates................ 145,459 -- -- 145,459
Other liabilities.......................... 5,628 1,137 -- 6,765
-------- ------- ------- --------
Total liabilities..................... 266,299 11,605 (88) 277,816
-------- ------- ------- --------
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock............................. 1,536 3,941 (3,941) 1,536
Paid-in capital.......................... 57,975 1,400 (1,400) 57,975
Retained earnings........................ 77,413 6,989 (8,237) 76,165
Equity adjustment from foreign currency
translation........................... (3,302) (3,678) 3,678 (3,302)
Total stockholders' equity............ 133,622 8,652 (9,900) 132,374
-------- ------- ------- --------
Total liabilities and stockholders'
equity.............................. $399,921 $20,257 $ (9,988) $410,190
======== ======= ======= ========
</TABLE>
F-31
<PAGE> 204
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
CONDENSED COMBINING STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Operating revenue:
Sales of products and services........... $532,349 $34,197 $ (2,548) $563,998
Revenue from operating lease
activities............................ 926 -- -- 926
-------- -------- ------- -------
Total operating revenue............... 533,275 34,197 (2,548) 564,924
-------- -------- ------- -------
Operating expenses:
Cost of sales............................ 183,511 4,730 (1,581) 186,660
Bowling center operations................ 185,055 16,930 -- 201,985
Selling, general and administrative...... 45,890 6,696 (720) 51,866
-------- -------- ------- -------
Total operating expenses.............. 414,456 28,356 (2,301) 440,511
-------- -------- ------- -------
Operating income...................... 118,819 5,841 (247) 124,413
Nonoperating income (expenses):
Interest expense......................... (15,569) (142) -- (15,711)
Other expenses, net...................... (600) (443) -- (1,043)
Interest income.......................... 1,837 347 -- 2,184
Equity in earnings of subsidiaries....... 3,444 -- (3,444) --
Foreign currency transaction loss........ (465) (514) -- (979)
-------- -------- ------- -------
Income before income taxes................. 107,466 5,089 (3,691) 108,864
Income tax expense......................... 10,453 1,645 -- 12,098
-------- -------- ------- -------
Net income............................ $ 97,013 $ 3,444 $ (3,691) $ 96,766
======== ======== ======= =======
</TABLE>
F-32
<PAGE> 205
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
CONDENSED COMBINING STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Operating revenue:
Sales of products and services........... $478,056 $ 40,930 $ (3,560) $515,426
Revenue from operating lease
activities............................ 969 1,391 -- 2,360
-------- -------- ------- --------
Total operating revenue............... 479,025 42,321 (3,560) 517,786
-------- -------- ------- --------
Operating expenses:
Cost of sales............................ 192,941 6,694 (1,901) 197,734
Bowling center operations................ 117,619 22,061 (1,642) 138,038
Selling, general and administrative...... 52,586 4,750 -- 57,336
-------- -------- ------- --------
Total operating expenses.............. 363,146 33,505 (3,543) 393,108
-------- -------- ------- --------
Operating income...................... 115,879 8,816 (17) 124,678
Nonoperating Income (expenses):
Interest expense......................... (7,164) (230) -- (7,394)
Other expenses, net...................... (1,188) -- -- (1,188)
Interest income.......................... 231 295 -- 526
Equity in earnings of subsidiaries....... 5,179 -- (5,179) --
Foreign currency transaction loss........ (654) (213) -- (867)
-------- -------- ------- --------
Income before income taxes................. 112,283 8,668 (5,196) 115,755
Income tax expense......................... 12,963 3,489 -- 16,452
-------- -------- ------- --------
Net income............................ $ 99,320 $ 5,179 $ (5,196) $ 99,303
======== ======== ======= ========
</TABLE>
F-33
<PAGE> 206
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
CONDENSED COMBINING STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Operating revenue:
Sales of products and services................. $389,341 $39,053 $ (3,584) $424,810
Revenue from operating lease activities........ 1,744 1,019 -- 2,763
-------- ------- ------- --------
Total operating revenue..................... 391,085 40,072 (3,584) 427,573
-------- ------- ------- --------
Operating expenses:
Cost of sales.................................. 150,605 6,197 (1,859) 154,943
Bowling center operations...................... 101,800 23,341 (1,207) 123,934
Selling, general and administrative............ 42,411 3,685 -- 46,096
-------- ------- ------- --------
Total operating expenses.................... 294,816 33,223 (3,066) 324,973
-------- ------- ------- --------
Operating income............................ 96,269 6,849 (518) 102,600
Nonoperating income (expenses):
Interest expense............................... (4,787) (214) -- (5,001)
Other expenses, net............................ (523) -- -- (523)
Interest income................................ 446 451 -- 897
Equity in earnings of subsidiaries............. 4,537 -- (4,537) --
Foreign currency transaction loss.............. (391) (34) -- (425)
-------- ------- ------- --------
Income before income taxes....................... 95,551 7,052 (5,055) 97,548
Income tax expense............................... 12,612 2,515 -- 15,127
-------- ------- ------- --------
Net income.................................. $ 82,939 $ 4,537 $ (5,055) $ 82,421
======== ======= ======= ========
</TABLE>
F-34
<PAGE> 207
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
CONDENSED COMBINING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 97,013 $ 3,444 $ (3,691) $ 96,766
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in earnings of subsidiaries.......... (3,444) -- 3,444 --
Dividends from non-guarantor companies...... 3,133 -- (3,133) --
Depreciation and amortization............... 36,661 2,682 (204) 39,139
Deferred income taxes....................... 215 (1,045) -- (830)
Loss on sale of property and equipment,
net....................................... 567 567
Changes in assets and liabilities, net of
effects from companies acquired:
Accounts and notes receivable, net........ 11,864 (1,234) -- 10,630
Receivables and payables -- affiliates.... 7,262 (1,115) -- 6,147
Inventories............................... (5,596) (400) -- (5,996)
Other assets and liabilities.............. (2,484) (369) 2,752 (101)
Accounts payable and accrued expenses..... (19,187) 446 -- (18,741)
Income taxes payable...................... (2,039) (791) -- (2,830)
-------- ------- ------- --------
Net cash provided by operating
activities........................... 123,965 1,618 (832) 124,751
-------- ------- ------- --------
Cash flows from investing activities:
Purchase of property and equipment............. (26,411) (4,005) 451 (29,965)
Proceeds from sales of property and
equipment................................... 494 916 -- 1,410
Other.......................................... 229 -- -- 229
-------- ------- ------- --------
Net cash used for investing
activities........................... (25,688) (3,089) 451 (28,326)
-------- ------- ------- --------
Cash flows from financing activities:
Dividends to guarantor companies............... -- (3,133) 3,133 --
Payments on credit note agreements, net........ (11,057) -- -- (11,057)
Distributions to stockholders.................. (71,851) -- -- (71,851)
Payment of long-term debt...................... (10,605) 320 -- (10,285)
Payment for redemption of stock................ (3,960) -- -- (3,960)
Proceeds (payments) on notes payable --
stockholders, net........................... (4,882) 1,089 -- (3,793)
Proceeds from long-term debt................... --
Capital contributions by stockholders.......... 8,329 -- -- 8,329
Capital contributions from guarantor........... -- 2,752 (2,752) --
Other.......................................... (2,056) -- -- (2,056)
-------- ------- ------- --------
Net cash (used for) provided by
financing activities................. (96,082) 1,028 381 (94,673)
Effect of exchange rates on cash....... (5) (189) -- (194)
-------- ------- ------- --------
Net increase (decrease) in cash.................. 2,190 (632) -- 1,558
Cash at beginning of year........................ 6,653 1,521 -- 8,174
-------- ------- ------- --------
Cash at end of year.............................. $ 8,843 $ 889 $ -- $ 9,732
======== ======= ======= ========
</TABLE>
F-35
<PAGE> 208
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
CONDENSED COMBINING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
---------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................... $ 99,320 $ 5,179 $ (5,196) $ 99,303
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in earnings of subsidiaries........ (5,179) -- 5,179 --
Dividends from non-guarantor companies.... 5,084 -- (5,084) --
Depreciation and amortization............. 21,606 3,343 (173) 24,776
Deferred income taxes..................... (104) 85 -- (19)
Loss on sale of property and equipment,
net..................................... 911 -- -- 911
Changes in assets and liabilities, net of
effects from companies acquired:
Accounts and notes receivable, net...... (9,325) 311 -- (9,014)
Receivables and
payables -- affiliates............... 3,692 1,033 -- 4,725
Inventories............................. (1,369) (42) -- (1,411)
Other assets............................ (864) (136) -- (1,000)
Accounts payable and accrued expenses... 3,929 (91) -- 3,838
Income taxes payable.................... (3,207) 817 -- (2,390)
----- ----- ---- ------
Net cash provided by operating
activities........................... 114,494 10,499 (5,274) 119,719
----- ----- ---- ------
Cash flows from investing activities:
Acquisitions of operating units, net of cash
acquired.................................. (17,307) -- -- (17,307)
Purchase of property and equipment........... (16,692) (1,286) 190 (17,788)
Proceeds from sales of property and
equipment................................. 1,494 41 -- 1,535
Other........................................ 941 -- -- 941
----- ----- ---- ------
Net cash used for investing
activities........................... (31,564) (1,245) 190 (32,619)
----- ----- ---- ------
Cash flows from financing activities:
Dividends to guarantor companies............. -- (5,084) 5,084 --
Payments on credit note agreements, net...... (3,689) -- -- (3,689)
Distributions to stockholders................ (78,170) -- -- (78,170)
Payment of long-term debt.................... (740) (364) -- (1,104)
Proceeds (payments) on notes payable --
stockholders, net......................... (4,989) (3,571) -- (8,560)
Capital contributions by stockholders........ 2,109 -- -- 2,109
Other........................................ (212) -- -- (212)
----- ----- ---- ------
Net cash used for financing
activities......................... (85,691) (9,019) 5,084 (89,626)
Effect of exchange rates on cash..... 2,488 271 -- 2,759
----- ----- ---- ------
Net increase (decrease) in cash................ (273) 506 -- 233
Cash at beginning of year...................... 6,926 1,015 -- 7,941
----- ----- ---- ------
Cash at end of year............................ $ 6,653 $ 1,521 $ -- $ 8,174
===== ===== ==== ======
</TABLE>
F-36
<PAGE> 209
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
CONDENSED COMBINING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 82,939 $ 4,537 $ (5,055) $ 82,421
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in earnings of subsidiaries.......... (4,537) -- 4,537 --
Dividends from non-guarantor companies...... 5,474 -- (5,474) --
Depreciation and amortization............... 18,382 3,210 (171) 21,421
Deferred income taxes....................... (510) (64) -- (574)
Loss on sale of property and equipment,
net....................................... 803 -- -- 803
Changes in assets and liabilities, net of
effects from companies acquired:
Accounts and notes receivable, net........ (10,335) (527) -- (10,862)
Receivables and payables -- affiliates.... 3,715 (172) -- 3,543
Inventories............................... (1,385) (218) -- (1,603)
Other assets and liabilities.............. 623 170 -- 793
Accounts payable and accrued expenses..... 9,066 (469) -- 8,597
Income taxes payable...................... 593 (404) -- 189
-------- -------- ------- --------
Net cash provided by operating
activities........................... 104,828 6,063 (6,163) 104,728
-------- -------- ------- --------
Cash flows from investing activities:
Acquisitions of operating units, net of cash
acquired.................................... (2,469) -- -- (2,469)
Purchase of property and equipment............. (10,755) (4,621) 689 (14,687)
Proceeds from sales of property
and equipment............................... 1,225 130 -- 1,355
Other.......................................... (8) -- -- (8)
-------- -------- ------- --------
Net cash used for investing
activities........................... (12,007) (4,491) 689 (15,809)
-------- -------- ------- --------
Cash flows from financing activities:
Dividends to guarantor companies............... -- (5,474) 5,474 --
Payments on credit note agreements, net........ (20,065) -- -- (20,065)
Distributions to stockholders.................. (76,968) -- -- (76,968)
Payment of long-term debt...................... (8,427) (262) -- (8,689)
Payment for redemption of stock................ -- -- -- --
Proceeds (payments) on notes payable --
stockholders, net........................... 8,652 641 -- 9,293
Capital contributions by stockholders.......... 5,000 -- -- 5,000
Other.......................................... (240) -- -- (240)
-------- -------- ------- --------
Net cash used for financing
activities........................... (92,048) (5,095) 5,474 (91,669)
Effect of exchange rates on cash....... (154) (117) -- (271)
-------- -------- ------- --------
Net increase (decrease) in cash.................. 619 (3,640) -- (3,021)
Cash at beginning of year........................ 6,307 4,655 -- 10,962
-------- -------- ------- --------
Cash at end of year.............................. $ 6,926 $ 1,015 $ -- $ 7,941
======== ======== ======= ========
</TABLE>
F-37
<PAGE> 210
AMF BOWLING GROUP
CONDENSED COMBINED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
MARCH MARCH 31,
31, 1996 DECEMBER 31,
1996 PRO FORMA 1995
-------- --------- ------------
(NOTE 6)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 12,769 $ 12,769 $ 9,732
Accounts and notes receivable, net of allowance for
doubtful accounts of $3,224 and $3,373,
respectively......................................... 31,080 31,080 39,026
Accounts and notes receivable -- affiliates............. 12,021 12,021 3,979
Inventories............................................. 44,030 44,030 39,821
Prepaid expenses and other.............................. 5,969 5,969 5,182
-------- -------- --------
Total current assets............................ 105,869 105,869 97,740
Notes receivable -- affiliates............................ 23,245 23,245 22,941
Property and equipment, net............................... 253,505 253,505 259,724
Other assets.............................................. 18,252 18,252 19,973
-------- -------- --------
Total assets.................................... $400,871 $ 400,871 $400,378
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 19,039 19,039 $ 23,641
Book overdrafts......................................... 1,350 1,350 2,362
Accrued expenses and deposits........................... 34,640 34,640 30,328
Accounts and notes payable -- affiliates................ -- -- 1,989
Distributions payable to stockholders................... -- 28,109 --
Long-term debt, current portion......................... 951 951 1,084
Income taxes payable.................................... 5,940 5,940 7,129
-------- -------- --------
Total current liabilities....................... 61,920 90,029 66,533
Long-term debt............................................ 27,321 27,321 19,550
Notes payable -- affiliates............................... 132,869 132,869 146,727
Other liabilities......................................... 5,251 5,251 6,030
-------- -------- --------
Total liabilities............................... 227,361 255,470 238,840
-------- -------- --------
Commitments and contingencies (Note 3)
Stockholders' equity:
Common stock............................................ 1,538 1,538 1,538
Paid-in capital......................................... 63,781 63,781 63,781
Retained earnings....................................... 113,519 85,410 101,080
Equity adjustment from foreign currency translation..... (3,879) (3,879) (3,400)
Notes receivable stock subscription..................... (1,449) (1,449) (1,461)
-------- -------- --------
Total stockholders' equity...................... 173,510 145,401 161,538
-------- -------- --------
Total liabilities and stockholders' equity...... $400,871 $ 400,871 $400,378
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE> 211
AMF BOWLING GROUP
CONDENSED COMBINED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1996 1995
-------- --------
<S> <C> <C>
Operating revenues:
Sales of products and services............................. $122,947 $156,536
Revenue from operating lease activities.................... 396 335
-------- --------
Total operating revenues........................... 123,343 156,871
-------- --------
Operating expenses:
Cost of sales.............................................. 31,319 48,712
Bowling center operating expenses.......................... 52,169 52,490
Selling, general and administrative........................ 11,965 14,012
-------- --------
Total operating expenses........................... 95,453 115,214
-------- --------
Operating income................................... 27,890 41,657
Nonoperating expenses:
Interest expense........................................... (3,802) (3,727)
Other expenses, net........................................ (164) (626)
Interest income............................................ 394 403
Foreign currency transaction loss.......................... (22) (222)
-------- --------
Income before income taxes................................... 24,296 37,485
Income tax expense........................................... 2,720 3,305
-------- --------
Net income......................................... $ 21,576 $ 34,180
======== ========
</TABLE>
PRO FORMA FINANCIAL INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1996 1995
-------- --------
<S> <C> <C>
Net income before income taxes and pro forma adjustments..... $ 24,296 $ 37,485
Pro forma C Corporation -- tax provision..................... 9,245 13,958
-------- --------
Pro forma net income......................................... $ 15,051 $ 23,527
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE> 212
AMF BOWLING GROUP
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................. $ 21,576 $ 34,180
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................... 10,969 9,204
Deferred income taxes................................... -- (12)
Loss on sale of property and equipment, net............. -- 341
Changes in assets and liabilities:
Accounts and notes receivable......................... 7,606 4,132
Receivables and payables -- affiliates................ (7,861) (408)
Inventories........................................... (4,404) (2,193)
Other assets and liabilities.......................... (1,232) (3,236)
Accounts payable and accrued expenses................. (915) (1,439)
Income taxes payable.................................. (1,470) (4,178)
------- -------
Net cash provided by operating activities............. 24,269 36,391
------- -------
Cash flows from investing activities:
Purchase of property and equipment......................... (4,408) (4,277)
Other...................................................... 811 (179)
------- -------
Net cash used for investing activities.................. (3,597) (4,456)
------- -------
Cash flows from financing activities:
Borrowings (payments) on credit note agreements, net....... 7,638 (10,821)
Distributions to stockholders.............................. (9,137) (15,049)
Payments of notes payable -- affiliates.................... -- (715)
Payment for redemption of common stock..................... -- (3,960)
Proceeds (payments) on notes payable -- stockholders, net.. (15,721) (199)
Change in notes receivable -- affiliates................... 12 (1,338)
Capital contribution by stockholders....................... -- 6,897
Other...................................................... (212) (885)
------- -------
Net cash used for financing activities................ (17,420) (26,070)
Effect of exchange rates on cash...................... (215) 196
------- -------
Net increase in cash......................................... 3,037 6,061
Cash at beginning of period.................................. 9,732 8,174
------- -------
Cash at end of period........................................ $ 12,769 $ 14,235
======= =======
</TABLE>
F-40
<PAGE> 213
AMF BOWLING GROUP
CONDENSED COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
EQUITY
ADJUSTMENT
FROM FOREIGN TOTAL
COMMON PAID-IN RETAINED CURRENCY STOCKHOLDERS'
STOCK CAPITAL EARNINGS TRANSLATION OTHER EQUITY
------ ------- -------- -------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1995.... $1,538 $63,781 $101,080 $ (3,400) $(1,461) $161,538
Net income................... -- -- 21,576 -- -- 21,576
Distributions to
stockholders.............. -- -- (9,137) -- -- (9,137)
Decrease in equity adjustment
from foreign currency
translation............... -- -- -- (479) -- (479)
Other........................ -- -- -- -- 12 12
------ ------- -------- ------- ------- --------
Balance, March 31, 1996........ $1,538 $63,781 $113,519 $ (3,879) $(1,449) $173,510
====== ======= ======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE> 214
AMF BOWLING GROUP
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
AMF Bowling Group ("the Combined Companies") consists of various entities
which are controlled by the Virginia Investment Trusts ("the Trusts"). On
January 1, 1996, the Trusts contributed their stock in AMF Bowling Centers
(Aust) International, Inc. to the Richmond Community Foundation, a non-profit
organization.
The accompanying unaudited condensed combined financial statements reflect
all adjustments (consisting of normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of the results of
operations for the interim periods. The interim financial information and notes
thereto should be read in conjunction with the Combined Companies' December 31,
1995 financial statements. The results of operations for the three months ended
March 31, 1996 and 1995 are not necessarily indicative of results to be expected
for the entire year.
The combined statements of income include a pro forma adjustment for income
taxes which would have been recorded if the Combined Companies had not been S
Corporations, based on tax laws in effect during these periods. The pro forma
adjustment was computed separately for each entity and then combined, except for
purposes of computing the utilization of foreign tax credits which were
considered in the aggregate for the Combined Companies.
Operating revenues are comprised of the following:
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Bowling centers................................................ $ 83,055 $ 85,818
Manufacturing.................................................. 40,288 71,053
-------- --------
$123,343 $156,871
======== ========
</TABLE>
NOTE 2 -- INVENTORIES
Inventories by major classification are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
---------- -------------
<S> <C> <C>
Raw materials............................................... $10,664 $10,590
Work-in-process............................................. 2,118 1,522
Finished goods and spare parts.............................. 28,925 24,920
Merchandise inventory....................................... 3,206 4,045
------- -------
44,913 41,077
Inventory valuation reserves................................ (883) (1,256)
------- -------
$44,030 $39,821
======= =======
</TABLE>
NOTE 3 -- COMMITMENTS AND CONTINGENCIES
AMF Bowling terminated its Korean distribution agreement. The Korean
distributor filed suit against the company in Korea seeking an injunction
against AMF Bowling's Seoul Korea branch to prevent AMF Bowling from selling
bowling and bowling related products in Korea. On February 16,
F-42
<PAGE> 215
AMF BOWLING GROUP
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
1996, the Korean court dismissed the litigation on jurisdictional grounds. Such
decision is subject to appeal.
On January 10, 1996, the Korean distributor filed a second suit in the
Supreme Court of the State of New York against AMF Bowling and AMF Bowling
Centers. The suit alleges a number of complaints related to the conduct and
termination of the Korean distributorship agreement and alleges that the
defendants caused the Korean distributor's insolvency. The Korean distributor is
seeking compensatory damages of at least $41,759 and punitive damages of at
least $100,000 or ten times the amount of compensatory damages awarded,
whichever is greater, under each of seven causes of action set forth in the
suit.
Management believes that the Korean distributorship agreement was properly
terminated and the actions against AMF Bowling and AMF Bowling Centers are
without merit. Management intends to vigorously defend against this claim. Under
the terms of the sale agreement (Note 6), the current AMF shareholders have
agreed to indemnify the buyers for any loss related to this litigation.
On March 5, 1996, the defendant in an action entitled Northland Bowl and
Sports Center, Inc. and Recreation Associates, II v. Golden Giant, Inc., d/b/a
Golden Giant Building Systems, Court of Common Pleas, Centre County, Pa. (Index
No. 96-75), asserted a third-party claim against AMF Bowling and other parties.
Defendant, Golden Giant, a construction company, was previously named as
defendant by a bowling center (not owned or operated by the Combined Companies)
in connection with the collapse of the center's roof in early 1994. Golden Giant
has now named AMF Bowling, charging it with negligence and breach of implied
warranty for installing scoring monitors (four years before the roof collapsed)
on a portion of the building that allegedly could not adequately support the
additional weight of the equipment. The bowling center plaintiff claims total
damages in amounts exceeding $3,500, and Golden Giant asserts that, if plaintiff
is entitled to any recovery, it should be in whole or part against AMF Bowling.
AMF Bowling is involved in a patent infringement suit. The plaintiff in the
case, a competitor of AMF Bowling's Century division, obtained a summary
judgment on the issue of liability in December 1994. The court recently issued
an order which will permit AMF to appeal. The plaintiff claims damages in the
range of $3,000 to $9,000. A trial on damages will not occur unless and until
the liability issue is resolved against AMF Bowling. Management believes the
claim is without merit and intends to vigorously contest the claim.
AMF Bowling Centers and AMF Bowling are defendants in a wrongful death suit
related to an employee. The employee's estate is seeking compensatory damages up
to $3,000 plus $3,000 in punitive damages. However, the plaintiff's counsel has
verbally offered to settle the case for $350. Management believes the claim is
without merit and expects to vigorously contest the claim.
In addition, the Combined Companies are involved in certain other lawsuits
and claims arising out of normal business operations. The majority of these
relate to accidents at the Combined Companies' bowling centers. Management
believes that the ultimate resolution of such matters will not materially affect
the Combined Companies' results of operations or financial position.
While the ultimate outcome of the litigation and claims against the
Combined Companies cannot presently be determined, management believes the
Combined Companies have made adequate provision for possible losses. At March
31, 1996 and December 31, 1995, the Combined Companies had recorded reserves
aggregating approximately $2,564 and $2,800, respectively, for litigation and
claims, which are included in accrued expenses in the accompanying combined
balance sheet.
F-43
<PAGE> 216
AMF BOWLING GROUP
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
NOTE 4 -- LONG-TERM DEBT
Long-term debt at March 31, 1996 and December 31, 1995 consists of the
following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Notes payable to bank -- guaranteed....................... $24,409 $ 3,764
Mortgage and equipment notes.............................. 1,971 14,469
Industrial development bond............................... -- 1,354
Note payable to bank...................................... 864 --
Other..................................................... 1,028 1,047
------- -------
28,272 20,634
Current maturities........................................ (951) (1,084)
------- -------
Long-term portion......................................... $27,321 $ 19,550
======= =======
</TABLE>
F-44
<PAGE> 217
AMF BOWLING GROUP
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
NOTE 5 -- STOCKHOLDERS' EQUITY
Stockholders' equity at March 31, 1996 consists of the following:
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------------------------------------------------------------------------------
NOTES
RECEIVABLE TOTAL
ISSUED AND COMMON PAID IN RETAINED DEFERRED STOCK STOCKHOLDERS'
AUTHORIZED OUTSTANDING STOCK CAPITAL EARNINGS TRANSLATION SUBSCRIPTION EQUITY
---------- ----------- ------ ------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AMF Bowling, Inc............... 10,000 950.6689 $ 1 $28,213 $ 54,545 $ 353 $ -- $ 83,112
AMF Bowling Centers, Inc....... 15,000 9,485.1000 9 29,122 24,848 -- (737) 53,242
AMF Beverage Company of Oregon,
Inc.......................... 10,000 94.8510 -- -- -- -- -- --
King Louis Lenexa, Inc......... 30,000 94.8510 -- -- -- -- -- --
AMF Bowling Centers (Aust)
International, Inc........... 10,000 948.5100 1 492 26,594 (64) (492) 26,531
AMF Bowling Centers (Canada)
International, Inc........... 10,000 948.5100 1 2,109 (1,211) 85 -- 984
AMF BCO -- France One, Inc..... 10,000 1,000.0000 1 31 681 (53) -- 660
AMF BCO -- France Two, Inc..... 10,000 1,000.0000 1 83 1,841 (144) -- 1,781
AMF Bowling Centers (Hong Kong)
International, Inc........... 10,000 948.5100 1 57 2,534 -- (64) 2,528
AMF Bowling Centers
International, Inc.
(Japan)...................... 10,000 9,485.1000 10 156 4,996 420 (156) 5,426
AMF Bowling Mexican Holding,
Inc.......................... 1,000 75.6972 1,507 226 3,068 (3,245) -- 1,556
Boliches AMF, Inc.............. 10,000 100.0000 1 60 816 (863) -- 14
AMF Bowling Centers II Inc.
(Switzerland)................ 1,000 100.0000 1 -- 748 61 -- 810
AMF BCO -- U.K. One, Inc....... 10,000 100.0000 1 129 (116) (111) -- (97)
AMF BCO -- U.K. Two, Inc....... 10,000 100.0000 1 352 (316) (304) -- (267)
AMF BCO -- China, Inc.......... 10,000 1,000.0000 1 577 (152) (3) -- 423
AMF Bowling Centers China,
Inc.......................... 10,000 1,000.0000 1 2,174 (571) (11) -- 1,593
Bush River Corporation......... 100,000 18,895.1919 -- -- -- -- -- --
Eliminations................... -- -- -- -- (4,786) -- -- (4,786)
------ ------- -------- ------- ------- --------
Totals......................... $1,538 $63,781 $113,519 $(3,879) $ (1,449) $173,510
====== ======= ======== ======= ======= ========
</TABLE>
NOTE 6 -- SUBSEQUENT EVENTS
SALE TRANSACTION
At the opening of business on May 1, 1996, an investor group led by an
affiliate of Goldman, Sachs & Co. completed its acquisition of the stock and
certain assets of the Combined Companies. The new parent company is AMF Group
Inc.
BONUS AND SPECIAL PAYMENTS/SALE TRANSACTION COSTS
On April 29 and April 30, 1996, the Combined Companies paid bonuses and
special payments to employees, former employees and former directors in the
aggregate amount of $37,843 in
F-45
<PAGE> 218
AMF BOWLING GROUP
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
recognition of their services. Additionally, professional fees of $5,094 were
incurred as a result of the sale transaction. In addition, as a result of the
change in control transaction, certain payments under the Combined Companies'
performance plan were accelerated. Accordingly, on April 30, 1996 the Combined
Companies made payments of $3,085 related to these plans and the plans were
terminated.
DISTRIBUTIONS/CONTRIBUTIONS SUBSEQUENT TO MARCH 31, 1996
Cash distributions to stockholders from April 1, 1996 to April 30, 1996
aggregated approximately $28,109 and have been reflected in the Pro Forma
balance sheet at March 31, 1996. In connection with the sale transaction, the
stockholders contributed notes payable -- affiliates to the capital of the
Combined Companies in the amount of approximately $151,985 and made cash
contributions in the amount of approximately $30,018. Subsequently, accounts and
notes payable/receivable with affiliates were paid.
NOTE 7 -- BUSINESS SEGMENTS
The Combined Companies operate in two major lines of business: operation of
bowling centers and manufacturing of bowling and related products. Information
concerning operations in these business segments for the three months ended
March 31, 1996 and 1995 and identifiable assets at March 31, 1996, are presented
below:
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Revenue from unaffiliated customers
Bowling Centers
Domestic.................................................... $ 58,100 $ 60,700
International............................................... 25,000 25,100
-------- --------
83,100 85,800
Manufacturing.................................................. 40,200 71,100
-------- --------
$123,300 $156,900
========= =========
Intersegment Sales
Bowling Centers
Domestic.................................................... $ -- $ --
International............................................... -- --
-------- --------
-- --
Manufacturing.................................................. 2,800 4,300
-------- --------
$ 2,800 $ 4,300
========= =========
</TABLE>
F-46
<PAGE> 219
AMF BOWLING GROUP
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Operating Income
Bowling Centers
Domestic.................................................... $ 15,300 $ 14,400
International............................................... 5,700 6,600
-------- --------
21,000 21,000
Manufacturing.................................................. 7,200 21,200
Eliminations................................................... (300) (500)
-------- --------
$ 27,900 $ 41,700
========= =========
Identifiable Assets
Bowling Centers
Domestic.................................................... $228,700
International............................................... 66,500
--------
295,200
Manufacturing.................................................. 113,100
Eliminations................................................... (7,400)
--------
$400,900
=========
Depreciation and Amortization Expense
Bowling Centers
Domestic.................................................... $ 8,500 $ 7,000
International............................................... 1,900 1,600
-------- --------
10,400 8,600
Manufacturing.................................................. 900 900
Eliminations................................................... (300) (300)
-------- --------
$ 11,000 $ 9,200
========= =========
Capital Expenditures
Bowling Centers
Domestic.................................................... $ 3,500 $ 2,500
International............................................... 1,200 1,100
-------- --------
4,700 3,600
Manufacturing.................................................. 300 1,500
Eliminations................................................... (600) (800)
-------- --------
$ 4,400 $ 4,300
========= =========
</TABLE>
NOTE 8 -- CONDENSED COMBINING FINANCIAL STATEMENTS
The following condensed combining information presents:
- A condensed combining balance sheet as of March 31, 1996 and condensed
combining statements of income and of cash flows for the three months
ended March 31, 1996 and 1995.
- Elimination entries necessary to combine the entities comprising the
Combined Companies.
F-47
<PAGE> 220
AMF BOWLING GROUP
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
CONDENSED COMBINING BALANCE SHEETS
MARCH 31, 1996
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 11,261 $ 1,508 $ -- $ 12,769
Accounts and notes receivable, net of
allowance for doubtful accounts....... 29,463 1,617 -- 31,080
Accounts and notes
receivable -- affiliates.............. 11,010 1,920 (909) 12,021
Inventories.............................. 42,275 1,755 -- 44,030
Prepaid expenses and other............... 4,488 1,481 -- 5,969
--------- --------- ------------ ---------
Total current assets............. 98,497 8,281 (909) 105,869
Notes receivable -- affiliates............. 23,245 -- -- 23,245
Property and equipment, net................ 244,206 10,926 (1,627) 253,505
Other assets............................... 28,793 578 (11,119) 18,252
--------- --------- ------------ ---------
Total assets..................... $ 394,741 $19,785 $(13,655) $400,871
========= ========= ========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................... $ 17,535 $ 1,504 $ -- $ 19,039
Book overdrafts.......................... 1,293 57 -- 1,350
Accrued expenses and deposits............ 32,447 2,193 -- 34,640
Accounts and notes
payable -- affiliates................. (1,575) 2,484 (909) --
Long-term debt, current portion.......... 951 -- -- 951
Income taxes payable..................... 4,378 1,562 -- 5,940
--------- --------- ------------ ---------
Total current liabilities........ 55,029 7,800 (909) 61,920
Long-term debt............................. 27,321 -- -- 27,321
Notes payable -- affiliates................ 132,851 18 -- 132,869
Other liabilities.......................... 4,403 848 -- 5,251
--------- --------- ------------ ---------
Total liabilities................ 219,604 8,666 (909) 227,361
========= ========= ========== =========
Commitments and contingencies
Stockholders' equity:
Common stock............................. 1,538 3,940 (3,940) 1,538
Paid-in capital.......................... 63,781 4,151 (4,151) 63,781
Retained earnings........................ 115,146 7,747 (9,374) 113,519
Equity adjustment from foreign currency
translation........................... (3,879) (4,719) 4,719 (3,879)
Notes receivable stock subscription...... (1,449) -- -- (1,449)
--------- --------- ------------ ---------
Total stockholders' equity....... 175,137 11,119 (12,746) 173,510
--------- --------- ------------ ---------
Total liabilities and
stockholders' equity........... $ 394,741 $19,785 $(13,655) $400,871
========= ========= ========== =========
</TABLE>
F-48
<PAGE> 221
AMF BOWLING GROUP
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
CONDENSED COMBINING STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Operating revenues:
Sales of products and services........... $ 114,877 $ 9,038 $ (968) $122,947
Revenue from operating lease
activities............................ 396 -- -- 396
--------- --------- ------------ ---------
Total operating revenues......... 115,273 9,038 (968) 123,343
--------- --------- ------------ ---------
Operating expenses:
Cost of sales............................ 30,878 1,081 (640) 31,319
Bowling center operating expenses........ 46,829 5,573 (233) 52,169
Selling, general and administrative...... 11,418 547 -- 11,965
--------- --------- ------------ ---------
Total operating expenses......... 89,125 7,201 (873) 95,453
--------- --------- ------------ ---------
Operating income................. 26,148 1,837 (95) 27,890
Non-operating expenses:
Interest expense......................... (3,797) (5) -- (3,802)
Other expenses, net...................... (102) (62) -- (164)
Interest income.......................... 359 35 -- 394
Equity in earnings of subsidiaries....... 1,061 -- (1,061) --
Foreign currency transaction loss........ (16) (6) -- (22)
--------- --------- ------------ ---------
Income before income taxes................. 23,653 1,799 (1,156) 24,296
Income tax expense......................... 1,982 738 -- 2,720
--------- --------- ------------ ---------
Net income....................... $ 21,671 $ 1,061 $ (1,156) $ 21,576
========= ========= ========== =========
</TABLE>
F-49
<PAGE> 222
AMF BOWLING GROUP
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
CONDENSED COMBINING STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
---------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Operating revenues:
Sales of products and services........... $ 148,720 $ 9,435 $ (1,619) $156,536
Revenue from operating lease
activities............................ 335 -- -- 335
-------- ------ -------- --------
Total operating revenues......... 149,055 9,435 (1,619) 156,871
-------- ------ -------- --------
Operating expenses:
Cost of sales............................ 48,663 1,116 (1,067) 48,712
Bowling center operating expenses........ 47,368 5,483 (361) 52,490
Selling, general and administrative...... 13,497 515 -- 14,012
-------- ------ -------- --------
Total operating expenses......... 109,528 7,114 (1,428) 115,214
-------- ------ -------- --------
Operating income................. 39,527 2,321 (191) 41,657
Nonoperating expenses:
Interest expense......................... (3,702) (25) -- (3,727)
Other expenses, net...................... (652) 26 -- (626)
Interest income.......................... 382 21 -- 403
Equity in earnings of subsidiaries....... 859 -- (859) --
Foreign currency transaction gain
(loss)................................ 353 (575) -- (222)
-------- ------ -------- --------
Income before income taxes................. 36,767 1,768 (1,050) 37,485
Income tax expense......................... 2,396 909 -- 3,305
-------- ------ -------- --------
Net income....................... $ 34,371 $ 859 $ (1,050) $ 34,180
======== ====== ======== ========
</TABLE>
F-50
<PAGE> 223
AMF BOWLING GROUP
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
CONDENSED COMBINING STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................. $ 21,671 $ 1,061 $ (1,156) $ 21,576
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in earnings of subsidiaries...... (1,061) -- 1,061 --
Dividends from non-guarantor
companies............................. 637 -- (637) --
Depreciation and amortization........... 10,422 648 (101) 10,969
Deferred income taxes................... (255) 255 -- --
Changes in assets and liabilities, net
of effects from companies acquired:
Accounts and notes receivable......... 7,734 (128) -- 7,606
Receivables and
payables -- affiliates............. (8,661) 800 -- (7,861)
Inventories........................... (4,402) (2) -- (4,404)
Other assets and liabilities.......... (1,106) (126) -- (1,232)
Accounts payable and accrued
expenses........................... (708) (207) -- (915)
Income taxes payable.................. (1,817) 347 -- (1,470)
---------- ---------- ---------- ----------
Net cash provided by operating
activities......................... 22,454 2,648 (833) 24,269
---------- ---------- ---------- ----------
Cash flows from investing activities:
Purchase of property and equipment......... (3,799) (805) 196 (4,408)
Other...................................... 811 -- -- 811
---------- ---------- ---------- ----------
Net cash used for investing
activities......................... (2,988) (805) 196 (3,597)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Dividends to guarantor companies........... -- (637) 637 --
Payments on credit note agreements, net.... 7,638 -- -- 7,638
Distributions to stockholders.............. (9,137) -- -- (9,137)
Proceeds (payments) on notes payable --
stockholders, net....................... (15,281) (440) -- (15,721)
Changes in notes receivable -- affiliate... 12 -- -- 12
Other...................................... (212) -- -- (212)
---------- ---------- ---------- ----------
Net cash used for financing
activities......................... (16,980) (1,077) 637 (17,420)
Effect of exchange rates on cash...... (68) (147) -- (215)
---------- ---------- ---------- ----------
Net increase (decrease) in cash.............. 2,418 619 -- 3,037
Cash at beginning of period.................. 8,843 889 -- 9,732
---------- ---------- ---------- ----------
Cash at end of period........................ $ 11,261 $ 1,508 $ -- $ 12,769
========== ========== ========== ==========
</TABLE>
F-51
<PAGE> 224
AMF BOWLING GROUP
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
CONDENSED COMBINING STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................... $ 34,371 $ 859 $ (1,050) $ 34,180
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in earnings of subsidiaries........ (859) -- 859 --
Dividends from non-guarantor companies.... 209 -- (209) --
Depreciation and amortization............. 8,605 702 (103) 9,204
Deferred income taxes..................... 211 (223) -- (12)
Loss on sale of property and equipment,
net..................................... 341 -- -- 341
Changes in assets and liabilities, net of
effect from companies acquired:
Accounts and notes receivable, net...... 5,425 (1,293) -- 4,132
Receivables and
payables -- affiliates............... (152) (256) -- (408)
Inventories............................. (1,578) (615) -- (2,193)
Other assets and liabilities............ (3,346) 110 -- (3,236)
Accounts payable and accrued expenses... (1,681) 242 -- (1,439)
Income taxes payable.................... (4,309) 131 -- (4,178)
---------- ---------- ---------- ----------
Net cash provided by operating
activities........................... 37,237 (343) (503) 36,391
---------- ---------- ---------- ----------
Cash flows from investing activities:
Purchase of property and equipment........... (4,050) (521) 294 (4,277)
Other........................................ (179) -- -- (179)
---------- ---------- ---------- ----------
Net cash used for investing
activities........................... (4,229) (521) 294 (4,456)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Dividends to guarantor companies............. -- (209) 209 --
Payments on credit note agreements, net...... (10,821) -- -- (10,821)
Distributions to stockholders................ (15,049) -- -- (15,049)
Payment of notes payable -- affiliate........ (1,932) 1,217 -- (715)
Payment for redemption of stock.............. (3,960) -- -- (3,960)
Proceeds (payments) on notes payable --
stockholders, net......................... (199) -- -- (199)
Change in notes receivable -- affiliate...... (1,338) -- -- (1,338)
Capital contributions by stockholders........ 6,381 516 -- 6,897
Other........................................ (885) -- -- (885)
---------- ---------- ---------- ----------
Net cash used for financing
activities........................... (27,803) 1,524 209 (26,070)
Effect of exchange rates on cash........ 256 (60) -- 196
---------- ---------- ---------- ----------
Net increase (decrease) in cash................ 5,461 600 -- 6,061
Cash at beginning of period.................... 6,653 1,521 -- 8,174
---------- ---------- ---------- ----------
Cash at end of period.......................... $ 12,114 $ 2,121 $ -- $ 14,235
========== ========== ========== ==========
</TABLE>
F-52
<PAGE> 225
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
AMF Bowling Centers, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of loss, of cash flows and of stockholder's
equity present fairly, in all material respects, the financial position of Fair
Lanes, Inc. (Debtor-in-Possession) and its subsidiaries at September 29, 1994
and June 30, 1994, and the results of their operations and their cash flows for
the three months ended September 29, 1994 and the year ended June 30, 1994, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of Fair Lanes' management. Our responsibility
is to express an opinion on these statements based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
For the period June 22, 1994 through September 29, 1994, Fair Lanes, Inc.
operated as a debtor-in-possession pursuant to Chapter 11 of the United States
Bankruptcy Code. On September 20, 1994, the creditors approved and the
Bankruptcy Court confirmed a plan of reorganization, with an effective date of
September 29, 1994, whereby Fair Lanes' Senior Secured Noteholders gained
ownership and voting control of the majority of Fair Lanes' common stock. As a
result of the change of control, Fair Lanes, Inc. will adjust the carrying
values of its assets and liabilities to their estimated fair values as of
September 30, 1994, taking into consideration the effects of the plan of
reorganization. The accompanying consolidated financial statements do not
reflect these adjustments and, accordingly, the carrying value of Fair Lanes,
Inc.'s assets and liabilities will change from those reported in the
accompanying consolidated balance sheet as of September 29, 1994, as disclosed
in Note 3.
As discussed in Note 12, Fair Lanes, Inc. adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," effective June 25, 1993.
Price Waterhouse LLP
Norfolk, Virginia
January 23, 1996
F-53
<PAGE> 226
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Fair Lanes, Inc.:
We have audited the accompanying consolidated statements of loss,
stockholder's equity and cash flows of Fair Lanes, Inc. and subsidiaries for the
year ended June 24, 1993. These consolidated financial statements are the
responsibility of Fair Lanes, Inc.'s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated statements of loss, stockholder's equity
and cash flows referred to above present fairly, in all material respects, the
results of operations and the cash flows of Fair Lanes, Inc. and subsidiaries
for the year ended June 24, 1993, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Baltimore, Maryland
September 10, 1993
F-54
<PAGE> 227
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
JUNE 30,
1994
SEPTEMBER 29, --------
1994
-------------
(SEE NOTE 3)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 3,419 $ 4,005
Receivables, net of allowance................................... 153 166
Inventories..................................................... 2,192 2,001
Prepaid expenses and other assets............................... 1,880 2,324
-------- --------
Total current assets......................................... 7,644 8,496
Property and equipment, net....................................... 178,002 179,860
Value of acquired leases, net..................................... 13,521 13,821
Other assets...................................................... 3,548 3,758
-------- --------
$ 202,715 $205,935
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Borrowings on line-of-credit.................................... $ 3,500 $ --
Current maturities of long-term debt and obligations under
capital leases............................................... 2,109 2,332
Accounts payable................................................ 8,223 6,242
Accrued expenses and other liabilities.......................... 9,334 7,026
-------- --------
Total current liabilities.................................... 23,166 15,600
-------- --------
Long-term liabilities:
Long-term debt, less current maturities......................... 12,924 13,135
Obligations under capital leases, less current maturities....... 7,189 7,414
Deferred income taxes........................................... -- 4,276
Other........................................................... 5,175 3,542
-------- --------
Total long-term liabilities.................................. 25,288 28,367
-------- --------
Liabilities subject to compromise under reorganization
proceedings..................................................... 151,975 151,975
-------- --------
Total liabilities............................................ 200,429 195,942
-------- --------
Commitments and contingencies
Stockholder's equity:
Common stock -- $.01 par value per share, 1,000 shares, issued
and outstanding.............................................. -- --
Additional paid-in capital...................................... 45,023 45,023
Accumulated deficit............................................. (45,739) (37,999)
Advances from Entertainment..................................... 3,002 2,969
-------- --------
Total stockholder's equity................................... 2,286 9,993
-------- --------
$ 202,715 $205,935
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-55
<PAGE> 228
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 29, JUNE 30, JUNE 24,
1994 1994 1993
------------- ---------- ----------
<S> <C> <C> <C>
Operating revenue.................................... $ 19,376 $101,759 $116,029
Operating expenses:
Cost of merchandise sold........................... 2,032 10,321 12,031
Selling, general and administrative expenses....... 25,425 94,049 91,880
Corporate restructuring costs...................... -- -- 1,853
----- ------ ------
27,457 104,370 105,764
----- ------ ------
Operating income (loss).................... (8,081) (2,611) 10,265
Interest expense..................................... (2,654) (20,157) (21,087)
Other income (expense), net.......................... 7 (2,918) (247)
----- ------ ------
Loss before reorganization costs, income tax
benefit (provision) and cumulative effect of
accounting change............................... (10,728) (25,686) (11,069)
Reorganization costs................................. (1,288) (5,377) --
----- ------ ------
Loss before income tax benefit (provision) and
cumulative effect of accounting change.......... (12,016) (31,063) (11,069)
Income tax benefit (provision)....................... 4,276 11,804 (206)
----- ------ ------
Loss before cumulative effect of accounting
change.......................................... (7,740) (19,259) (11,275)
Cumulative effect of accounting change............... -- 3,902 --
----- ------ ------
Net loss................................... $ (7,740) $(15,357) $(11,275)
===== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-56
<PAGE> 229
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 29, JUNE 30, JUNE 24,
1994 1994 1993
------------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................... $(7,740) $(15,357) $(11,275)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization................... 3,583 15,026 13,844
Amortization of deferred charges................ 32 754 474
Loss on disposal of assets...................... -- 2,632 157
Loss on equity investments...................... -- 1,132 --
Noncash reorganization costs.................... -- 3,618 --
Deferred income taxes........................... (4,276) (11,914) --
Cumulative effect of change in method of
accounting for income taxes................... -- (3,902) --
Changes in assets and liabilities:
Decrease (increase) in receivables............ 13 (68) 465
(Increase) decrease in inventories............ (191) (387) 109
(Increase) decrease in prepaid expenses and
other assets............................... 444 (902) 1,151
Increase (decrease) in accounts payable and
accrued expenses........................... 4,289 (5,695) (267)
Accrued interest with respect to liabilities
subject to compromise...................... 1,757 13,975 --
Other......................................... (123) (86) 1,297
------- -------- --------
Net cash provided by (used for) operating
activities............................... (2,212) (1,174) 5,955
------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment................ (2,404) (5,453) (9,170)
Proceeds from sales of property and equipment...... -- 6,534 --
Other.............................................. 1,156 435 (264)
------- -------- --------
Net cash provided by (used for) investing
activities............................... (1,248) 1,516 (9,434)
------- -------- --------
Cash flows from financing activities:
Proceeds from short-term borrowings................ 3,500 6,000 3,500
Principal payments of indebtedness and obligations
under capital leases............................ (659) (8,757) (6,070)
Dividends paid to Bowling.......................... -- (1,565) (3,377)
Advances from Entertainment........................ 33 5,380 --
Other.............................................. -- (101) (506)
------- -------- --------
Net cash provided by (used for) financing
activities............................... 2,874 957 (6,453)
------- -------- --------
Net increase (decrease) in cash and cash
equivalents........................................ (586) 1,299 (9,932)
Cash and cash equivalents at beginning of year....... 4,005 2,706 12,638
------- -------- --------
Cash and cash equivalents at end of year............. $ 3,419 $ 4,005 $ 2,706
======= ======== ========
Cash paid during the period for:
Interest........................................... $ 889 $ 11,602 $ 20,533
======= ======== ========
Income taxes....................................... $ -- $ 110 $ 330
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-57
<PAGE> 230
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONAL ADVANCES TOTAL
PAID-IN ACCUMULATED (TO) FROM STOCKHOLDER'S
CAPITAL DEFICIT ENTERTAINMENT EQUITY
---------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at June 24, 1992..................... $ 45,023 $ (6,425) $(2,390) $ 36,208
Net loss for the year ended June 24,
1993.................................... -- (11,275) -- (11,275)
Dividends.................................. -- (3,377) -- (3,377)
Advances to Entertainment.................. -- -- (21) (21)
------- -------- ------- --------
Balance at June 24, 1993..................... 45,023 (21,077) (2,411) 21,535
Net loss for the year ended June 30,
1994.................................... -- (15,357) -- (15,357)
Dividends.................................. -- (1,565) -- (1,565)
Advances from Entertainment, net........... -- -- 5,380 5,380
------- -------- ------- --------
Balance at June 30, 1994..................... 45,023 (37,999) 2,969 9,993
Net loss for the three months ended
September 29, 1994...................... -- (7,740) -- (7,740)
Advances from Entertainment................ -- -- 33 33
------- -------- ------- --------
Balance at September 29, 1994................ $ 45,023 $ (45,739) $ 3,002 $ 2,286
======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE> 231
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS)
NOTE 1 -- BUSINESS
At September 29, 1994 and June 30, 1994, Fair Lanes, Inc.
(Debtor-in-Possession) and subsidiaries (Fair Lanes) operated 106 bowling
centers, containing 3,876 lanes, located in sixteen states and Puerto Rico.
Prior to Fair Lanes' emergence from bankruptcy, Fair Lanes was a
wholly-owned subsidiary of Fair Lanes Bowling, Inc. (Bowling), which was a
wholly-owned subsidiary of Fair Lanes Entertainment, Inc. (Debtor-in-Possession)
(Entertainment). Fair Lanes' assets represented substantially all of the
operating assets of Bowling and Entertainment. Effective with the emergence from
bankruptcy proceedings, Entertainment, Bowling and Fair Lanes, Inc. were merged
into one entity and a change in control occurred (see Notes 2 and 3).
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements have been prepared on the accrual
basis of accounting utilizing guidance provided by American Institute of
Certified Public Accountants' Statement of Position 90-7, "Financial Statements
by Entities in Reorganization Under the Bankruptcy Code" (SOP 90-7). On
September 29, 1994, in accordance with Fair Lanes' Plan of Reorganization (the
"Plan") dated July 15, 1994, control of the majority of Fair Lanes' common stock
transferred to the holders of Fair Lanes' Senior Secured Notes. The revaluation
of Fair Lanes' assets and liabilities as a result of this reorganization and
change in control has not been reflected in the accompanying consolidated
balance sheet as of September 29, 1994 (see Note 3).
The consolidated financial statements include the accounts of Fair Lanes
and all of its wholly-owned subsidiaries. All intercompany transactions have
been eliminated in consolidation.
Fair Lanes reports on a 52-53 week year ending on the last Thursday of
June. Fiscal year 1993 consisted of 52 weeks and fiscal year 1994 consisted of
53 weeks. The three-month period ended September 29, 1994 consisted of 13 weeks.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements. Such estimates affect the reported amounts of expenses during
current and subsequent reporting periods, and actual results could differ from
such estimates.
CASH AND CASH EQUIVALENTS
Cash in excess of daily requirements is invested in marketable securities
consisting of commercial paper and bank repurchase agreements with maturities of
three months or less. Such investments are deemed to be cash equivalents for
purposes of the consolidated balance sheets and consolidated statements of cash
flows.
INVENTORIES
Inventories (principally food, beverage and pro shop merchandise) are
valued at the lower of cost or market with cost being determined by the first-in
first-out method.
F-59
<PAGE> 232
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation, including amortization of property under capital
leases, is provided by the straight-line method over the estimated useful lives
of the assets as follows:
<TABLE>
<CAPTION>
ASSETS CLASS USEFUL LIVES
------------------------------------------------- ------------------------
<S> <C>
Buildings........................................ 30-40 years
Machinery and equipment.......................... 4-20 years
Leasehold improvements and property under capital
leases......................................... Shorter of the estimated
useful lives or terms of
leases
</TABLE>
Additions and major improvements are capitalized and included in the
property accounts; the cost of routine maintenance and repairs is charged to
expense as incurred. Upon sale or other disposal of depreciable assets, the
related cost and accumulated depreciation and amortization are removed from the
accounts and any gain or loss is reflected in income.
VALUE OF ACQUIRED LEASES
Value of acquired leases result from purchase accounting adjustments
assigning values to favorable bowling center capital and operating lease
obligations and are being amortized over the remaining lives of the leases.
These leases have an average remaining life of approximately 10 years as of
September 29, 1994.
DEFERRED FINANCING COSTS
Costs incurred to obtain financing are deferred and amortized over the
lives of the related debt using the interest method. During the year ended June
30, 1994, Fair Lanes wrote off the unamortized deferred financing costs
associated with the Senior Secured Notes (see Note 9).
DEFERRED INCOME TAXES
At June 25, 1993, Fair Lanes adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No.
109), which required, among other things, a change from the deferred method to
the asset and liability method of accounting for deferred income taxes. Under
the asset and liability method, deferred income taxes are generally recognized
for temporary differences between the financial reporting basis and income tax
basis of assets and liabilities based on enacted tax rates expected to be in
effect when such amounts are realized or settled. The effects of changes in tax
laws or rates on deferred tax assets and liabilities are recognized in the
period that includes the enactment date.
Under the deferred method applied in prior periods, deferred income taxes
were recognized for income and expense items that were reported in different
periods for financial reporting and income tax purposes based on the tax rates
applicable in the period of the calculations and were not adjusted for
subsequent changes in tax laws or rates.
RECLASSIFICATIONS
Certain amounts for 1993 have been reclassified to conform to the
presentations for 1994.
F-60
<PAGE> 233
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- REORGANIZATION PLAN AND LIQUIDITY
During the year ended June 30, 1994, Fair Lanes' cash resources were
insufficient to meet its debt service obligations with respect to the $138,000
of 11 7/8% Senior Secured Notes due August 15, 1997 (Senior Secured Notes).
Accordingly, management and the Board of Directors of Fair Lanes determined that
it was in the best interest of Fair Lanes to suspend interest payments on its
Senior Secured Notes commencing with the February 15, 1994 interest payment and
to pursue a negotiated restructuring of Fair Lanes' capital structure.
Management of Fair Lanes and committees representing certain Senior Secured
Noteholders of Fair Lanes and certain security holders of Entertainment agreed
in principle to support the Plan. On June 22, 1994 (Petition Date), Fair Lanes
and Entertainment filed a combined voluntary petition for relief under Chapter
11 of the federal bankruptcy laws in the United States Bankruptcy Court for the
District of Maryland, Baltimore Division (the Bankruptcy Court). Accordingly,
for the period June 22, 1994 through September 29, 1994, Fair Lanes was
operating as a Debtor-in-Possession under the jurisdiction of the Bankruptcy
Court. As a Debtor-in-Possession, Fair Lanes could not engage in transactions
outside the ordinary course of business without approval of the Bankruptcy
Court, after notice and hearing.
Liabilities subject to compromise in the accompanying consolidated balance
sheets represent Fair Lanes' liabilities as of the Petition Date subject to
adjustment in the reorganization process and consist of the Senior Secured Notes
of $138,000 and accrued interest thereon from August 16, 1993 to June 22, 1994
of $13,975. Fair Lanes defaulted on the February 15, 1994 interest payment and
stopped accruing interest on the Senior Secured Notes as of the Petition Date.
Under the contractual terms of the agreement, accrued interest on the Senior
Secured Notes at June 30, 1994 was $14,339. The Senior Secured Notes were issued
at a discount which was being amortized on the interest method over the term of
the loan. The unamortized discount at June 22, 1994 was approximately $444 and
was written off (see Note 9).
The Plan was approved by the creditors and confirmed by the Bankruptcy
Court on September 20, 1994 and was effective September 29, 1994. The confirmed
plan provided for the following:
CLAIMS OF THE FAIR LANES' SENIOR SECURED AND ENTERTAINMENT'S VARIABLE RATE AND
ZERO COUPON NOTEHOLDERS
The $138,000 of Senior Secured Notes were exchanged for a new issue of
$90,350 Senior Secured Notes (New Senior Secured Notes) and 94% of new Fair
Lanes' common stock. The New Senior Secured Notes bear interest at 9.5%.
Entertainment had $36,844 of variable rate notes and $7,375 of zero coupon
notes (accreted value) outstanding as of the Petition Date. Under the Plan, such
amounts were settled with the issuance of the remaining 6% of the new Fair
Lanes' common stock and warrants to purchase additional shares of the new Fair
Lanes' common stock. These warrants were not exercised and were subsequently
canceled.
OTHER GENERAL CLAIMS
Other obligations of Fair Lanes were to be settled in full. Substantially
all remaining liabilities were obligations of Fair Lanes' subsidiaries and
include trade debt, mortgage debt and capital lease obligations. Such
obligations were unaffected by the bankruptcy and the Plan.
F-61
<PAGE> 234
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMMON STOCK
The common stockholders of Fair Lanes and Entertainment received no shares
in the new Fair Lanes stock. As part of the transaction, Entertainment and
Bowling were merged into Fair Lanes.
NEW SENIOR SECURED NOTES
The New Senior Secured Notes may be redeemed at any time on or after July
15, 1997 and prior to maturity (July 15, 2001) at the option of Fair Lanes,
either in whole or in part, at redemption prices defined in the Indenture,
together with interest accrued to the date of redemption. However, at any time
prior to July 15, 1997, Fair Lanes may redeem up to $30,000 of the initial
principal amount of the New Senior Secured Notes from the net proceeds of one or
more underwritten public offerings of equity securities of Fair Lanes, at a
redemption price equal to 108.5% of the principal amount thereof plus accrued
and unpaid interest to the redemption date, provided that at least $60,000 of
the principal amount of New Senior Secured Notes remain outstanding immediately
after the occurrence of any such redemption and that any such redemption occurs
within 60 days following the closing of any such public offering. In addition,
Fair Lanes may be required to offer to repurchase the New Senior Secured Notes
upon the occurrence of a "change of control" event as described in the
Indenture.
The New Senior Secured Notes are secured by a pledge of all of the
outstanding shares of capital stock of each of Fair Lanes' operating
subsidiaries and require semiannual interest payments in January and July of
each year. Interest began accruing on the New Senior Secured Notes from July 15,
1994 (date of Plan's filing) and is included from this date to September 29,
1994 in the accompanying consolidated statement of loss.
OTHER PLAN COMPONENTS
Upon the emergence of Fair Lanes from bankruptcy proceedings, an unrelated
third party acquired majority ownership of Fair Lanes' common stock through its
prior ownership of the 11 7/8% bonds. Shortly thereafter, this third party
obtained 100% ownership of Fair Lanes' stock in a transaction accounted for by
the purchase method as of September 30, 1994. The following table summarizes the
adjustments required to record the reorganization and change in control:
<TABLE>
<CAPTION>
DEBT FAIR VALUE
ACTUAL DISCHARGE ADJUSTMENTS PRO FORMA
-------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Current assets..................... $ 7,644 $ -- $ (2,715) $ 4,929
Property, plant and equipment,
net.............................. 178,002 -- (36,217) 141,785
Value of acquired leases, net...... 13,521 -- (2,180) 11,341
Other assets....................... 3,548 -- (2,246) 1,302
-------- -------- -------- --------
$202,715 $ -- $ (43,358) $ 159,357
======== ======== ======== ========
Current liabilities................ $ 23,166 $ -- $ 1,376 $ 24,542
Long-term debt..................... 172,088 (61,625) -- 110,463
Other long-term liabilities........ 5,175 -- 536 5,711
Stockholder's equity............... 2,286 61,625 (45,270) 18,641
-------- -------- -------- --------
$202,715 $ -- $ (43,358) $ 159,357
======== ======== ======== ========
</TABLE>
F-62
<PAGE> 235
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following at September 29, 1994 and
June 30, 1994.
<TABLE>
<CAPTION>
SEPTEMBER 29, JUNE 30,
1994 1994
------------- ---------
<S> <C> <C>
Land and improvements..................................... $ 53,630 $ 53,626
Buildings................................................. 98,130 97,645
Machinery and equipment................................... 62,461 61,210
Leasehold improvements.................................... 9,036 8,772
Leased property under capital leases 13,610 13,610
------------- --------
236,867 234,863
Less -- accumulated depreciation and amortization......... 58,865 55,003
------------- --------
$ 178,002 $ 179,860
============= ========
</TABLE>
Depreciation expense, including property under capital leases, was $3,209,
$13,865 and $12,683 for the three months ended September 29, 1994 and the years
ended June 30, 1994 and June 24, 1993, respectively.
NOTE 5 -- ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following at
September 29, 1994 and June 30, 1994:
<TABLE>
<CAPTION>
SEPTEMBER 29, JUNE 30,
1994 1994
------------- --------
<S> <C> <C>
Insurance................................................... $ 1,547 $ 1,547
Payroll..................................................... 1,949 2,330
Property taxes.............................................. 2,040 1,489
Reorganization costs........................................ 2,280 1,293
Other....................................................... 1,518 367
------------- --------
$ 9,334 $ 7,026
============= ========
</TABLE>
NOTE 6 -- SHORT-TERM BORROWINGS
In July 1993, Fair Lanes obtained a $6,000 seasonal loan from a principal
vendor which was repaid in December 1993.
In August 1994, Fair Lanes entered into a $4,000 line of credit agreement
with a bank. Borrowings under the line bear interest at the bank's prime rate
plus 1% and are secured by certain equipment of Fair Lanes' subsidiaries.
Interest is payable monthly. Subsequent to September 29, 1994, this line of
credit was repaid in full.
F-63
<PAGE> 236
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- OTHER INDEBTEDNESS
Other long-term debt secured by mortgages on real property and equipment,
exclusive of capital lease obligations, consists of the following at September
29, 1994 and June 30, 1994:
<TABLE>
<CAPTION>
SEPTEMBER 29, JUNE 30,
1994 1994
------------- --------
<S> <C> <C>
9% to 9 3/4% to 1997-2002.................................. $ 3,839 $ 3,939
10% to 10 1/2% to 1998-2007................................ 1,482 1,501
11% to 11 3/4% to 1998-2000................................ 7,741 7,774
Other...................................................... 735 794
------- -------
13,797 14,008
Less current maturities.................................... 873 873
------- -------
$12,924 $ 13,135
======= =======
</TABLE>
Annual maturities of other long-term debt for each of the five fiscal years
subsequent to September 29, 1994 are as follows:
<TABLE>
<S> <C>
Nine months ending June 1995...................................... $ 667
Year ending June 1996............................................. 958
Year ending June 1997............................................. 1,043
Year ending June 1998............................................. 2,236
Year ending June 1999............................................. 4,990
Thereafter........................................................ 3,903
-------
$ 13,797
=======
</TABLE>
At September 29, 1994, the carrying value of property and equipment
securing mortgages on real property and equipment was approximately $31,800.
The estimated fair values of other long-term debt approximate the carrying
values.
NOTE 8 -- ADVANCES FROM ENTERTAINMENT
During fiscal 1994, Fair Lanes obtained approximately $5,380 in cash
advances from Entertainment which was used primarily for operating needs. The
payables reported in the consolidated balance sheets of $3,002 and $2,969 at
September 29, 1994 and June 30, 1994, respectively, are net of prior year
amounts advanced to Entertainment for costs paid by Fair Lanes on behalf of
Entertainment. The Plan, described in Note 3, did not provide for repayment of
the net advances from Entertainment, and Fair Lanes has reflected the net
advances as an addition to equity.
F-64
<PAGE> 237
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- REORGANIZATION COSTS
Reorganization costs for the three months ended September 29, 1994 and the
year ended June 30, 1994 consist of the following:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
SEPTEMBER 29, JUNE 30,
1994 1994
------------- ----------
<S> <C> <C>
Professional fees................................. $ 1,288 $1,759
Write-off unamortized discount and deferred
financing costs associated with pre-petition
debt............................................ -- 3,618
------ ------
$ 1,288 $5,377
====== ======
</TABLE>
NOTE 10 -- COMMITMENTS
Fair Lanes occupies various premises subject to long-term leases. In
addition to minimum annual rentals, certain leases provide for additional rents
based on a percentage of sales in excess of specified amounts. The majority of
the leases require Fair Lanes to pay all real estate taxes and to maintain
adequate insurance coverage in addition to other terms that vary with the
individual leases.
In addition, Fair Lanes leases automatic scoring and computerized control
center equipment installed in certain bowling centers under capital lease
agreements, which expire on various dates during 1996 to 1999.
Future minimum lease payments under capital leases, noncancellable
operating leases and operating subleases are as follows at September 29, 1994:
<TABLE>
<CAPTION>
OPERATING
CAPITAL ---------------------
LEASES LEASES SUBLEASES
------- ------- ---------
<S> <C> <C> <C>
FISCAL YEAR
Nine months ending June 1995......................... $ 2,059 $ 2,227 $ 65
Year ending June 1996................................ 2,655 2,584 83
Year ending June 1997................................ 2,316 2,292 83
Year ending June 1998................................ 2,175 1,648 83
Year ending June 1999................................ 1,275 1,292 52
Thereafter........................................... 104 5,650 551
------- ------- ----
Total minimum lease payments......................... 10,584 $15,693 $ 917
======= ====
Less amount representing interest.................... (2,159)
-------
Obligations under capital leases................... $ 8,425
=======
</TABLE>
F-65
<PAGE> 238
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accumulated depreciation and amortization includes accumulated amortization
of $7,241 and $6,809 on property leased under capital leases at September 29,
1994 and June 30, 1994, respectively.
Rent expense consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 29, JUNE 30, JUNE 24,
1994 1994 1993
------------- ---------- ----------
<S> <C> <C> <C>
Minimum rentals.................................. $ 732 $2,834 $3,318
Contingent rentals............................... 254 2,002 1,599
Less sublease rentals............................ (19) (74) (99)
---- ------ ------
$ 967 $4,762 $4,818
==== ====== ======
</TABLE>
NOTE 11 -- PENSION AND PROFIT SHARING PLANS
Fair Lanes had a defined benefit pension plan covering substantially all
employees. The benefits were based on years of service and the employees'
highest compensation during five consecutive years in the last 10 years of
employment. Fair Lanes' funding policy was to contribute annually the amount
that could be deducted for federal income tax purposes, assuming a 30-year
amortization of the unfunded accrued liability. Subsequent to the reorganization
of Fair Lanes, the defined benefit plan was frozen.
The following table sets forth the plan's funded status and the prepaid
pension cost included in the consolidated balance sheets at September 29, 1994
and June 30, 1994 based upon calculations made by consulting actuaries. Fair
Lanes obtains actuarial studies on an annual basis and an updated study for the
three months ended September 29, 1994 was not warranted.
<TABLE>
<S> <C>
Actuarial present value of obligations:
Accumulated benefit obligation including vested benefits of $7,339...... $ 7,537
----
Projected benefit obligation for services rendered to date................ $(8,597)
Plan assets at fair value, primarily listed stocks, corporate bonds and
U.S. government obligations............................................. 7,752
----
Plan assets (less than) in excess of projected benefit obligation......... (845)
Unrecognized prior service costs.......................................... (764)
Unrecognized net gain from past experience different from that assumed and
effect of changes in assumptions........................................ 1,757
----
Prepaid pension costs included in other assets $ 148
====
</TABLE>
F-66
<PAGE> 239
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic pension cost, as determined by consulting actuaries, included
the following for the year ended June 30, 1994 and June 24, 1993. Pension
expense for the three months ended September 29, 1994 was estimated to be $94.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 24,
1994 1993
---------- ----------
<S> <C> <C>
Service costs -- benefits earned during the period.......... $ 357 $ 270
Interest cost on projected benefit obligation............... 545 503
Actual return on plan assets................................ 145 (422)
Net amortization and deferral............................... (731) (213)
---- ----
$ 316 $ 138
==== ====
</TABLE>
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation was 6.46% and 4.5% in 1994 and 7.6% and 4.5% in
1993, respectively. The expected long-term rate of return on assets was 8%.
Fair Lanes has a profit sharing plan which covers substantially all
employees with at least one year of service. Generally, contributions are made
at the discretion of the Board of Directors. No contributions were made by Fair
Lanes for the three months ended September 29, 1994 or the years ended June 30,
1994 and June 24, 1993.
NOTE 12 -- INCOME TAXES
Fair Lanes files consolidated federal income tax returns with Entertainment
and prior to fiscal 1994 recorded its provision for federal income taxes for
financial reporting purposes in accordance with a tax allocation agreement with
Entertainment and Bowling. Such agreement provides that Fair Lanes will record
as expense its share of the federal income taxes payable by the consolidated
group in an amount that is based upon the ratio of the taxable income of Fair
Lanes and its subsidiaries to the taxable income of the consolidated group.
At June 25, 1993, Fair Lanes adopted the provisions of SFAS No. 109,
"Accounting for Income Taxes," which required Fair Lanes to record its income
tax provisions on a stand alone basis using the asset and liability method to
account for deferred income taxes. The cumulative effect of this change in
accounting method as of the date of adoption was to increase stockholder's
equity by $3,902. The change in accounting method required Fair Lanes to restate
the carrying values of assets acquired in prior business combinations by
increasing such values by approximately $18,000. The increase in carrying values
increased the loss before income tax benefit for the year ended June 30, 1994 by
$1,522 due to additional depreciation expense and a reduction of the gain on
sales of bowling centers. In addition, the change in accounting allowed Fair
Lanes to recognize a deferred income tax benefit of $11,914 related to the net
operating loss for the year ended June 30, 1994. Prior years' financial
statements were not restated to apply the provisions of SFAS No. 109.
F-67
<PAGE> 240
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effect of temporary differences between the financial reporting basis
and income tax basis of assets and liabilities that are included in the net
deferred tax liability relate to the following:
<TABLE>
<CAPTION>
SEPTEMBER 29, JUNE 30,
1994 1994
------------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward......................... $ 16,300 $ 13,400
Accrued interest and deferred financing costs........... 7,458 6,883
Obligations under long-term consulting and noncompete
agreements........................................... 1,100 1,053
Other................................................... 3,741 3,460
------ ------
Gross deferred tax assets....................... 28,599 24,796
Gross deferred tax asset valuation allowance............ (290) --
------ ------
Gross deferred tax assets, net.................. 28,309 24,796
------ ------
Deferred tax liabilities:
Property and equipment and leasehold interest, primarily
due to differences in basis from business
combinations and depreciation and amortization....... (27,898) (28,358)
Other................................................... (411) (714)
------ ------
Gross deferred tax liabilities....................... (28,309) (29,072)
------ ------
Net deferred tax liability........................... $ -- $ (4,276)
====== ======
</TABLE>
The income tax benefit for the three months ended September 29, 1994 and
the year ended June 30, 1994 differed from the amounts computed by applying the
U.S. federal income tax rate of 34% to loss before income taxes as a result of
the following:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
SEPTEMBER 29, JUNE 30,
1994 1994
------------- ----------
<S> <C> <C>
Expected tax benefit...................................... $ 4,085 $ 10,561
(Increase) reduction income tax benefit resulting from:
State and local tax benefit, net of federal taxes....... 481 1,243
Change in deferred tax asset valuation allowance........ (290) --
------ -------
$ 4,276 $ 11,804
====== =======
</TABLE>
The provision for income taxes for the year ended June 30, 1993 consisted
solely of state income taxes. Under the income tax accounting method utilized by
Fair Lanes for the year ended June 24, 1993, Fair Lanes was unable to recognize
an income tax benefit for its operating loss.
F-68
<PAGE> 241
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The income tax benefit (provision) consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 29, JUNE 30, JUNE 24,
1994 1994 1993
------------- ---------- ----------
<S> <C> <C> <C>
Federal
Current.................................... $ -- $ -- $ --
Deferred................................... 3,826 9,940 --
------ ------- -----
3,826 9,940 --
------ ------- -----
State
Current.................................... -- (110) (206)
Deferred................................... 450 1,974 --
------ ------- -----
450 1,864 (206)
------ ------- -----
$ 4,276 $ 11,804 $ (206)
====== ======= =====
</TABLE>
The provisions for current state income taxes result from certain of Fair
Lanes' subsidiaries having taxable income in certain states. At June 30, 1994,
the consolidated group had a net operating loss carryforward available to reduce
future federal taxable income for income tax reporting purposes of approximately
$65,400, of which approximately $35,200 relates to Fair Lanes. Such amounts
expire in various amounts during the years 2002 to 2009. The Plan discussed in
Note 3 could have a significant effect on the amount and availability of net
operating loss carryforwards available to offset taxable income after the date
of the reorganization.
NOTE 13 -- OBLIGATIONS OF ENTERTAINMENT
In fiscal 1994, Fair Lanes distributed dividends to Bowling of $1,565.
Bowling distributed such amounts to Entertainment to enable it to pay interest
due on the variable rate notes.
NOTE 14 -- LITIGATION
Fair Lanes is subject to various lawsuits in the ordinary course of its
business, including employment-related matters. In the opinion of management,
none of the pending actions will have a material impact on Fair Lanes' financial
position or results of operations.
NOTE 15 -- BOWLING CENTER DISPOSITIONS
In the fourth quarter of fiscal 1993, Fair Lanes elected not to exercise
lease renewal options on two bowling centers. In the first quarter of fiscal
1994, Fair Lanes entered into a swap transaction in which it exchanged four
bowling centers in North Carolina for two bowling centers in each of Florida and
Texas. The swap transaction was accounted for at book value and, accordingly, no
gain or loss was recognized. Fair Lanes also sold four additional bowling
centers during the first quarter of fiscal 1994. The sale resulted in a loss of
$640 which is included in other income (expense), net in fiscal 1994.
F-69
<PAGE> 242
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMF Group Holdings Inc.:
We have audited the accompanying consolidated balance sheet of AMF Group
Holdings Inc. (a Delaware corporation) as of March 7, 1996. This financial
statement is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of AMF Group Holdings Inc. as of March
7, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
March 7, 1996
F-70
<PAGE> 243
AMF GROUP HOLDINGS INC.
CONSOLIDATED BALANCE SHEET
MARCH 7, 1996
(DOLLARS NOT IN MILLIONS)
<TABLE>
<S> <C>
ASSETS
Cash................................................................................ $ 1,200
-------
Total assets................................................................... $ 1,200
======
STOCKHOLDERS' EQUITY
Common stock; $0.01 par value; 1,000 shares authorized;
100 shares issued and outstanding................................................. $ 1
Paid-in capital..................................................................... 1,199
-------
Total stockholders' equity..................................................... $ 1,200
======
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-71
<PAGE> 244
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED BALANCE SHEET
MARCH 7, 1996
(DOLLARS NOT IN MILLIONS)
1. THE COMPANY
The accompanying consolidated balance sheet includes the accounts of AMF
Group Holdings Inc. ("Holdings"), a Delaware corporation, and its direct wholly
owned subsidiary, AMF Group Inc. (the "Company") and the Company's wholly owned
subsidiaries, AMF Bowling Centers Holdings Inc., AMF Bowling Holdings Inc., AMF
Worldwide Bowling Centers Holdings Inc., AMF Bowling Centers Switzerland Inc.
and AMF Bowling Centers Spain Inc. (collectively with Holdings and the Company,
the "Purchasers"). Each of these subsidiaries is a Delaware corporation.
Holdings is a wholly owned subsidiary of AMF Holdings Inc. (the "Parent"). The
Purchasers and the Parent are newly formed corporations organized by GS Capital
Partners II, L.P. and other investment funds (collectively, "GSCP") affiliated
with Goldman, Sachs & Co. Holdings, the Company and each of the Company's
subsidiaries were organized by GSCP to effect the acquisition of all of the
outstanding stock and certain of the assets of AMF Bowling, Inc., AMF Bowling
Centers, Inc., and other affiliated domestic and international corporations that
constitute AMF (collectively, "AMF").
AMF owns and operates commercial bowling centers in the United States and
worldwide. Management intends that Holdings and the Company will conduct all of
their business through subsidiaries and will have no operations of their own.
Holdings and the Company will be dependent on the cash flow of their
subsidiaries and distributions therefrom in order to meet debt service
obligations. Reference is made to the Risk Factors section of this Offering
Circular for a discussion of significant risks and uncertainties regarding the
Purchasers and the transaction discussed in Note 2.
2. THE ACQUISITION
Holdings has entered into a Stock Purchase Agreement dated February 16,
1996 (the "Stock Purchase Agreement") with the current stockholders of AMF (the
"Sellers"). The Stock Purchase Agreement provides for the acquisition of AMF
through a stock purchase by the Company's subsidiaries of all the outstanding
stock of the separate domestic and foreign corporations that constitute
substantially all of AMF and through the purchase of the assets of AMF's bowling
center operations in Spain and Switzerland (the "Acquisition"). The Company will
not acquire the assets of two bowling centers located, respectively, in Madrid,
Spain and Geneva, Switzerland (both of which will be retained by the Sellers).
The purchase price for the acquisition will be $1.325 billion, of which
$1.323 billion will be paid in cash and $2.0 million will be in the form of
assumption of debt at the closing of the Acquisition (the "Closing"). In
addition, the purchase price is subject to certain post-Closing adjustments as
follows: (i) the purchase price will be increased dollar-for-dollar by the
amount, if any, by which AMF's working capital (as defined in the Stock Purchase
Agreement) as of the Closing is greater than $33.7 million, and will be
decreased dollar-for-dollar by the amount, if any, by which AMF's working
capital as of the Closing is less than $33.7 million (the "Closing Working
Capital Adjustment"); (ii) the purchase price will be increased
dollar-for-dollar by the amount, if any, by which $5.0 million exceeds the
principal amount of the outstanding obligations as of the Closing (giving effect
to the Acquisition) under AMF's Stock Performance Plans, and will be decreased
dollar-for-dollar by the amount, if any, by which the principal amount of such
outstanding obligations as of the Closing (giving effect to the Acquisition)
exceeds $5.0 million (the "Stock Performance Plan Adjustment"); and (iii) if
Holdings has elected an Early Financing (as defined in the Stock Purchase
Agreement) by notifying the Sellers and if the Closing is requested by the
Sellers to occur on or before April 8, 1996 and Holdings' closing conditions
(other than the receipt of Financing) are then satisfied, the purchase price
will be increased by $10.0 million, and if the Closing occurs after April 8,
1996, the
F-72
<PAGE> 245
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)
purchase price will be increased by $10.0 million, less $0.2 million for each
day elapsed between April 8, 1996 and the date of the Closing, resulting in an
increase of $5.0 million if the Closing occurs on May 3, 1996 (the "Closing Date
Adjustment"). Except in certain circumstances, the Stock Purchase Agreement
provides for the Acquisition to be completed no earlier than April 4, 1996 and
no later than May 3, 1996, although these dates may be modified by the parties
to the Stock Purchase Agreement.
The Acquisition will be funded through issuances of senior debt, senior
subordinated notes and senior subordinated discount notes (collectively, the
"Financing") of $515.0 million, $250.0 million and $250.0 million, respectively,
the assumption of debt of $2.0 million and $375.0 million of equity. The total
funds will be used to make cash payments to AMF stockholders of $1,323.0 million
and the amount, if any, of the closing Working Capital Adjustment, the Stock
Performance Plan Adjustment and the Closing Date Adjustment and transaction
costs of approximately $53.9 million. Any remaining cash will be used for
general working capital purposes.
Goldman, Sachs & Co. will receive a cash fee of $5.0 million from the
Company in connection with the Acquisition. Goldman, Sachs & Co. has also served
as financial advisor to the sellers of AMF in connection with the acquisition
and is receiving a fee in the form of 10 year warrants to purchase 2.3% of the
common stock of the Parent on a fully diluted basis. The warrants are estimated
to have a fair market value of approximately $8.7 million. For accounting
purposes, the value of these non-cash warrants will be contributed to Holdings'
equity at Closing. In addition, Goldman, Sachs & Co. will be entitled to
reimbursement of expenses in connection therewith.
Generally, the Sellers are not providing indemnities to Holdings in
connection with the Acquisition. However, representations and warranties of
Sellers that will survive the Closing are that (i) the Sellers will deliver to
Holdings good title to the Stock and the purchased assets free and clear of any
liens, claims, charges, security interests, options or other legal or equitable
encumbrances or restrictions, and all of the outstanding stock of the
corporations that constitute AMF is owned beneficially and of record by the
Sellers, and is validly issued, fully-paid and non-assessable; and (ii) each of
the corporations that constitute AMF is at the time of the Acquisition and has
been historically an "S corporation" (within the meaning of Section 1361(a) of
the Code) for each of such corporation's entire existence, and no action has
been or will be taken to terminate, and no condition exists which could result
in the termination of, such election prior to the Closing. The representations
and warranties in clause (i) above will survive the Closing indefinitely, and
the representations and warranties in clause (ii) above will survive the Closing
until the expiration of the relevant statute of limitations (including any
extensions thereof) or, if later, until the resolution of any disputes arising
during such period, in each case applicable to the income tax return (the
"Applicable Return") of each AMF entity for the period ending on the date of the
Closing.
If any of the corporations that constitute AMF were found to have failed to
make a valid election to become an S corporation, or to have otherwise lost its
status as an S corporation, such corporation could be liable for taxes on income
for the periods in which S corporation status was not in effect. In addition,
loss of S corporation status could invalidate the step-up in the tax basis of
certain of AMF's assets that would otherwise result from the Acquisition,
causing the Company (or Holdings) to pay higher taxes on future income than
would be the case if the step-up in basis were allowed.
The Sellers have agreed to indemnify Holdings and its affiliates against
any liabilities incurred in connection with any breach of the representations
and warranties that survive the Closing, including but not limited to the tax
liabilities referred to in the preceding paragraph. The Sellers also have agreed
to indemnify Holdings and its affiliates against any liability arising from (i)
the ownership, conduct, condition or transfer at any time of any of the
businesses or other tangible or intangible assets or operations (a) transferred
to the Sellers or their affiliates prior to the Closing or
F-73
<PAGE> 246
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED BALANCE SHEET -- (Continued)
(b) owned, operated or conducted by the Sellers or certain affiliates on or
prior to the Closing and which were not owned, operated or conducted as part of
AMF's bowling center or manufacturing businesses; and (ii) certain litigation
brought against AMF by its former Korean distributor. The indemnification
excludes claims for incidental or consequential damages or damages for lost
profits. Each of the Sellers will be liable for indemnified losses only based on
their percentage stock ownership of AMF prior to the Acquisition; provided
however, that five irrevocable trusts (the "Trusts"), which as the owners of a
controlling interest of the Stock are together the principal selling
stockholder, will be jointly and severally liable for the aggregate
indemnification obligations of the Trusts. The Trusts will be required to
maintain, collectively, a $500.0 million minimum net worth (based upon fair
market value) at all times from the Closing through the date that is the fourth
anniversary of the last filed Applicable Return and a $250.0 million minimum net
worth (based upon fair market value) at all times thereafter through the date
that is the sixth anniversary of the last filed Applicable Return, subject to
extension under certain circumstances. The beneficiaries of the Trusts have
separately agreed to indemnify Holdings if the minimum net worth requirements
are not satisfied and if certain other circumstances occur.
A condition to Holdings' obligation to consummate the Acquisition is
Holdings' reasonable satisfaction that licenses to sell or serve alcoholic
beverages or to engage in gaming, lottery or gambling activities have been
received, or that other appropriate mechanisms which will not result in denial
or loss of a license or civil penalties or put the Company at risk of an
enforcement action for a violation of applicable state laws are in place and, in
each case, are expected to remain in place for the forseeable future without
material risk or expectation of losing such ability in the future (other than
the risk that any holder of a liquor license or a gaming, lottery or gambling
license that complies with the terms and requirements of such license and the
relevant law generally bears of nonrenewal), so that, after the Closing,
alcoholic beverages can continue to be sold or served and gaming activities can
continue to be conducted by AMF in essentially the same manner and on
essentially the same terms as before the Closing at AMF locations that would
reasonably be expected to enable AMF to derive, during the 10-month period
beginning on the date of Closing, revenue from the sale and/or service of
alcoholic beverages and, other than in the State of Washington, gaming, lottery
and gambling activities equal to at least 90% of the total of such revenue
during the 10 months ended October 31, 1995. To the extent that licenses
relating to the remaining 10% or less of such revenue are not obtained, such
revenue may be unavailable to the Company following the Acquisition. Holdings
has the ability to waive the condition described in this paragraph, subject to
any restrictions that may be contained in the Senior Debt covenants.
In connection with the Acquisition, AMF has entered into Trademark License
Agreements, dated February 16, 1996 (the "License Agreements"), licensing the
AMF name and related trademark rights to certain corporations owned by the
Sellers (the "Licensees"), for use in connection with the sale by Licensees of
sewing equipment, baking equipment and golf equipment. Certain of these products
currently are being marketed under the AMF name. No consideration separate from
the Acquisition is being paid by the Licensees in connection with the License
Agreements, and the license is royalty-free. The term of the licenses continues
indefinitely. The Licensees have expressly assumed and indemnified AMF against
all liabilities resulting from Licensees' use of the licensed trademarks.
In addition, Holdings has entered into a Non-Competition Agreement, dated
February 16, 1996 (the "Non-Competition Agreement"), with an individual
affiliated with the Sellers (the "Affiliated Party"), restricting the Affiliated
Party and certain affiliates from participating in the same or similar business
as AMF anywhere in the world for a period of five years from the Closing. The
Affiliated Party has also agreed that, during a period of three years from the
Closing, the Affiliated Party and certain affiliates will not, without the prior
written approval of Holdings, solicit any person who is a
F-74
<PAGE> 247
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED BALANCE SHEET -- (Continued)
management or other key employee of Holdings, the Company, AMF or any of their
subsidiaries or affiliates as of the date of the Non-Competition Agreement to
terminate his or her employment. In consideration of the Non-Competition
Agreement, Holdings has agreed to pay the Affiliated Party $50,000 per year
during the term of the Non-Competition Agreement.
Holdings has also entered into a Consulting and Non-Competition Agreement,
dated February 16, 1996 (the "Consulting and Non-Competition Agreement") with
one of the Sellers. This Seller has agreed to provide, for a period of two years
from the Closing, such consulting services to Holdings as may be requested from
time to time by the Board of Directors and/or the Chief Executive Officer of
Holdings. The Consulting and Non-Competition Agreement also restricts this
Seller and certain affiliates from participating in the same or similar business
as AMF anywhere in the world for a period of four years from the Closing. This
Seller also has agreed that, during a period of three years from the Closing,
the Seller and certain affiliates will not, without the prior written approval
of Holdings, solicit any person who is a management or other key employee of
Holdings, the Company, AMF or any of their subsidiaries or affiliates as of the
date of the Consulting and Non-Competition Agreement to terminate his or her
employment. Holdings has agreed to pay this Seller $100,000 per year during the
two-year period that the Seller will provide consulting services.
3. SENIOR DEBT
GSCP has entered into a commitment letter with Goldman, Sachs & Co. and its
affiliates, and Citibank, N.A. and its affiliates (collectively, "the Lenders"),
providing for (i) syndicated senior secured term loan facilities aggregating
$515.0 million (the "Term Loans"), (ii) a senior secured multiple-draw term
facility of, under certain conditions, over time, up to $100.0 million, and,
subject to satisfying a financial test, up to an additional $50.0 million (the
"Acquisition Facility") and (iii) a senior secured revolving credit facility of
up to $50.0 million (the "Working Capital Facility," and together with the Term
Loans and the Acquisition Facility, "Senior Debt"). Goldman, Sachs & Co. is
acting as syndication agent and, together with Citicorp Securities, Inc., are
acting as co-arrangers in connection with the Senior Debt. Citibank, N.A. will
act as administrative agent. Goldman, Sachs & Co. is receiving a fee of
approximately $9.5 million and having expenses reimbursed in connection
therewith.
The execution of the Senior Debt, the borrowings necessary to complete the
Acquisition and the delivery of required documentation thereunder, will occur
simultaneously with the closing of the Acquisition. The Lenders' obligation to
provide the senior financing is conditioned upon, among other things, the
preparation, execution and delivery of mutually acceptable loan documentation,
including a credit agreement incorporating substantially the terms and
conditions outlined in the commitment letter; the Lenders' satisfaction with the
final terms and conditions of the Acquisition; the consummation of the
Acquisition in accordance with all material terms of the Stock Purchase
Agreement; and the absence of any material adverse change in the business,
condition, operations, performance, properties or prospects of AMF or any of its
subsidiaries since December 31, 1995.
The Term Loans consist of (i) a Term Loan Facility of $250.0 million, (ii)
an AXELs(SM) Series A Facility of $190.0 million and (iii) an AXELs(SM) Series B
Facility of $75.0 million. The Term Loans provide for quarterly amortization
until final maturity. The Term Loan Facility will mature five years, the
AXELs(SM) Series A Facility will mature seven years and the AXELs(SM) Series B
Facility will mature eight years after the closing of the Senior Debt. The
following table summarizes scheduled amortization payments (dollars in
millions).
F-75
<PAGE> 248
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED BALANCE SHEET -- (Continued)
<TABLE>
<CAPTION>
AXELS(SM) SERIES AXELS(SM) SERIES
TERM LOAN A B
YEAR AFTER CLOSING FACILITY FACILITY FACILITY TOTAL
- --------------------- ----------- ---------------- ---------------- ------
<S> <C> <C> <C> <C>
1 $ 35.0 $ 2.0 $ 1.2 $ 38.2
2 40.0 2.0 1.2 43.2
3 45.0 2.0 1.2 48.2
4 55.0 2.0 1.2 58.2
5 75.0 2.0 1.2 78.2
6 -- 80.0 1.2 81.2
7 -- 100.0 1.2 101.2
8 -- -- 66.6 66.6
------ ------ ------ ------
$ 250.0 $190.0 $ 75.0 $515.0
====== ====== ====== ======
</TABLE>
In addition, the Company will be required to make prepayments on the Senior
Debt under certain circumstances, including upon certain asset sales and
issuance of debt or equity securities. The Company will also be required to make
prepayments on the Senior Debt in an amount equal to (i) 75% (to be reduced to
50% for years in which the Company's Total Debt/EBITDA ratio for the prior 12
months is less than 4.0 to 1.0) of the Company's Excess Cash Flow (as defined)
or (ii) during each of the first three years after the closing of the Senior
Debt, if less than the amount described in clause (i), the amount by which the
Company's Excess Cash Flow for such year exceeds $10.0 million (during the first
two years after closing) or $20.0 million (during the third year after closing).
These mandatory prepayments will be applied to prepay the Senior Debt in the
following order: first, to the Term Loans, ratably among each tranche and the
Acquisition Facility, and second, to the permanent reduction of the Working
Capital Facility. The Term Loan Facility will bear interest, at the Company's
option, at Citibank's customary base rate plus 1.5% or at Citibank's Eurodollar
rate plus 2.5%. The AXELs(SM) Series A Facility will bear interest, at the
Company's option, at Citibank's customary base rate plus 1.875% or at Citibank's
Eurodollar rate plus 2.875%. The AXELs(SM) Series B Facility will bear interest,
at the Company's option, at Citibank's customary base rate plus 2.125% or at
Citibank's Eurodollar rate plus 3.125%.
The Company will have the ability to borrow an additional $50.0 million for
general corporate purposes pursuant to the Working Capital Facility and, over
time, up to $100.0 million and, with the consent of the Lenders, up to an
additional $50.0 million for acquisitions pursuant to the Acquisition Facility,
subject to the Company meeting certain pro forma financial covenants and
limitations imposed on the amount borrowed for proposed acquisitions, including
that the amount borrowed under the Acquisition Facility shall not exceed 3.5
times the deemed EBITDA of the business to be acquired.
The Acquisition Facility will have a term of five years. Up to $25.0
million of the facility may be borrowed in the first year after the closing of
the Senior Debt, up to $25.0 million plus the amount available and not borrowed
during the first year may be borrowed in the second year after closing, and up
to $50.0 million plus the amount available and not borrowed during the second
year may be borrowed in the third year and in the first six months of the fourth
year after closing. The Acquisition Facility will begin to amortize 3.5 years
after closing, such that at the end of the fourth year after closing, the
outstanding principal will be reduced to $75.0 million, with final maturity at
the end of the fifth year after closing. The Acquisition Facility will bear
interest, at the Company's option, at Citibank's customary base rate plus 1.5%
or at Citibank's Eurodollar rate plus 2.5%.
The Working Capital Facility will have a term of five years and will be
fully revolving until final maturity. The Working Capital Facility will bear
interest, at the Company's option, at Citibank's customary base rate plus 1.5%
or at Citibank's Eurodollar rate plus 2.5%.
F-76
<PAGE> 249
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED BALANCE SHEET -- (Continued)
Beginning one year after the closing of the Senior Debt, the margins above
Citibank's customary base rate and Citibank's Eurodollar rate, at which the Term
Loan Facility, the Working Capital Facility and the Acquisition Facility will
bear interest, may be reduced pursuant to a floating performance pricing grid
which is based on the Total Debt/EBITDA ratio for the four fiscal quarter
rolling period then most recently ended.
The Senior Debt will be guaranteed by Holdings and by each of the Company's
present and future first-tier and second-tier subsidiaries (see Note 6), and
will be secured by all of the stock of the Company and the Company's present and
future first-tier and second-tier subsidiaries, by 66% of the stock of the
Company's present and future international subsidiaries, and by substantially
all of the Company's present and future property and assets. Any additional
present or future subsidiaries of the Company that become guarantors under the
Senior Debt will also jointly and severally guarantee the Company's payment
obligations on the notes referred to in Note 4 on a senior subordinated basis.
The Senior Debt will contain certain financial covenants, including, but
not limited to, covenants related to cash interest coverage, fixed charge
coverage, Senior Debt/EBITDA ratio, Total Debt/ EBITDA ratio and minimum EBITDA.
In addition, the Senior Debt will contain other affirmative and negative
covenants relating to (among other things) liens, payments on other debt,
transactions with affiliates, mergers and acquisitions, sales of assets, leases,
guarantees and investments. The Senior Debt will contain customary events of
default for highly-leveraged financings, including certain changes in ownership
or control of the Company.
The Company is required to obtain interest rate protection in form and with
parties acceptable to the Lenders, in an amount to be agreed upon, but in any
event for no less than 50% of the Senior Debt and the Company's other floating
rate debt.
The Senior Debt may not be finalized at the time the subordinated notes
discussed in Note 4 are issued. While the Company currently expects that the
principal amounts and amortization schedules of the Term Loan Facility, AXEL(SM)
Series A Facility and AXEL(SM) Series B Facility will remain as described
herein, there can be no assurance that the final amounts and terms and
conditions will not change from those described herein, although the Company
currently believes that changes, if any, to the principal amounts and
amortization schedules will not be substantial.
4. SENIOR SUBORDINATED NOTES AND SENIOR SUBORDINATED DISCOUNT NOTES
The Company has initiated an offering of senior subordinated notes (the
"Senior Subordinated Notes") with a principal amount of $250.0 million and
senior subordinated discount notes (the "Subordinated Discount Notes") with an
aggregate principal amount so as to generate gross proceeds of $250 million. The
Senior Subordinated Notes and the Senior Subordinated Discount Notes are
collectively referred to as the "Notes."
The Senior Subordinated Notes will mature on March 15, 2006. Interest will
accrue from the date of issuance at an annual rate of 10 7/8% and will be
payable in cash semi-annually in arrears on March 15 and September 15 of each
year commencing September 15, 1996.
The Senior Subordinated Discount Notes will mature on March 15, 2006. The
Senior Subordinated Discount Notes will be sold at a substantial discount to
their face amount and will result in an effective yield of 12 1/4% per annum,
computed on a semi-annual bond equivalent basis. No interest (other than
liquidated damages, if applicable) will accrue or be payable prior to March 15,
2001 (the "Full Accretion Date"). Commencing March 15, 2001 interest will accrue
and will be payable in cash semi-annually in arrears on each March 15 and
September 15 of each year beginning with the first such date after the Full
Accretion Date.
F-77
<PAGE> 250
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED BALANCE SHEET -- (Continued)
For federal income tax purposes, each Senior Subordinated Discount Note
will be deemed to be issued with "original issue discount" equal to the
difference between the issue price thereof and the sum of all cash payments
(whether denominated as principal or interest) to be made thereon. Each holder
of a Senior Subordinated Discount Note must include in gross income for federal
income tax purposes the sum of the daily portions of such original issue
discount for each day during each taxable year in which the Senior Subordinated
Discount Note is held, even though no interest payments will be received prior
to September 15, 2001.
The Company's payment obligations under the Notes will be jointly and
severally guaranteed on a senior subordinated basis (the "Senior Subordinated
Guarantees") by Holdings and each of the Company's subsidiaries identified in
Note 6 (collectively, the "Guarantors") and by any other subsidiaries of the
Company that act as guarantors of the Senior Debt. The guarantees will be
subordinated to the guarantees of Senior Debt issued by the Guarantors as
described in Note 3.
The Notes will be general, unsecured obligations of the Company, will be
subordinated in right of payment to all Senior Debt, as defined, of the Company,
will rank pari passu with all Senior Subordinated Debt of the Company and will
be senior in right of payment to all existing and future subordinated debt of
the Company. Following the Acquisition, the claims of the holders of the Notes
will be subordinated to the Senior Debt, and will be effectively subordinated to
all other indebtedness and other liabilities (including trade payables and
capital lease obligations) of the Company's subsidiaries that are not
Guarantors, through which the Company will conduct a portion of its operations
(See Note 6).
In the event of a Change of Control, as defined, the holders of the Senior
Subordinated Notes will have the right to require the Company to repurchase
their Senior Subordinated Notes in whole or in part, at a price equal to 101% of
the aggregate principal amount thereof plus accrued and unpaid interest, if any,
including liquidated damages, if any, to the date of repurchase. The Senior
Subordinated Note Indenture will require that prior to such a repurchase, the
Company must either repay all outstanding Senior Debt or obtain any required
consent to such repurchase.
In the event of a Change of Control, holders of the Senior Subordinated
Discount Notes will have the right to require the Company to repurchase their
Senior Subordinated Discount Notes, in whole or in part, at a price equal to
101% of the Accreted Value thereof, including Liquidated Damages, if any (or, if
after the Full Accretion Date, 101% of the principal amount thereof plus accrued
and unpaid interest, if any, including Liquidated Damages, if any, to the date
of repurchase). The Senior Subordinated Discount Note Indenture will require
that prior to such a repurchase, the Company must either repay all outstanding
indebtedness under the Senior Debt or obtain any required consent to such
repurchase.
Pending consummation of the Acquisition, the net proceeds from the issuance
of the Notes together with $100.0 million of equity contributions from GSCP and
a deposit, if any, from the Sellers (collectively, the "Escrow Funds") will be
held in escrow accounts (the "Escrow Accounts") pursuant to pledge and escrow
agreements (the "Pledge and Escrow Agreements"). The Escrow Funds will be
required to be invested in cash equivalents, as directed from time to time by
the Company. The Company will be permitted to obtain release of the Escrow Funds
upon consummation of the Acquisition. If consummation of the Acquisition has not
occurred on or prior to May 31, 1996, all outstanding Senior Subordinated Notes
will be subject to a special mandatory redemption with the Escrow Funds relating
thereto at the Special Redemption Price plus accrued and unpaid interest, if
any, plus Liquidated Damages, if any, to the date of redemption. The Special
Redemption Price will range from 101% of the principal amount of the Senior
Subordinated Notes, if the date of redemption is on or prior to April 18, 1996,
to 102.5% of the principal amount of the Senior Subordinated Notes, if the date
of redemption is on May 31, 1996.
F-78
<PAGE> 251
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED BALANCE SHEET -- (Continued)
Except for the special mandatory redemption described above and, as
described below, the Notes are not redeemable at the Company's option prior to
March 15, 2001. From and after March 15, 2001, the Notes will be subject to
redemption at the option of the Company, in whole or in part, at specified
redemption prices, together with accrued and unpaid interest, including
liquidated damages, if any, to the date of redemption.
Prior to March 15, 1999, up to $100.0 million in aggregate principal amount
of Senior Subordinated Notes will be redeemable at the option of the Company, on
one or more occasions, from the net proceeds of public or private sales of
common stock of, or contributions to the common equity capital of, the Company,
at a price of 110.875% of the principal amount of the Senior Subordinated Notes,
together with accrued and unpaid interest, if any, including Liquidated Damages,
if any, to the date of redemption; provided that at least $150.0 million in
aggregate principal amount of Senior Subordinated Notes remains outstanding
immediately after such redemption.
Prior to March 15, 1999, the Senior Subordinated Discount Notes will be
redeemable at the option of the Company, on one or more occasions, from the net
proceeds of public or private sales of common stock of, or contributions to the
common equity capital of, the Company, at a price of 112.250% of the Accreted
Value of the Senior Subordinated Discount Notes plus accrued and unpaid
Liquidated Damages, if any; provided that at least $150.0 million in Accreted
Value of Senior Subordinated Discount Notes remains outstanding immediately
after such redemption.
The Notes are subject to certain transfer restrictions.
The Indenture governing the Senior Subordinated Notes (the "Senior
Subordinated Note Indenture") and the Indenture governing the Senior
Subordinated Discount Notes (the "Senior Subordinated Discount Note Indenture"
and, together with the Senior Subordinated Note Indenture, the "Indentures")
will contain certain covenants that will, among other things, limit the ability
of the Company and its Restricted Subsidiaries, as defined therein, to incur
additional indebtedness and issue Disqualified Stock, as defined therein, pay
dividends or distributions or make investments or make certain other Restricted
Payments, as defined therein, enter into certain transactions with affiliates,
dispose of certain assets, incur liens securing pari passu and subordinated
indebtedness of the Company and engage in mergers and consolidations.
Pursuant to a Registration Rights Agreement (the "Registration Rights
Agreement") among the Company, the Guarantors and Goldman, Sachs & Co., the
Company and the Guarantors will agree to file a registration statement (the
"Exchange Offer Registration Statement") with respect to an offer to exchange
(i) the Senior Subordinated Notes for a new issue of debt securities of the
Company (the "Exchange Senior Subordinated Notes") and (ii) the Senior
Subordinated Discount Notes for a new issue of debt securities of the Company
(the "Exchange Senior Subordinated Discount Notes" and, together with the
Exchange Senior Subordinated Notes, the "Exchange Notes"), each of which will be
registered under the Securities Act of 1933, as amended (the "Securities Act"),
with terms identical to those of the Senior Subordinated Notes and the Senior
Subordinated Discount Notes, as applicable (the "Exchange Offer"). If (i) the
Exchange Offer is not permitted by applicable law or (ii) the holders of an
aggregate of at least $1.0 million in principal amount or Accreted Value of
Transfer Restricted Securities, as defined therein, notify the Company within
the specified time period that (A) they are prohibited by law or Commission
policy from participating in the Exchange Offer, (B) they may not resell
Exchange Notes acquired in the Exchange Offer to the public without delivering a
prospectus and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales or (C) they are
broker-dealers and hold Notes acquired directly from the Company or an affiliate
of the Company, then the Company and the Guarantors will be required to provide
a shelf registration statement (the "Shelf Registration Statement") to cover
resales of the Notes by the holders
F-79
<PAGE> 252
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED BALANCE SHEET -- (Continued)
thereof. Notwithstanding the foregoing, at any time after consummation of the
Exchange Offer, the Company and the Guarantors may allow the Shelf Registration
Statement to cease to be effective and usable if (i) the Board of Directors of
the Company determines in good faith that such action is in the best interests
of the Company, and the Company notifies the Holders within a certain period of
time after the Board of Directors makes such determination or (ii) the
prospectus contained in the Shelf Registration Statement contains an untrue
statement of material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided that the period referred to in the Registration Rights Agreement during
which the Shelf Registration Statement is required to be effective and usable
will be extended by the number of days during which such registration statement
was not effective or usable pursuant to the foregoing provisions.
If (i) the Company and the Guarantors fail to file within 30 days of the
closing of the Acquisition, or cause to become effective within 90 days after
the date of such filing, the Exchange Offer Registration Statement, or (ii) the
Company and the Guarantors are obligated to provide a Shelf Registration
Statement and such Shelf Registration Statement is not filed within 30 days, or
declared effective within 90 days, of the date on which the Company became so
obligated, or (iii) the Company and the Guarantors fail to consummate the
Exchange Offer within 30 days of the date on which the Exchange Offer
Registration Statement was required to be declared effective by the Commission
or (iv) subject to the last sentence of the preceding paragraph, the Shelf
Registration Statement or the Exchange Offer Registration Statement is declared
effective but shall thereafter cease to be effective or usable in connection
with resales of the Notes for the periods specified in the Registration Rights
Agreement (each such event referred to in clauses (i) through (iv) above a
"Registration Default"), then the Company shall pay to each holder of Transfer
Restricted Securities, with respect to the first 90-day period following such
Registration Default, liquidated damages ("Liquidated Damages") in an amount
equal to $0.05 per week per $1,000 in principal amount or Accreted Value, as
applicable, of Transfer Restricted Securities held by such holder. The amount of
such Liquidated Damages will increase by an additional $0.05 per week per $1,000
in principal amount or Accreted Value, as applicable, of Transfer Restricted
Securities held by such holders for each subsequent 90-day period until such
Registration Default has been cured, up to a maximum of $0.50 per week.
Following the cure of all Registration Defaults, the accrual of all Liquidated
Damages will cease.
Subject to the terms and conditions set forth in the purchase agreement
between the parties, the Company has agreed to sell to Goldman, Sachs & Co. (the
"Initial Purchaser"), and the Initial Purchaser has agreed to purchase from the
Company, all of the Notes being offered.
Under the terms and conditions of the purchase agreement, the Initial
Purchaser is committed to take and pay for all the Notes offered, if any are
taken.
The purchase price for the Senior Subordinated Notes and the Senior
Subordinated Discount Notes will be the respective offering prices set forth on
the cover page of the Offering Circular (collectively, the "Note Offering
Prices") less the underwriting discounts of 3.8% of the principal amount of the
Senior Subordinated Notes purchased and 2.101% of the principal amount of the
Senior Subordinated Discount Notes purchased. The Initial Purchaser proposes to
offer the Notes at their respective Note Offering Prices. After the Notes are
released for sale, the Note Offering Prices and other selling terms may from
time to time be varied by the Initial Purchaser.
The Initial Purchaser has agreed that it will offer or sell the Notes to
(i) persons whom it reasonably believes to be qualified institutional buyers in
reliance on Rule 144A under the Securities Act, (ii) a limited number of
institutional accredited investors within the meaning of Rule 501(a)(1),
F-80
<PAGE> 253
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED BALANCE SHEET -- (Continued)
(2), (3) or (7) of Regulation D under the Securities Act and (iii) to certain
persons outside the United States pursuant to Regulation S under the Securities
Act.
The Notes are expected to be eligible for trading in the Private Offerings,
Resales and Trading through Automatic Linkages (PORTAL) Market.
The Company has agreed that for a period of 90 days after the date of the
Offering Circular that it will not offer, sell, contract to sell or otherwise
dispose of, without the prior written consent of the Initial Purchaser, any
securities of the Company that are substantially similar to the Notes, other
than the Exchange Notes, or any securities of the Company convertible into or
exchangeable for securities of the Company substantially similar to the Notes.
The Company has been advised by the Initial Purchaser that the Initial
Purchaser, through Goldman Sachs International, as its selling agent, proposes
to resell Notes outside the United States in offshore transactions in reliance
on Regulation S under the Securities Act and in accordance with applicable law.
In each case, the Note Offering Prices and underwriting discounts are the same.
Any offer or sale of Notes in reliance on Rule 144A will be made by
broker-dealers who are registered as such under the Exchange Act. Terms used
above have the meanings given to them by Regulation S and Rule 144A under the
Securities Act.
The Initial Purchaser has acknowledged and agreed that, except as permitted
by the purchase agreement, it will not offer, sell or deliver the Notes, (i) as
part of the distribution at any time or (ii) otherwise until 40 days after the
later of the commencement of the Offering and the original issue date of the
Notes, within the United States or to, or for the account or benefit of, U.S.
Persons, and that it will send to each dealer to which it sells Notes in
reliance on Regulation S during the restricted period a confirmation or other
notice setting forth the restrictions on offers and sales of the Notes within
the United States or to, or for the account or benefit of, U.S. Persons. Terms
used in this paragraph have the meaning given to them by Regulation S under the
Securities Act.
In addition, until the expiration of the 40-day period referred to above,
an offer or sale of Notes within the United States by a dealer (whether or not
participating in the offering) may violate the registration requirements of the
Securities Act if such offer or sale is made otherwise than in accordance with
Rule 144A under the Securities Act or pursuant to another exemption from
registration under the Securities Act.
The Initial Purchaser has also represented and agreed that (i) it has not
offered or sold and will not offer or sell, any Notes to persons in the United
Kingdom prior to the expiry of the period of six months from the issue date of
the Notes, except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent)
for the purposes of their businesses or otherwise in circumstances which have
not resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995, (ii) it
has complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by it in relation to the Notes
in, from or otherwise involving the United Kingdom, and (iii) it has only issued
or passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issuance of the Notes to a person who is
of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1995 or is a person to whom the
document may otherwise lawfully be issued or passed on.
The Company has agreed to reimburse the Initial Purchaser for certain
expenses and the Company and the Guarantors have agreed to indemnify the Initial
Purchaser against certain liabilities, including liabilities under the
Securities Act.
F-81
<PAGE> 254
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED BALANCE SHEET -- (Continued)
The Notes are a new issue of securities with no established trading market.
The Company has been advised by the Initial Purchaser that it intends to make a
market in the Notes. However, the Initial Purchaser is not obligated to do so
and such market making may be interrupted or discontinued without notice.
Following consummation of the Exchange Offer contemplated by the Registration
Rights Agreement, because the Initial Purchaser is an affiliate of the Company,
the Initial Purchaser will be required to deliver a current "market-maker"
prospectus and otherwise comply with the registration requirements of the
Securities Act in connection with any secondary market sale of the Exchange
Notes, which may affect its ability to continue market-making activities. The
Initial Purchaser's ability to engage in market-making transactions will
therefore be subject to the availability of a current "market-maker" prospectus.
Under certain circumstances following completion of the Exchange Offer, the
Company and the Guarantors have agreed to make a "market-maker" prospectus
available to the Initial Purchaser to permit it to engage in market making
transactions. Notwithstanding the foregoing, at any time after consummation of
the Exchange Offer, the Company and the Guarantors may allow the "market-maker"
prospectus to cease to be effective and usable if (i) the Board of Directors of
the Company determines in good faith that such action is in the best interests
of the Company, and the Company notifies the holders within a certain period of
time after the Board of Directors makes such determination or (ii) the
"market-maker" prospectus contains an untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
5. STOCK OPTION PLAN
In connection with the Acquisition, the Company will adopt a stock option
plan under which it will grant stock options to certain members of management to
purchase up to an aggregate of 3.4% of the Parent's common stock on a fully
diluted basis. In addition, certain executive officers will have the opportunity
to purchase, in the aggregate, up to $6.0 million of the Parent's common stock
at the same price per share to be paid by GSCP. These executive officers have
committed to purchase at least $3.0 million of the Parent's common stock. It is
expected that $1.0 million of the purchase price will be provided by the
executives, and the remainder will be loaned to the executives by the Company on
a non-recourse basis, with the purchased stock as security for the loans. If
these executive officers decide to purchase $6.0 million of the Parent's common
stock and all available options are granted, management's beneficial ownership
of the Parent's common stock will be approximately 4.9% of the Parent's common
stock on a fully diluted basis.
6. UNAUDITED PRO FORMA CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL
INFORMATION
As further discussed in Note 4, AMF Group Inc. intends to issue Senior
Subordinated Notes and Senior Subordinated Discount Notes. The Notes will be
jointly and severally guaranteed on a full and
F-82
<PAGE> 255
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED BALANCE SHEET -- (Continued)
unconditional basis by Holdings and by AMF Group Inc.'s first-tier and
second-tier subsidiaries as follows (together with Holdings, the "Guarantor
Companies"):
- AMF Bowling Centers Holdings Inc.(a)
- AMF Bowling Holdings Inc.(a)
- AMF Bowling, Inc.
- AMF Bowling Centers, Inc.
- Bush River Corporation
- King Louie Lenexa, Inc.
- AMF Beverage Company of Oregon, Inc.
- AMF Worldwide Bowling Centers Holdings Inc.(a)
- AMF Bowling Centers (Aust) International Inc.
- AMF Bowling Centers (Canada) International Inc.
- AMF BCO -- France One, Inc.
- AMF BCO -- France Two, Inc.
- AMF Bowling Centers (Hong Kong) International Inc.
- AMF Bowling Centers International Inc. (Japan)
- AMF Bowling Mexico Holding, Inc.
- Boliches AMF, Inc.
- AMF BCO -- U.K. One, Inc.
- AMF BCO -- U.K. Two, Inc.
- AMF BCO -- China, Inc.
- AMF Bowling Centers China, Inc.
The following third-tier domestic subsidiaries of AMF Group Inc., all of
which will be wholly owned subsidiaries of AMF Worldwide Bowling Centers
Holdings Inc. have, at present, not provided guarantees (collectively, the
"Non-Guarantor Companies"):
- AMF Bowling (Unlimited)
- Worthing North Properties Limited
- AMF Bowling France SNC
- AMF Bowling de Paris SNC
- AMF Bowling de Lyon La Part Dieu SNC
- Boliches y Compania
- Operadora Mexicana de Boliches, S.A.
- Promotora de Boliches, S.A. de C.V.
- Immeubles Obispado, S.A.
- Immeubles Minerva, S.A.
- Boliches Mexicano, S.A.
- AMF Bowling Centers (China) Company
- AMF Garden Hotel Bowling Center Company
(a) As discussed in Note 1, these subsidiaries have been newly created by
Holdings and AMF Group Inc. to effect the acquisition of AMF.
The following unaudited pro forma condensed consolidating information with
respect to the Guarantor Companies and the Non-Guarantor Companies, together
with elimination entries, gives effect to the Acquisition and related financing
transactions as if such transactions had occurred as of January 1, 1995 for
purposes of the unaudited pro forma consolidating statement of income for the
year ended December 31, 1995.
F-83
<PAGE> 256
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED BALANCE SHEET -- (Continued)
All of the Guarantor Companies are wholly-owned. Financial statements of
each of the Guarantor Companies have not been presented as management has
determined that they would not be material to investors.
The unaudited pro forma consolidating statement of income reflects pro
forma adjustments to (a) eliminate the effect of certain transactions
contemplated in the Stock Purchase Agreement, and (b) give effect to the
acquisition of AMF by Holdings and the related Financing transactions. Certain
pro forma adjustments result from management's preliminary determination of
purchase accounting adjustments and are based upon available information and
certain assumptions that Holdings considers reasonable under the circumstances.
Consequently, the amounts reflected in the unaudited pro forma consolidating
statement of income are subject to change.
The unaudited pro forma consolidating financial statements should be read
in conjunction with AMF's historical audited Combined Financial Statements and
related notes thereto, appearing elsewhere in this Offering Circular.
The unaudited pro forma consolidating financial statements do not purport
to be indicative of Holdings' financial condition or the results that would have
actually been obtained had such transactions been consummated as of the assumed
dates and for the periods presented, nor are they indicative of Holdings'
results of operation or financial condition for any future period or date.
As a result of the holding company structure of the Company, the holders of
the Notes will be structurally junior to all creditors of the subsidiaries that
are not Guarantors, except to the extent that the Company or a Guarantor is
itself recognized as a creditor of such subsidiary, in which case the claims of
the Company or such Guarantor would still be subordinate to any security in the
assets of such subsidiary and any indebtedness of such subsidiary senior to that
held by the Company or a Guarantor. In the event of the insolvency, liquidation,
reorganization, dissolution or other winding-up of the subsidiaries that are not
Guarantors, the Company will not receive funds available to pay to the holders
of the Notes in respect of the Notes until after the payment in full of the
claims of the creditors of the subsidiaries.
The Company's ability to service its indebtedness will be dependent, in
part, on its ability to utilize the cash flow generated by its foreign
operations. In general, U.S. federal and international tax laws provide that
income of international subsidiaries is subject to tax only in the local
jurisdiction and is not subject to U.S. federal income tax unless, and only to
the extent that such income is distributed as a dividend to the U.S. parent
company. The Company has not determined whether to cause its international
subsidiaries to pay dividends to the Company or to cause the net income of such
subsidiaries to be retained abroad. The Company may make loans to its foreign
subsidiaries, and, in that event, payments by the Company's foreign subsidiaries
to the Company on such intercompany loans may result in the repatriation of a
substantial portion of the cash flow of such subsidiaries without the payment of
taxes abroad. In addition, certain of the Company's subsidiaries may make
royalty payments to the Company. There can be no assurance, however, that the
interest payments on such intercompany loans or such royalty payments will not
be recharacterized as dividends, which could have adverse tax consequences to
the Company.
F-84
<PAGE> 257
AMF GROUP HOLDINGS INC.
CONDENSED PRO FORMA CONSOLIDATING INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(IN MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
NON- HOLDINGS
GUARANTOR GUARANTOR PRO FORMA
COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Operating revenue.............................. $ 531.7 $33.4 $ (2.5) $ 562.6
Operating expenses:
Cost of sales................................ 180.6 4.6 (1.6) 183.6
Bowling center operations.................... 154.9 14.2 -- 169.1
Selling, general and administrative.......... 41.1 6.2 (0.7) 46.6
Depreciation and amortization................ 63.7 3.3 -- 67.0
-------- -------- ------ -- --------
Total operating expenses............. 440.3 28.3 (2.3) 466.3
-------- -------- ------ -- --------
Operating income (loss)................... 91.4 5.1 (0.2) 96.3
Nonoperating expenses
Interest expense, net........................ (102.4) 0.3 -- (102.1)
Other expenses, net.......................... (1.0) (1.0) -- (2.0)
-------- -------- ------ -- --------
Income (loss) before income taxes......... (12.0) 4.4 (0.2) (7.8)
Income tax provision (benefit)................. 8.4 (1.6) -- 10.0
-------- -------- ------ -- --------
Net income (loss)......................... $ (20.4) $ 2.8 $ (0.2) $ (17.8)
======== ======== ======== ========
</TABLE>
F-85
<PAGE> 258
AMF GROUP HOLDINGS INC.
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
(UNAUDITED)
(IN MILLIONS)
<TABLE>
<S> <C>
ASSETS
Current assets
Cash and cash equivalents..................................... $ 606.4
------
Total current assets........................................ 606.4
Deferred financing costs...................................... 9.6
------
Total assets............................................. $ 616.0
======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accrued Interest.............................................. $ 0.8
Seller's deposit.............................................. 15.0
------
Total current liabilities................................ 15.8
Senior subordinated notes..................................... 250.0
Senior subordinated discount notes............................ 250.8
Common Stock; $0.01 par value; 1,000 shares authorized;
100 shares issued and outstanding........................... --
Paid-in capital............................................... 100.0
Retained Deficit.............................................. (0.6)
------
Total stockholder's equity............................... 99.4
------
Total liabilities and stockholder's equity......................... $ 616.0
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-86
<PAGE> 259
AMF GROUP HOLDINGS INC.
CONSOLIDATED INCOME STATEMENT
FOR THE PERIOD FROM INCEPTION (JANUARY 12, 1996) THROUGH MARCH 31, 1996
(UNAUDITED)
(IN MILLIONS)
<TABLE>
<S> <C>
Interest income.................................................... $ 1.0
Interest expense................................................... 1.6
------
Income before income taxes....................................... (0.6)
Income tax provision............................................. --
------
Net loss...................................................... $ (0.6)
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-87
<PAGE> 260
AMF GROUP HOLDINGS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (JANUARY 12, 1996) THROUGH MARCH 31, 1996
(UNAUDITED)
(IN MILLIONS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss...................................................... $ (0.6)
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of discount on senior subordinated discount
notes...................................................... 0.8
Changes in assets and liabilities:
Deferred financing costs................................. (9.6)
Accrued interest......................................... 0.8
-----
Net cash used for operating activities................. (8.6)
-----
Cash flows from financing activities:
Proceeds from deposit from seller............................. 15.0
Proceeds from issuance of senior subordinated notes........... 250.0
Proceeds from issuance of senior subordinated discount
notes........................................................ 250.0
Proceeds from contribution of equity.......................... 100.0
-----
Net cash provided by financing activities.............. 615.0
-----
Net increase in cash............................................... 606.4
Cash and cash equivalents at inception............................. --
-----
Cash and cash equivalents at end of period......................... $606.4
=====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-88
<PAGE> 261
AMF GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
1. THE COMPANY
Organization
The accompanying consolidated financial statements include the accounts of
AMF Group Holdings Inc. ("Holdings"), a Delaware corporation, and its direct
wholly owned subsidiary, AMF Group Inc. (the "Company") and the Company's wholly
owned subsidiaries, AMF Bowling Centers Holdings Inc., AMF Bowling Holdings
Inc., AMF Worldwide Bowling Centers Holdings Inc., AMF Bowling Centers
Switzerland Inc. and AMF Bowling Centers Spain Inc. (collectively with Holdings
and the Company, the "Purchasers"). Each of these subsidiaries is a Delaware
corporation.
Holdings is a wholly owned subsidiary of AMF Holdings Inc. (the "Parent").
The Purchasers and the Parent are newly formed corporations organized by GS
Capital Partners II, L.P. and other investment funds (collectively, "GSCP")
affiliated with Goldman, Sachs & Co. Holding, the Company and each of the
Company's subsidiaries were organized by GSCP to effect the acquisition of all
of the outstanding stock and certain of the assets of AMF Bowling, Inc., AMF
Bowling Centers, Inc., and other affiliated stock and certain of the assets of
AMF Bowling Centers, Inc., and other affiliated domestic and international
corporations that constitute AMF (collectively, "AMF").
AMF owns and operates commercial bowling centers in the United States and
worldwide. Management intends that Holdings and the Company will conduct all of
their business through subsidiaries and will have no operations of their own.
Holdings and the Company will be dependent on the cash flow of their
subsidiaries and distribution therefrom in order to meet debt service
obligations. Reference is made to the Risk Factors section of this Registration
Statement for a discussion of significant risks and uncertainties regarding the
Purchasers and the transaction discussed in Note 4.
Interim Financial Statements
The consolidated financial statements for the period from inception
(January 12, 1996) through March 31, 1996 are unaudited, but in the opinion of
management such financial statements have been presented on the same basis as
the audited consolidated financial statements and include all adjustments,
consisting only of normal recurring adjustments necessary for a fair
presentation of the financial position and results of operations and cash flows
for these periods.
As permitted under the applicable rules and regulations of the Securities
and Exchange Commission, these financial statements do not include all
disclosures normally included with audited financial statements, and,
accordingly, should be read in conjunction with the consolidated balance sheet
and notes thereto as of March 7, 1996.
Significant Accounting Policies
Cash Equivalents:
Highly liquid investments with an original maturity of three months or
less are generally considered to be cash equivalents.
Deferred Financing Costs:
Deferred financing costs include costs incurred in connection with the
issuance of debt. Deferred financing costs are amortized on a straight-line
basis over the life of the underlying debt.
F-89
<PAGE> 262
AMF GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996
Income Taxes:
Deferred tax assets and liabilities are recognized for the future tax
consequences of the differences between financial statement carrying amounts of
assets and liabilities and their respective tax bases. These balances are
measured using enacted tax rates expected to apply to taxable income in the
years in which such temporary differences are expected to be recovered or
settled. If it is more likely than not that some portion or all of a deferred
tax asset will not be realized, a valuation allowance is recognized.
As of March 31, 1996, the Company had established a deferred tax asset
and a corresponding valuation allowance of $0.2.
2. THE ACQUISITION
Holdings entered into a Stock Purchase Agreement dated February 16, 1996
(the "Stock Purchase Agreement") with the then stockholders of AMF (the
"Sellers"). The Stock Purchase Agreement provided for the acquisition of AMF
through a stock purchase by the Company's subsidiaries of all the outstanding
stock of the separate domestic and foreign corporations that constitutes
substantially all of AMF and through the purchase of the assets of AMF's bowling
center operations in Spain and Switzerland (the "Acquisition"). The Company did
not acquire the assets of two bowling centers located, respectively, in Madrid,
Spain and Geneva, Switzerland (both of which will be retained by the Sellers).
The terms of the February 16, 1996 agreement are more fully described in Note 2
to the March 7, 1996 audited balance sheet.
The Acquisition was funded through issuances of senior debt, senior
subordinated notes and senior subordinated discount notes (collectively, the
"Financing") of $515.0 million, $250.0 million and $250.0 million, respectively,
the assumption of debt of $2.0 million and $391.0 million of equity.
Pending consummation of the Acquisition, which occurred on May 1, 1996, as
described in Note 4 below, the net proceeds from the issuance of the Notes (see
Note 3) together with $100.0 million of equity contributions from GSCP and a
deposit of $15.0 million from the Sellers are being held in escrow accounts. The
escrow accounts are required to be invested in cash equivalents, as directed
time to time by the Company. The Company will be permitted to obtain release of
the escrow funds upon consummation of the Acquisition.
3. SENIOR SUBORDINATED NOTES AND SENIOR SUBORDINATED DISCOUNT NOTES
On March 21, 1996, the Company issued senior subordinated notes (the
"Senior Subordinated Notes") with a principal amount of $250.0 million and
senior subordinated discount notes (the "Senior Subordinated Discount Notes")
with an aggregate principal amount so as to generate gross proceeds of $250.0
million. The Senior Subordinated Notes and the Senior Subordinated Discount
Notes are collectively referred to as the "Notes". These Notes are more fully
described in Note 4 to the March 7, 1996 audited balance sheet.
4. SUBSEQUENT EVENTS
On April 11, 1996 Holdings and the Sellers entered into a letter agreement
(the "Letter Agreement") amending the Stock Purchase Agreement. Under the terms
of the Letter Agreement, certain of the Sellers (the "Covenantors") have agreed
to make certain payments to Holdings if the net income before interest, taxes,
depreciation, amortization, and certain non-cash, extraordinary, non-recurring
and non-operating items ("EBITDA") of AMF Bowling, Inc., the entity that
principally
F-90
<PAGE> 263
AMF GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996
operates AMF's bowling manufacturing business, does not achieve certain agreed
upon objectives during the period from May 1, 1996 through June 30, 1997.
The Acquisition of AMF took place on May 1, 1996 (the "Closing Date"). As a
result of the Acquisition, the Company owns or operates all 205 of AMF's
domestic bowling centers and 78 of AMF's international bowling centers. The
purchase price for the Acquisition was $1,325 billion, less approximately $2.0
million of assumed debt, plus the Stock Performance Plan Adjustment of $5.0
million and the Closing Date Adjustment of $5.2 million. The Closing Working
Capital Adjustment will be determined in connection with an audit of the closing
balance sheet of AMF. Amounts with respect to post-closing adjustments will bear
interest from the Closing Date through the day prior to payment.
The execution of the Senior Bank Credit Agreement occurred simultaneously
with the closing of the Acquisition as described in Note 3 to the March 7, 1996
audited balance sheet.
In connection with the Senior Bank Credit Agreement, the covenants were
finalized to contain certain financial covenants, as well as additional
affirmative and negative covenants, constraining the Company. The Company must
maintain a minimum EBITDA (as defined in the Credit Agreement) of not less than
the sum of (i) an amount ranging from $140 million for the Rolling Period (each
a calendar quarter together with the three consecutive immediately preceding
calendar quarters) ending September 30, 1996, to $200 million for the Rolling
Period ending September 30, 2003 and thereafter, and (ii) the EBITDA Adjustment
Amount for such Rolling Period, which is equal to 80% of the aggregate amount of
the EBITDA of each bowling center acquired or constructed by the Company or any
of its Subsidiaries after May 1, 1996 and acquired or constructed at least 15
months prior to such time of determination.
The Company must also maintain a Cash Interest Coverage Ratio (defined in
the Credit Agreement as the ratio of (a) consolidated EBITDA of the Company and
its Subsidiaries during a Rolling Period, as modified with respect to certain
bowling centers acquired or constructed after May 1, 1996 ("Modified
Consolidated EBITDA") to (b) cash interest payable on all Debt (as defined in
the Credit Agreement) of the Company and its Subsidiaries) at an amount ranging
from not less than 2.00 for the Rolling Period ending September 30, 1996, to not
less than 2.50 for the Rolling Period ending September 30, 2004 and thereafter.
The Company is required to maintain a Fixed Charge Coverage Ratio (defined in
the Credit Agreement as the ratio of (a) Modified Consolidated EBITDA less the
sum of (i) cash taxes paid plus (ii) Capital Expenditures made by the Company
and its Subsidiaries during such Rolling Period to (b) the sum of (i) cash
interest payable on all Debt plus (ii) principal amounts of all Debt payable by
the Company and its Subsidiaries during such Rolling Period) at an amount
ranging from not less than 1.05 for the Rolling Period ending September 30,
1996, to not less than 1.10 for the Rolling Period ending March 31, 2004 and
thereafter. A Senior Debt to EBITDA Ratio, (defined in the Credit Agreement as
the ratio of Consolidated Debt (other than Subordinated Debt and Hedge
Agreements, as defined in the Credit Agreement) of the Company and its
Subsidiaries to Modified Consolidated EBITDA for that Rolling Period) must be
maintained at levels ranging from not less than 3.5 for the Rolling Period
ending September 30, 1996 to not less than 1.50 for the Rolling Period ending
September 30, 2003 and thereafter. A Total Debt to EBITDA Ratio (defined in the
Credit Agreement as the ratio of consolidated total Debt (other than Hedge
Agreements) of the Company and its Subsidiaries to Modified Consolidated EBITDA)
must be maintained at levels ranging from not less than 6.95 for the Rolling
Period ended September 30, 1996 to not less than 4.00 for the Rolling Period
ended
F-91
<PAGE> 264
AMF GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996
September 30, 2003 and thereafter. In each case, the above-mentioned ratios are
calculated on a quarterly basis.
Affirmative covenants under the Senior Facilities oblige the Company and
its Subsidiaries to comply with all laws and regulations, as well as to pay all
taxes not being contested in good faith, to comply with environmental laws and
permits, to maintain insurance coverage, preserve its corporate existence,
permit the examination of its records and books of account by the agents or any
of the Lenders, to prepare environmental reports upon the reasonable request of
the administrative agent (in the case of a Default under the Credit Agreement or
based on the belief that hazardous materials contamination not otherwise
disclosed may be present on any property described in the mortgages), to keep
proper books of record and account, to maintain its properties in good working
condition, to comply with the terms of leaseholds and to perform and observe all
terms and provisions of each Related Document (defined as the purchase
agreement, the subordinated debt documents, the tax agreement, the stockholders
agreement and the support agreement). The Company is also required to conduct,
and cause each of its Subsidiaries to conduct, all transactions permitted under
the loan documents with any affiliates on fair and reasonable terms, to maintain
cash concentration accounts with Citibank, N.A. into which substantially all
proceeds of collateral are to be paid, and to guarantee obligations and give
security (upon the request of Citicorp USA, Inc. (together with any successor
appointed pursuant to the Credit Agreement, the "Collateral Agent"), at such
time as any new direct or indirect Subsidiary of the Company is formed or
acquired by the Company and the Guarantors (each, a "Loan Party"), or when any
property is acquired by any Loan Party). The Company must enter into prior to
June 30, 1996, and maintain after November 15, 1996 until the aggregate
outstanding amount under the Term Facilities is less than $400 million, interest
rate hedge agreements, covering a notional amount of not less than 50% of the
commitments under all the facilities and the other floating rate debt of the
Loan Parties. The Company must also complete the process of granting collateral
to the Collateral Agent within 60 days (or such later date as may be agreed to
by the Company and the Collateral Agent) after May 1, 1996.
Negative covenants under the Senior Facilities prohibit the Company and its
Subsidiaries from incurring any liens (except for those created under the loan
documents or otherwise permitted under the Credit Agreement, including those
securing the Company's obligations as borrower not to exceed $5 million at any
time outstanding). The Company and its Subsidiaries are also prohibited from
incurring any debt, other than (in the case of the Company) debt owed to its
Subsidiaries or in respect of hedge agreements not entered into for speculative
purposes or (in the case of any Subsidiary) debt owed to the Company or any of
its wholly owned Subsidiaries, to the extent permitted under the Credit
Agreement or (in the case of either the Company or its Subsidiaries) debt
secured by permitted liens, capitalized leases not to exceed $10 million at any
time outstanding, any surviving debt and subordinated debt under the Notes,
among other things. The Company and its Subsidiaries may not incur any
obligations under leases having a term of one year or more that would cause
their direct and contingent liabilities for any 12 months to exceed (i) $25
million, (ii) the product of (x) $200,000 and (y) the number of leased bowling
centers acquired by the Company or any Subsidiaries after May 1, 1996 and (iii)
in each calendar year after 1996, an amount equal to 4% of the amount permitted
by this provision in the immediately preceding calendar year. The Company is
also prohibited from entering into a merger of which it is not the survivor or
to sell, lease, or otherwise transfer its asset other than in the ordinary
course of business, except as otherwise permitted by the Credit Agreement.
Investments by the Company or its Subsidiaries in any other Person is also
limited by formulas set forth in the Credit Agreement. The negative covenants
F-92
<PAGE> 265
AMF GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996
also related to the payment of dividends, prepayments of, and amendments of the
terms of, other debt (including the Notes), amendment of Related Documents,
ownership change, negative pledges, partnerships, speculative transactions,
capital expenditures and payment restrictions affecting subsidiaries. The
Company is also subject to certain financial and other reporting requirements.
In accordance with the Registration Rights Agreement, the Company has
initiated an offering of Exchange Senior Subordinated Notes and Exchange Senior
Subordinated Discount Notes (collectively, the "Exchange Notes") and has filed a
registration statement with the Securities and Exchange Commission.
The Exchange Senior Subordinated Notes will mature on March 15, 2006.
Interest will accrue from the date of issuance at an annual rate of 10 7/8% and
will be payable in cash semi-annually in arrears on March 15 and September 15 of
each year commencing September 15, 1996.
The Exchange Senior Subordinated Discount Notes will mature on March 15,
2006. The Exchange Senior Subordinated Discount Notes will result in an
effective yield of 12 1/4% per annum, computed on a semi-annual bond equivalent
basis. No interest (other than liquidated damaged, if applicable) will accrue or
be payable prior to March 15, 2001 (the "Full Accretion Date"). Commencing March
15, 2001 interest will accrue and will be payable in cash semi-annually in
arrears on each March 15 and September 15 of each year beginning with the first
such date after the Full Accretion Date.
For federal income tax purposes, each Exchange Senior Subordinated Discount
Note will be considered to have been issued with "original issue discount" equal
to the difference between the issue price of the Senior Subordinated Discount
Note for which it is exchanged and the sum of all cash payments (whether
denominated as principal or interest) to be made on such Senior Subordinated
Discount Note. Each holder of an Exchange Senior Subordinated Discount Note must
include in gross income for federal income tax purposes the sum of the daily
portions of such original issue discount for each day during each taxable year
in which the Exchange Senior Subordinated Discount Note is held, even though no
interest payments will be received prior to September 15, 2001.
The Company's payment obligations under the Notes will be jointly and
severally guaranteed on a senior subordinated basis (the "Senior Subordinated
Guarantees") by Holdings and each of the Company's subsidiaries identified in
Note 5 below (collectively, the "Guarantors"). The guarantees will be
subordinated to the guarantees of Senior Debt issued by the Guarantors as
described in Note 5.
The Exchange Notes will be general unsecured obligations of the Company,
will be subordinated in right of payment to all Senior Debt, as defined, of the
Company, will rank pari passu with all Senior Subordinated Debt of the Company
and will be senior in right of payment to all existing and future subordinated
debt of the Company. Following the Acquisition, the claims of the holders of the
Exchange Notes will be subordinated to the Senior Debt, and will be effectively
subordinated to all other indebtedness and other liabilities (including trade
payables and capital lease obligations) of the Company's subsidiaries that are
not Guarantors, through which the Company will conduct a portion of its
operations (See Note 5).
In the event of a Change of Control, as defined, the holders of the
Exchange Senior Subordinated Notes will have the right to require the Company to
repurchase their Exchange Senior Subordinated Notes in whole or in part, at a
price equal to 101% of the aggregate principal amount
F-93
<PAGE> 266
AMF GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996
thereof plus accrued and unpaid interest, if any, including liquidated damages,
if any, to the date of repurchase. The Exchange Senior Subordinated Discount
Note Indenture will require that prior to such a repurchase, the Company must
either repay all outstanding indebtedness under the Senior Debt or obtain any
required consent to such repurchase.
Except for the special mandatory redemption described above and, as
described below, the Exchange Notes are not redeemable at the Company's option
prior to March 15, 2001. From and after March 15, 2001, the Exchange Notes will
be subject to redemption at the option of the Company, in whole or in part, at
specified redemption prices, together with accrued and unpaid interest,
including liquidated damages, if any, to the date of redemption.
Prior to March 15, 1999, up to $100.0 million in aggregate principal amount
of Exchange Senior Subordinated Notes will be redeemable at the option of the
Company, on one or more occasions, from the net proceeds of public or private
sales of common stock of, or contributions to the common equity capital of, the
Company, at a price of 110.875% of the principal amount of the Exchange Senior
Subordinated Notes, together with accrued and unpaid interest, if any, including
Liquidated Damages, if any, to the date of redemption; provided that at least
$150.0 million aggregate principal amount of Exchange Senior Subordinated Notes
remains outstanding immediately after such redemption.
Prior to March 15, 1999, the Exchange Senior Subordinated Discount Notes
will be redeemable at the option of the Company, on one or more occasions, from
the net proceeds of public or private sales of common stock of, or contributions
to the common equity capital of, the Company, at a price of 112.250% of the
Accreted Value of the Exchange Senior Subordinated Discount Notes plus accrued
and unpaid Liquidated Damages, if any; provided that at least $150.0 million in
Accreted Value of Exchange Senior Subordinated Discount Notes remains
outstanding immediately after such redemption.
The Indenture governing the Exchange Senior Subordinated Notes (the
"Exchange Senior Subordinated Note Indenture") and the Indenture governing the
Exchange Senior Subordinated Discount Notes (the "Exchange Senior Subordinated
Discount Note Indenture" and, together with the Exchange Senior Subordinated
Note Indenture, the "Exchange Note Indentures") will contain certain covenants
that will, among other things, limit the ability of the Company and its
Restricted Subsidiaries, as defined therein, to incur additional indebtedness
and issue Disqualified Stock, as defined therein, pay dividends or distributions
or make investments or make certain other Restricted Payments, as defined
therein, enter into certain transactions with affiliates, dispose of certain
assets, incur liens securing pari passu and subordinated indebtedness of the
Company and engage in mergers and consolidations.
5. EMPLOYMENT AGREEMENTS, STOCK INCENTIVE PLAN AND STOCKHOLDERS AGREEMENT
The Parent has entered into two employment agreements with executives of
AMF, each for a term ending on May 1, 1999. The agreement calls for compensation
consisting of a salary and an incentive bonus of up to 50% of the executive's
annual salary, if certain operational and financial targets are met. The
employment agreement also calls for a continuation of certain benefits following
termination of employment.
These two executives were also granted options to purchase a total of
240,000 shares of common stock of the Parent. Unless sooner exercised or
forfeited as provided, the options expire on May 1, 2006. Twenty percent of the
options vest on each of the first five anniversaries of the
F-94
<PAGE> 267
AMF GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996
Closing Date. The exercise price of the options is $10.00 per share, which
approximates the fair value of the common stock at the date of the grant.
The employment agreements further provide that, prior to the consummation
of an initial public offering or offerings by Parent with gross proceeds in the
aggregate of at least $100 million (an "IPO"), Parent may, upon termination of
the executive's employment for any reason (including death), repurchase all of
the shares of Purchased Stock and any shares of Parent Common Stock issued upon
exercise of the Options (together, "Restricted Stock") held by him for fair
market value as of a specified date. The executive or his legal representative
may, prior to such an initial public offering or offerings, require Parent to
repurchase all of his Restricted Stock at fair market value (in the case of
death) or otherwise at the original price paid for the shares, if the executive
dies or if his Employer terminates his employment for any reason. Immediately
prior to certain change in control transactions, any then unvested Options will
vest. If any successor to Parent or the executive's Employer acquires all or
substantially all of the business and/or assets of Parent or such Employer,
Parent may purchase all of the Restricted Stock held by the executive for its
fair market value, and any Options then held by him for the fair market value of
the underlying Parent Common Stock less the exercise price of the Options.
The Parent's stockholders have entered into a Stockholders Agreement which
provides for, amongst other things, that Goldman Sachs has the exclusive right
to perform all consulting, financing, investment banking and similar services
for Parent and its subsidiaries, for customary compensation and on terms
customary for similar engagements with unaffiliated third parties. Neither
Parent nor its subsidiaries are allowed to engage any person to perform such
services during the term of the Stockholders Agreement, except to the extent
Goldman Sachs shall consent thereto or shall decline, at its sole election, to
perform such services.
In connection with the Acquisition, Parent adopted the AMF Holdings, Inc.
1996 Stock Incentive Plan (the "Stock Incentive Plan") under which Parent may
grant incentive awards in the form of shares of Parent Common Stock ("Restricted
Stock Awards"), options to purchase shares of Parent Common Stock ("Stock
Options") and stock appreciation rights ("Stock Appreciation Rights") to certain
officers, employees, consultants and non-employee directors ("Participants") of
Parent and its affiliates. The total number of shares of Parent Common Stock
initially reserved and available for grant under the Stock Incentive Plan is
1,767,151. A committee of Parent's board of directors (the "Committee") is
authorized to make grants and various other decisions under the Stock Incentive
Plan and to make determination as to a number of the terms of awards granted
under the Stock Incentive Plan. Unless otherwise determined by the Committee,
any Participant granted an award under the Stock Incentive Plan must become a
party to, and agree to be bound by, the Stockholders Agreement (as defined
below).
Stock Option awards under the Stock Incentive Plan may include incentive
stock options, nonqualified stock options, or both types of Stock Options, in
each case with or without Stock Appreciation Rights. Stock Options are
nontransferable (except under certain limited circumstances) and, unless
otherwise determined by the Committee, have a term of ten years. Upon a
Participant's death or when the Participant's employment with Parent or the
applicable affiliate of Parent is terminated for any reason, such Participant's
previously unvested Stock Options are forfeited and the Participant or his legal
representative may, within three months (if termination of employment is for any
reason other than death) or one year (in the case of the Participant's death),
exercise any previously vested Stock Options. Stock Appreciation Rights may be
granted in conjunction with all or part of any Stock Option award, and are
exercisable, subject to certain limitations, only in connection with the
exercise of the related Stock Option. Upon the termination or
F-95
<PAGE> 268
AMF GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996
exercise of the related Stock Option, Stock Appreciation Rights terminate and
are no longer be exercisable. Stock Appreciation Rights are transferable only
with the related Stock Options.
Unless otherwise provided in the related award agreement or, if applicable,
the Stockholders Agreement, immediately prior to certain change of control
transactions described in the Stock Incentive Plan, all outstanding Stock
Options and Stock Appreciation Rights will, subject to certain limitations,
become fully exercisable and vested and any restrictions and deferral
limitations applicable to any Restricted Stock Awards will lapse.
The Stock Incentive Plan will terminate 10 years after its effective date;
however, awards outstanding as of such date will not be affected or impaired by
such termination. Parent's board of directors and the Committee have authority
to amend the Stock Incentive Plan and awards granted thereunder, subject to the
terms of the Stock Incentive Plan.
6. UNAUDITED PRO FORMA CONSOLIDATING GUARANTOR AND
NON-GUARANTOR FINANCIAL INFORMATION
The Notes are, and the Exchange Notes will be jointly and severally
guaranteed on a full and unconditional basis by Holdings and by AMF Group Inc.'s
first and second tier subsidiaries as follows (together with Holdings, the
"Guarantor Companies"):
- AMF Bowling Centers Holdings Inc.(a)
- AMF Bowling Holdings Inc.(a)
- AMF Bowling, Inc.
- AMF Bowling Centers, Inc.
- Bush River Corporation
- King Louie Lenexa, Inc.
- AMF Beverage Company of Oregon, Inc.
- AMF Worldwide Bowling Centers Holdings Inc.(a)
- AMF Bowling Centers (Aust) International Inc.
- AMF Bowling Centers (Canada) International Inc.
- AMF BCO -- France One, Inc.
- AMF BCO -- France Two, Inc.
- AMF Bowling Centers (Hong Kong) International Inc.
- AMF Bowling Centers International Inc. (Japan)
- AMF Bowling Mexico Holding, Inc.
- Boliches AMF, Inc.
- AMF BCO -- U.K. One, Inc.
- AMF BCO -- U.K. Two, Inc.
- AMF BCO -- China, Inc.
- AMF Bowling Centers China, Inc.
The following third-tier domestic subsidiaries of AMF Group Inc., all of
which will be wholly owned subsidiaries of AMF Worldwide Bowling Centers
Holdings Inc. have not provided guarantees (collectively, the "Non-Guarantor
Companies"):
- AMF Bowling (Unlimited)
- Worthing North Properties Limited
- AMF Bowling France SNC
- AMF Bowling de Paris SNC
F-96
<PAGE> 269
AMF GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996
- AMF Bowling de Lyon La Part Dieu SNC
- Boliches y Compania
- Operadora Mexicana de Boliches, S.A.
- Promotora de Boliches, S.A. de C.V.
- Immeubles Obispado, S.A.
- Immeubles Minerva, S.A.
- Boliches Mexicano, S.A.
- AMF Bowling Centers (China) Company
- AMF Garden Hotel Bowling Center Company
The following unaudited pro forma condensed consolidating information with
respect to the Guarantor Companies and Non-Guarantor Companies, together with
elimination entries, gives effect to the Acquisition and related financing
transactions as if such transactions had occurred:
(i) as of March 31, 1996 for purposes of the unaudited pro forma
consolidating balance sheet as of March 31, 1996; and
(ii) as of January 1, 1996 for the purposes of the unaudited pro forma
consolidating statement of income for the three months ended March 31,
1996.
All of the Guarantor Companies are wholly-owned. Financial statements of
each of the Guarantor Companies have not been presented as management has
determined that they would not be material to investors.
The unaudited pro forma consolidating statement of income reflects pro
forma adjustments to (a) eliminate the effect of certain transactions
contemplated in the Stock Purchase Agreement, and (b) give effect to the
acquisition of AMF by Holdings and the related Financing transactions. Certain
pro forma adjustments result from management's preliminary determination of
purchase accounting adjustments and are based upon available information and
certain assumptions that Holdings considers reasonable under the circumstances.
Consequently, the amounts reflected in the unaudited pro forma consolidating
statement of income are subject to change.
The unaudited consolidating balance sheet reflects pro forma adjustments to
(a) eliminate the effect of certain transactions contemplated in the Stock
Purchase Agreement, and (b) give effect to the acquisition of AMF by Holdings
and the related Financing transactions, including the application of the
estimated net proceeds therefrom as though they had occurred as of March 31,
1996. The Acquisition will be accounted for by the purchase method of
accounting, pursuant to which the purchase price is allocated among the acquired
assets and liabilities in accordance with estimates of fair market value on the
date of acquisition. The unaudited pro forma consolidating balance sheet
reflects preliminary estimates of the allocation of the purchase price. The pro
forma adjustments represent Holdings' management's preliminary determination of
purchase accounting adjustments and are based upon the results of a formal
appraisal of certain assets and other available information and certain
assumptions that Holdings considers reasonable under the circumstances.
Consequently, the amounts reflected in the unaudited pro forma consolidating
balance sheet are subject to change. A substantial portion of the excess
purchase price has been allocated to goodwill. Management believes that the net
benefit of leases in which current lease payments are below fair market value
approximates the amount reflected in the historical balance sheet of AMF as of
March 31, 1996 of approximately $10.7 million. No other specific intangibles
have been identified.
The unaudited pro forma consolidating financial statements should be read
in conjunction with AMF's historical Combined Financial Statements and related
notes thereto, appearing elsewhere in this Registration Statement as well as the
audited balance sheet as of March 7, 1996.
F-97
<PAGE> 270
AMF GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996
The unaudited pro forma consolidating financial statements do not purport
to be indicative of Holdings' financial condition or the results that would have
actually been obtained had such transactions been consummated as of the assumed
dates and for the period presented, nor are they indicative of Holdings' results
of operations or financial condition for any future period or date.
F-98
<PAGE> 271
AMF GROUP HOLDINGS INC.
CONDENSED PRO FORMA CONSOLIDATING BALANCE SHEET
AS OF MARCH 31, 1996
(UNAUDITED)
(IN MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
NON- HOLDINGS
GUARANTOR GUARANTOR PRO FORMA
COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ 27.3 $ 1.5 $ -- $ 28.8
Accounts and notes receivable.......... 29.4 1.6 -- 31.0
Accounts and notes receivable --
affiliates.......................... (1.0 ) 1.9 (0.9) --
Inventories............................ 42.1 1.7 -- 43.8
Prepaid expenses and other............. 4.4 1.5 -- 5.9
------- ------- ------- -------
Total current assets........... 102.2 8.2 (0.9) 109.5
Investment in subsidiaries............... 71.4 -- (71.4) --
Property and equipment................... 503.0 22.7 -- 525.7
Goodwill................................. 760.5 51.8 -- 812.3
Deferred financing costs................. 36.4 -- -- 36.4
Other assets............................. 17.7 0.6 -- 18.3
------- ------- ------- -------
Total assets................... $1,491.2 $ 83.3 $ (72.3) $1,502.2
======= ======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable....................... $ 18.9 $ 1.5 $ -- $ 20.4
Accrued expenses and deposits.......... 47.9 2.2 -- 50.1
Accounts and notes payable --
affiliates.......................... (1.6 ) 2.5 (0.9) --
Current portion of long-term debt...... 38.4 -- -- 38.4
Income taxes payable................... 4.1 1.6 -- 5.7
------- ------- ------- -------
Total current liabilities...... 107.7 7.8 (0.9) 114.6
Long-term debt........................... 979.4 -- -- 979.4
Other liabilities........................ 3.5 0.8 -- 4.3
Deferred income tax liabilities.......... 10.2 3.3 -- 13.5
------- ------- ------- -------
Total liabilities.............. 1,100.8 11.9 (0.9) 1,111.8
------- ------- ------- -------
Stockholder's equity:
Common stock........................... 0.4 -- -- 0.4
Paid-in capital........................ 390.6 (71.4) (71.4) 390.6
Retained earnings...................... (0.6 ) -- -- (0.6)
------- ------- ------- -------
Total stockholder's equity..... 390.4 (71.4) (71.4) 390.4
------- ------- ------- -------
Total liabilities and
stockholder's
equity....................... $1,491.2 $ 83.3 $ (72.3) $1,502.2
======= ======= ======= =======
</TABLE>
F-99
<PAGE> 272
AMF GROUP HOLDINGS INC.
CONDENSED PRO FORMA CONSOLIDATING INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
(IN MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
NON- HOLDINGS
GUARANTOR GUARANTOR PRO FORMA
COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Operating revenue.............................. $ 114.9 $ 8.8 $ (1.0) $122.7
Operating expenses:
Cost of sales................................ 30.2 1.1 (0.7) 30.6
Bowling center operations.................... 37.0 4.9 (0.2) 41.7
Selling, general and administrative.......... 10.9 0.5 -- 11.4
Depreciation and amortization................ 15.6 0.8 -- 16.4
-------- ------ -- ------ -- ------- -
Total operating expenses............. 93.7 7.3 (0.9) 100.1
-------- ------ -- ------ -- ------- -
Operating income (loss)................... 21.2 1.5 (0.1) 22.6
Nonoperating expenses
Interest expense, net........................ (23.8) -- -- (23.8)
Other expenses, net.......................... (0.1) (0.1) -- (0.2)
-------- ------ -- ------ -- ------- -
Income (loss) before income taxes......... (2.7) 1.4 (0.1) (1.4)
Income tax provision (benefit)................. 1.7 0.7 -- 2.4
-------- ------ -- ------ -- ------- -
Net income (loss)......................... $ (4.4) $ 0.7 $ (0.1) $ (3.8)
======== ======== ======== ========
</TABLE>
F-100
<PAGE> 273
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Prospectus Summary.................... 3
Risk Factors.......................... 25
The Exchange Offer.................... 33
Certain Federal Income Tax
Consequences of the Exchange
Offer............................... 42
The Acquisition....................... 43
Capitalization........................ 48
Pro Forma Consolidated Financial
Statements.......................... 49
Selected Combined Financial Data...... 59
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 64
Business.............................. 82
Management............................ 108
Ownership of Capital Stock............ 113
Certain Transactions.................. 116
Description of Senior Debt............ 117
Description of Exchange Notes......... 124
Description of Certain Federal Income
Tax Consequences of an Investment in
the Exchange Notes.................. 159
Plan of Distribution.................. 164
Experts............................... 165
Validity of Exchange Notes............ 165
Index to Financial Statements......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
AMF GROUP INC.
OFFER TO EXCHANGE
$250,000,000
10 7/8% SERIES A SENIOR
SUBORDINATED NOTES DUE 2006
FOR
10 7/8% SERIES B SENIOR
SUBORDINATED NOTES DUE 2006
AND
$452,000,000
12 1/4% SERIES A SENIOR SUBORDINATED
DISCOUNT NOTES DUE 2006
FOR
12 1/4% SERIES B SENIOR SUBORDINATED
DISCOUNT NOTES DUE 2006
------------------
------------------
- ------------------------------------------------------
- ------------------------------------------------------
LOGO
<PAGE> 274
PAGES TO BE USED IN MARKET-MAKING PROSPECTUS
<PAGE> 275
[ALTERNATE COVER FOR MARKET-MAKING PROSPECTUS]
AMF GROUP INC.
10 7/8% SENIOR SUBORDINATED NOTES DUE 2006
12 1/4% SENIOR SUBORDINATED DISCOUNT NOTES DUE 2006
(GUARANTEED BY CERTAIN AFFILIATED COMPANIES AS DESCRIBED HEREIN)
------------------------
The 10 7/8% Series B Senior Subordinated Notes due 2006 (the "Exchange
Senior Subordinated Notes") were issued in exchange for the 10 7/8% Series A
Senior Subordinated Notes due 2006 (the "Senior Subordinated Notes") and the
12 1/4% Series B Senior Subordinated Discount Notes due 2006 (the "Exchange
Senior Subordinated Discount Notes" and, collectively with the Exchange Senior
Subordinated Notes, the "Exchange Notes") were issued in exchange for the
12 1/4% Series A Senior Subordinated Discount Notes due 2006 (the "Senior
Subordinated Discount Notes") by AMF Group Inc. (the "Company"), a Delaware
corporation. The Exchange Notes are fully and unconditionally guaranteed on a
senior subordinated basis, jointly and severally, by AMF Group Holdings Inc., a
Delaware corporation of which the Company is a wholly owned subsidiary, and by
each of the Company's direct and indirect domestic subsidiaries (the
"Guarantors"). See "Description of Exchange Notes."
As of the date of this Prospectus, the Exchange Notes are not senior in
priority to any outstanding indebtedness of the Company or its subsidiaries. The
Company has no current plan or intention to incur any indebtedness to which the
Exchange Notes would be senior in priority. The Exchange Senior Subordinated
Notes and the Exchange Senior Subordinated Discount Notes rank pari passu with
one another.
The Exchange Notes are general, unsecured obligations of the Company, are
subordinated to all Senior Debt of the Company and rank pari passu with all
senior subordinated debt of the Company and are senior in right of payment to
all future subordinated indebtedness, if any, of the Company. The claims of
holders of the Exchange Notes are effectively subordinated to the Senior Debt,
which, as of March 31, 1996, on a pro forma basis giving effect to the
Acquisition and the related financing transactions, would have been
approximately $517 million, $515 million of which would have been fully secured
borrowings under the New Bank Credit Agreement, and are effectively subordinated
to approximately $7.8 million of indebtedness and other liabilities (including
trade payables and capital lease obligations) of the Company's subsidiaries that
are not Guarantors. The Company's pro forma ratio of debt to total
capitalization at March 31, 1996 was approximately 72%. See "The Acquisition"
and "Capitalization."
The Exchange Senior Subordinated Notes will bear interest from March 21,
1996, the date of issuance of the Senior Subordinated Notes that are tendered in
exchange for the Exchange Senior Subordinated Notes (or the most recent Interest
Payment Date (as defined) to which interest on such Notes has been paid), at a
rate equal to 10 7/8% per annum. Interest on the Exchange Senior Subordinated
Notes will be payable semiannually on March 15 and September 15 of each year,
commencing September 15, 1996. The Exchange Senior Subordinated Discount Notes
will not bear interest until March 15, 2001, and thereafter will bear interest
at a rate equal to 12 1/4% per annum. Interest on the Exchange Senior
Subordinated Discount Notes will be payable semiannually on March 15 and
September 15 of each year commencing September 15, 2001.
The Exchange Notes are redeemable at the option of the Company, in whole or
in part, at any time on or after March 15, 2001, at the redemption prices set
forth herein, together with accrued and unpaid interest, if any, to the date of
redemption. See "Prospectus Summary -- Summary of Terms of Exchange Notes."
Prior to March 15, 1999, up to $100 million in aggregate principal amount
of Exchange Senior Subordinated Notes will be redeemable at the option of the
Company, on one or more occasions, from the net proceeds of public or private
sales of common stock of, or contributions to the common equity capital of, the
Company, at a price of 110.875% of the principal amount of the Exchange
A-1
<PAGE> 276
[ALTERNATE COVER FOR MARKET-MAKING PROSPECTUS -- CONTINUED]
Senior Subordinated Notes, together with accrued and unpaid interest, if any, to
the date of redemption; provided that at least $150 million in aggregate
principal amount of Exchange Senior Subordinated Notes remains outstanding
immediately after such redemption. In addition, prior to March 15, 1999, the
Exchange Senior Subordinated Discount Notes will be redeemable at the option of
the Company, on one or more occasions, from the net proceeds of public or
private sales of common stock of, or contributions to the common equity capital
of, the Company, at a price of 112.250% of the Accreted Value of the Exchange
Senior Subordinated Discount Notes; provided that at least $150 million in
Accreted Value of Exchange Senior Subordinated Discount Notes remains
outstanding immediately after such redemption. The selection of Exchange Notes
to be redeemed pursuant to the options described in this paragraph would be pro
rata, by lot or by such method as the applicable Trustee deems fair and
appropriate.
Upon the occurrence of a Change of Control, each Holder of Exchange Notes
may require the Company to repurchase all or a portion of such Holder's Exchange
Notes at 101% of the aggregate principal amount of the Exchange Senior
Subordinated Notes and 101% of the Accreted Value of the Exchange Senior
Subordinated Discount Notes, as applicable, together with accrued and unpaid
interest, if any, to the date of repurchase. There can be no assurance that the
Company will have sufficient funds, or will obtain the requisite consent of
Lenders under the New Bank Credit Agreement, to satisfy the Change of Control
repurchase requirement if such requirement arises. See "Risk Factors -- Payment
Upon a Change of Control" and "Description of Exchange Notes."
------------------------
SEE "RISK FACTORS," COMMENCING ON PAGE 25, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
EXCHANGE NOTES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus has been prepared for and is to be used by Goldman, Sachs &
Co. in connection with offers and sales in market-making transactions of the
Exchange Notes. The Company will not receive any of the proceeds of such sales.
Goldman, Sachs & Co. may act as a principal or agent in such transactions. The
Exchange Notes may be offered in negotiated transactions or otherwise.
GOLDMAN, SACHS & CO.
------------------------
The date of this Prospectus is August , 1996.
A-2
<PAGE> 277
[ALTERNATE SECTION FOR MARKET-MAKING PROSPECTUS]
No dealer, salesperson or other person has been authorized to give
information or to make any representations not contained in this Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company or Goldman Sachs. This Prospectus
does not constitute an offer to sell or the solicitation of an offer to buy any
security other than the Exchange Notes offered hereby, nor does it constitute an
offer to sell or the solicitation of an offer to buy any of the Exchange Notes
to any person in any jurisdiction in which it is unlawful to make such an offer
or solicitation to such person. Neither the delivery of this Prospectus nor any
sale made hereunder shall under any circumstances create any implication that
the information contained herein is correct as of any date subsequent to the
date hereof.
AVAILABLE INFORMATION
The Company and the Guarantors (as defined herein) have filed with the
Securities and Exchange Commission ("SEC") a Registration Statement on Form S-4
under the Securities Act for the registration of the Exchange Notes offered
hereby (the "Registration Statement"). This Prospectus, which constitutes a part
of the Registration Statement, does not contain all of the information set forth
in the Registration Statement, certain items of which are contained in exhibits
and schedules to the Registration Statement as permitted by the rules and
regulations of the SEC. For further information with respect to the Company or
the Exchange Notes offered hereby, reference is made to the Registration
Statement, including the exhibits and financial statement schedules thereto,
which may be inspected without charge at the public reference facility
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of which may be obtained from the SEC at prescribed rates. Statements
made in this Prospectus concerning the contents of any document referred to
herein are not necessarily complete. With respect to each such document filed
with the SEC as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.
Upon the effectiveness of the Registration Statement, the Company became
subject to the information requirements of the Securities Exchange Act of 1934
(the "Exchange Act"), and in accordance therewith will file reports and other
information with the SEC. Such reports and other information filed by the
Company can be inspected and copied at the public reference facilities of the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and the regional offices
of the SEC located at 7 World Trade Center, New York, New York 10048 and 500
West Madison Street, 14th Floor, Chicago, Illinois 60661. Copies of such
materials may be obtained from the Public Reference Section of the SEC,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at its
public reference facilities in New York, New York and Chicago, Illinois at
prescribed rates.
So long as the Company is subject to the periodic reporting requirements of
the Exchange Act, it is required to furnish the information required to be filed
with the SEC to (i) IBJ Schroder Bank and Trust Company as trustee (the "Senior
Subordinated Note Trustee"), under the Indenture dated as of March 21, 1996 (the
"Senior Subordinated Note Indenture") among the Company, the Guarantors and the
Senior Subordinated Note Trustee, pursuant to which the outstanding 10 7/8%
Senior Subordinated Notes due 2006 of the Company (the "Senior Subordinated
Notes") were, and the Exchange Senior Subordinated Notes will be, issued and
(ii) American Bank National Association as trustee (the "Senior Subordinated
Discount Note Trustee" and, collectively with the Senior Subordinated Note
Trustee, the "Trustees"), under the Indenture dated as of March 21, 1996 (the
"Senior Subordinated Discount Note Indenture") among the Company, the Guarantors
and the Senior Subordinated Discount Note Trustee, pursuant to which the
outstanding 12 1/4% Senior Subordinated Discount Notes due 2006 of the Company
(the "Senior Subordinated Discount Notes") were, and the Exchange Senior
Subordinated Discount Notes will be, issued and (iii) the holders of the Notes
and the Exchange Notes. The Company has agreed that, even if they are not
required under the Exchange Act to furnish such information to the SEC, they
will nonetheless continue to furnish information that would be required to be
furnished by the Company by Section 13 of the Exchange Act to the Trustees and
the holders of the Notes or Exchange Notes as if they were subject to such
periodic reporting requirements.
A-3
<PAGE> 278
[ALTERNATE PAGE FOR MARKET-MAKING PROSPECTUS]
TRADING MARKET FOR THE EXCHANGE NOTES
There is no existing trading market for the Exchange Notes, and there can
be no assurance regarding the future development of a market for the Exchange
Notes or the ability of the Holders of the Exchange Notes to sell their Exchange
Notes or the price at which such Holders may be able to sell their Exchange
Notes. If such market were to develop, the Exchange Notes could trade at prices
that may be higher or lower than their initial offering price depending on many
factors, including prevailing interest rates, the Company's operating results
and the market for similar securities. Although it is not obligated to do so,
Goldman Sachs intends to make a market in the Exchange Notes. Any such
market-making activity may be discontinued at any time, for any reason, without
notice at the sole discretion of Goldman Sachs. No assurance can be given as to
the liquidity of or the trading market for the Exchange Notes.
Goldman Sachs may be deemed to be an affiliate of the Company and, as such,
may be required to deliver a prospectus in connection with its market-making
activities in the Exchange Notes. Pursuant to the Registration Rights Agreement,
the Company agreed to file and maintain a registration statement that would
allow Goldman Sachs to engage in market-making transactions in the Exchange
Notes. Subject to certain exceptions set forth in the Registration Rights
Agreement, the registration statement will remain effective for as long as
Goldman Sachs may be required to deliver a prospectus in connection with
market-making transactions in the Exchange Notes. The Company has agreed to bear
substantially all the costs and expenses related to such registration statement.
A-4
<PAGE> 279
[ALTERNATE PAGE FOR MARKET-MAKING PROSPECTUS]
USE OF PROCEEDS
This Prospectus is delivered in connection with the sale of the Exchange
Notes by Goldman Sachs in market-making transactions. The Company will not
receive any of the proceeds from such transactions.
A-5
<PAGE> 280
[ALTERNATE PAGE FOR MARKET-MAKING PROSPECTUS]
PLAN OF DISTRIBUTION
This Prospectus is to be used by Goldman Sachs in connection with offers
and sales of the Exchange Notes in market-making transactions effected from time
to time. Goldman Sachs may act as a principal or agent in such transactions,
including as agent for the counterparty when acting as principal or as agent for
both counterparties, and may receive compensation in the form of discounts and
commissions, including from both counterparties when it acts as agent for both.
Such sales will be made at prevailing market prices at the time of sale, at
prices related thereto or at negotiated prices.
Affiliates of Goldman Sachs currently own 68.7% of the Parent Common Stock.
See "Ownership of Capital Stock." Goldman Sachs has informed the Company that it
does not intend to confirm sales of the Exchange Notes to any accounts over
which it exercises discretionary authority without the prior specific written
approval of such transactions by the customer.
The Company has been advised by Goldman Sachs that, subject to applicable
laws and regulations, Goldman Sachs currently intends to make a market in the
Exchange Notes following completion of the Exchange Offer. However, Goldman
Sachs is not obligated to do so and any such market-making may be interrupted or
discontinued at any time without notice. In addition, such market-making
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act. There can be no assurance that an active trading market will
develop or be sustained. See "Risk Factors -- Trading Market for the Exchange
Notes."
Goldman Sachs has provided investment banking services to the Company in
the past and may provide such services and financial advisory services to the
Company in the future. Goldman Sachs acted as purchasers in connection with the
initial sale of the Notes and received an underwriting discount of approximately
$19.0 million in connection therewith. See "Certain Transactions."
Goldman Sachs and the Company have entered into a registration rights
agreement with respect to the use by Goldman Sachs of this Prospectus. Pursuant
to such agreement, the Company agreed to bear all registration expenses incurred
under such agreement, and the Company agreed to indemnify Goldman Sachs against
certain liabilities, including liabilities under the Securities Act.
A-6
<PAGE> 281
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
(the "DGCL"), provides that a corporation (in its original certificate of
incorporation or an amendment thereto) may eliminate or limit the personal
liability of a director (or certain persons who, pursuant to the provisions of
the certificate of incorporation, exercise or perform duties conferred or
imposed upon directors by the DGCL) to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provisions shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL
(providing for liability of directors for unlawful payment of dividends or
unlawful stock purchases or redemptions) or (iv) for any transaction from which
the director derived an improper personal benefit. Article VIII, Section 1 of
the Company's Certificate of Incorporation limits the liability of directors
thereof to the extent permitted by Section 102(b)(7) of the DGCL.
Under Section 145 of the DGCL, in general, a corporation may indemnify its
directors, officers, employees or agents against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties to which they may be made parties by reason of their being or
having been directors, officers, employees or agents and shall so indemnify such
persons if they acted in good faith and in a manner they reasonably believed to
be in or not opposed to the best interest of the corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful. Article VIII, Section 2(a) of the Certificate of
Incorporation of the Company provides that the Company shall indemnify its
officers, directors, employees and agents to the full extent permitted by
Delaware law.
Article VIII, Section 2(a) of the Company's Certificate of Incorporation
also provides that the Company shall indemnify any such person seeking
indemnification in connection with a proceeding initiated by such person only if
such proceeding was authorized by the Board. Any rights to indemnification
conferred in Section 2 are contract rights, and include the right to be paid by
the Company the expenses incurred in defending any such proceeding in advance of
its final disposition, except that, if the DGCL requires, the payment of such
expenses incurred by a director or officer in such capacity in advance of final
disposition shall be made only upon delivery to the Company of an undertaking by
or on behalf of such director or officer, to repay all amounts so advanced if it
is ultimately determined that such director or officer is not entitled to be
indemnified under Section 2 or otherwise. By action of the board of directors,
the Company may extend such indemnification to employees and agents of the
Company.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<C> <S>
2.1 Stock Purchase Agreement, by and among AMF Group Holdings Inc. and the Sellers,
dated as of February 16, 1996.
2.2 Agreement among AMF Group Holdings Inc. and the Sellers, dated as of April 11, 1996,
amending certain terms of the Stock Purchase Agreement.
3.1 Certificate of Incorporation of the Company.
3.2 By-Laws of the Company.
</TABLE>
II-1
<PAGE> 282
<TABLE>
<C> <S>
3.3 Certificate of Incorporation of AMF Group Holdings Inc.
3.4 By-Laws of AMF Group Holdings Inc.
3.5 Certificate of Incorporation of AMF Bowling Holdings Inc.
3.6 By-Laws of AMF Bowling Holdings Inc.
3.7 Certificate of Incorporation of AMF Bowling Centers Holdings Inc.
3.8 By-Laws of AMF Bowling Centers Holdings Inc.
3.9 Charter Documents of AMF Bowling, Inc.
3.10 Restated By-Laws of AMF Bowling, Inc.
3.11 Certificate of Incorporation of AMF Worldwide Bowling Centers Holdings Inc.
3.12 By-Laws of AMF Worldwide Bowling Centers Holdings Inc.
3.13 Charter Documents of AMF Bowling Centers, Inc.
3.14 Restated and Amended By-Laws of AMF Bowling Centers, Inc.
3.15 Articles of Incorporation of Bush River Corporation.
3.16 Amended and Restated By-Laws of Bush River Corporation.
3.17 Articles of Incorporation of AMF Beverage Company of Oregon, Inc.
3.18 By-Laws of AMF Beverage Company of Oregon, Inc.
3.19 Charter Documents of King Louie Lenexa, Inc.
3.20 Amended and Restated By-Laws of King Louie Lenexa, Inc.
3.21 Articles of Incorporation of AMF Beverage Company of W. Va., Inc.
3.22 By-Laws of AMF Beverage Company of W. Va., Inc.
3.23 Certificate of Incorporation of AMF Bowling Centers Switzerland Inc.
3.24 By-Laws of AMF Bowling Centers Switzerland Inc.
3.25 Charter Documents of AMF Bowling Centers (Aust) International Inc.
3.26 By-Laws of AMF Bowling Centers (Aust) International Inc.
3.27 Charter Documents of AMF Bowling Centers (Canada) International Inc.
3.28 Amended and Restated By-Laws of AMF Bowling Centers (Canada) International Inc.
3.29 Charter Documents of AMF Bowling Centers (Hong Kong) International Inc.
3.30 By-Laws of AMF Bowling Centers (Hong Kong) International Inc.
3.31 Charter Documents of AMF Bowling Centers International Inc.
3.32 By-Laws of AMF Bowling Centers International Inc.
3.33 Charter Documents of AMF BCO-UK One, Inc.
3.34 By-Laws of AMF BCO-UK One, Inc.
3.35 Charter Documents of AMF BCO-UK Two, Inc.
3.36 By-Laws of AMF BCO-UK Two, Inc.
3.37 Charter Documents of AMF BCO-France One, Inc.
</TABLE>
II-2
<PAGE> 283
<TABLE>
<C> <S>
3.38 By-Laws of AMF BCO-France One, Inc.
3.39 Charter Documents of AMF BCO-France Two, Inc.
3.40 By-Laws of AMF BCO-France Two, Inc.
3.41 Certificate of Incorporation of AMF Bowling Centers Spain Inc.
3.42 By-Laws of AMF Bowling Centers Spain Inc.
3.43 Charter Documents of AMF Bowling Mexico Holding, Inc.
3.44 By-Laws of AMF Bowling Mexico Holding, Inc.
3.45 Charter Documents of Boliches AMF, Inc.
3.46 By-Laws of Boliches AMF, Inc. (formerly AMF Bowling Eight, Inc.)
3.47 Charter Documents of AMF BCO-China, Inc.
3.48 By-Laws of AMF BCO-China, Inc.
3.49 Articles of Incorporation of AMF Bowling Centers China, Inc.
3.50 By-Laws of AMF Bowling Centers China, Inc.
4.1 Indenture, dated as of March 21, 1996, as supplemented, by and among the Company,
the Guarantors and IBJ Schroder Bank & Trust Company with respect to the Senior
Subordinated Notes.
4.2 Indenture, dated as of March 21, 1996, as supplemented, by and among the Company,
the Guarantors and American Bank National Association with respect to the Senior
Subordinated Discount Notes.
4.3 Form of Exchange Senior Subordinated Note.
4.4 Form of Exchange Senior Subordinated Discount Note.
5.1 Opinion of Wachtell, Lipton, Rosen & Katz.
10.1 Registration Rights Agreement, dated as of March 21, 1996, by and among the Company,
the Guarantors and Goldman, Sachs & Co.
10.2 Credit Agreement dated as of May 1, 1996 among AMF Group Inc. and the Initial
Lenders and Initial Issuing Banks and Goldman, Sachs & Co. and Citicorp Securities,
Inc. as Arrangers and Goldman, Sachs & Co. as Syndication Agent and Citibank, N.A.
as Administrative Agent.
10.3 AMF Holdings Inc. 1996 Stock Incentive Plan (contained in Exhibit 10.4).
10.4 Stockholders Agreement, dated as of April 30, 1996, by and among Parent and the
Stockholders.
10.5 Registration Rights Agreement, dated as of April 30, 1996, by and among Parent and
the Stockholders.
10.6 Warrant Agreement, dated as of May 1, 1996, between Parent and The Goldman Sachs
Group, L.P.
10.7 Employment Agreement, dated as of May 1, 1996, by and among Parent, AMF Bowling,
Inc. and Robert L. Morin.
10.8 Employment Agreement, dated as of May 1, 1996, by and among Parent, the Company and
Douglas J. Stanard.
10.9 Stock Option Agreement, dated as of May 1, 1996, between Parent and Charles M.
Diker.
</TABLE>
II-3
<PAGE> 284
<TABLE>
<C> <S>
10.10 Employment Agreement, dated as of May 28, 1996, by and among Parent, the Company and
Stephen E. Hare.
12.1 Statements re computation of ratios.
21.1 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Price Waterhouse LLP.
23.3 Consent of KPMG Peat Marwick LLP.
23.4 Consent of Wachtell, Lipton, Rosen & Katz (contained in Exhibit 5.1).
24.1 Powers of Attorney.
25.1 Statement of Eligibility and Qualification of Trustee on Form T-1 of IBJ Schroder
Bank & Trust Company under the Trust Indenture Act of 1939.
25.2 Statement of Eligibility and Qualification of Trustee on Form T-1 of American Bank
National Association under the Trust Indenture Act of 1939.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal for the 10 7/8% Senior Subordinated Notes due 2006.
99.2 Form of Letter of Transmittal for the 12 1/4% Senior Subordinated Discount Notes due
2006.
</TABLE>
(b) Financial Statement Schedule.
22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 285
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(c) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
II-5
<PAGE> 286
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 9, 1996.
AMF GROUP INC.
By *
------------------------------------
Richard A. Friedman
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ----------------------------------- ----------------
<C> <C> <S>
*
- -----------------------------------
Richard A. Friedman Chief Executive Officer and August 9, 1996
Director
*
- -----------------------------------
Terence M. O'Toole Director August 9, 1996
*
- -----------------------------------
Peter M. Sacerdote Director August 9, 1996
*
- -----------------------------------
Douglas J. Stanard Chief Operating Officer and August 9, 1996
Director
*
- -----------------------------------
Stephen E. Hare Treasurer, Chief Financial Officer August 9, 1996
and Chief Accounting Officer
*
- -----------------------------------
Charles M. Diker Director August 9, 1996
*
- -----------------------------------
Paul Edgerley Director August 9, 1996
*
- -----------------------------------
Howard A. Lipson Director August 9, 1996
*By: /s/ Terence M. O'Toole
- ----------------------------------
Attorney-In-Fact
</TABLE>
II-6
<PAGE> 287
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 9, 1996.
AMF GROUP HOLDINGS INC.
By *
------------------------------------
Richard A. Friedman
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ---------------------------------- -----------------
<C> <C> <S>
* Chief Executive Officer and August 9, 1996
- ----------------------------------- Director
Richard A. Friedman
* Treasurer, Chief Financial August 9, 1996
- ----------------------------------- Officer, Chief Accounting Officer
Terence M. O'Toole and Director
*By: /s/ Terence M. O'Toole
- ----------------------------------
Attorney-In-Fact
</TABLE>
II-7
<PAGE> 288
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 9, 1996.
AMF BOWLING HOLDINGS INC.
By *
------------------------------------
Robert L. Morin
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ----------------------------------- ----------------
<C> <C> <S>
* Chief Executive Officer, Treasurer, August 9, 1996
- ----------------------------------- Chief Financial Officer, Chief
Robert L. Morin Accounting Officer and Director
* Director August 9, 1996
- -----------------------------------
William W. Flexon
*By:/s/ Terence M. O'Toole
- -----------------------------------
Attorney-In-Fact
</TABLE>
II-8
<PAGE> 289
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 9, 1996.
AMF BOWLING CENTERS HOLDINGS INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ----------------------------------- ----------------
<C> <C> <S>
* Chief Executive Officer and August 9, 1996
- ----------------------------------- Director
Douglas J. Stanard
* Treasurer, Chief Financial Officer, August 9, 1996
- ----------------------------------- Chief Accounting Officer and
Michael P. Bardaro Director
*By: /s/ Terence M. O'Toole
- -----------------------------------
Attorney-In-Fact
</TABLE>
II-9
<PAGE> 290
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 9, 1996.
AMF BOWLING, INC.
By *
------------------------------------
Robert L. Morin
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------ ---------------
<C> <C> <S>
* Chief Executive Officer, Treasurer, August 9, 1996
- ----------------------------------- Chief Financial Officer, Chief
Robert L. Morin Accounting Officer and Director
*By: /s/ Terence M. O'Toole
- -----------------------------------
Attorney-In-Fact
</TABLE>
II-10
<PAGE> 291
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 9, 1996.
AMF WORLDWIDE BOWLING CENTERS
HOLDINGS INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ----------------------------------- ----------------
<C> <C> <S>
* Chief Executive Officer, Treasurer, August 9, 1996
- ----------------------------------- Chief Financial Officer, Chief
Douglas J. Stanard Accounting Officer and Director
* Director August 9, 1996
- -----------------------------------
Michael P. Bardaro
*By: /s/ Terence M. O'Toole
- ----------------------------------
Attorney-In-Fact
</TABLE>
II-11
<PAGE> 292
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 9, 1996.
AMF BOWLING CENTERS, INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ----------------------------------- ----------------
<C> <C> <S>
* Chief Executive Officer, and August 9, 1996
- ----------------------------------- Director
Douglas J. Stanard
* Treasurer, Chief Financial Officer August 9, 1996
- ----------------------------------- and Chief Accounting Officer
Michael P. Bardaro
*By:/s/ Terence M. O'Toole
- -----------------------------------
Attorney-In-Fact
</TABLE>
II-12
<PAGE> 293
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 9, 1996.
BUSH RIVER CORPORATION
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ----------------------------------- ----------------
<C> <C> <S>
* Chief Executive Officer, and August 9, 1996
- ----------------------------------- Director
Douglas J. Stanard
* Treasurer, Chief Financial Officer August 9, 1996
- ----------------------------------- and Chief Accounting Officer
Michael P. Bardaro
*By: /s/ Terence M. O'Toole
- ----------------------------------
Attorney-In-Fact
</TABLE>
II-13
<PAGE> 294
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 9, 1996.
AMF BEVERAGE COMPANY OF OREGON, INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ----------------------------------- ----------------
<C> <C> <S>
- -----------------------------------
Douglas J. Stanard Chief Executive Officer and August 9, 1996
Director
*
- -----------------------------------
Michael P. Bardaro Treasurer, Chief Financial Officer August 9, 1996
and Chief Accounting Officer
*By: /s/ Terence M. O'Toole
- ----------------------------------
Attorney-In-Fact
</TABLE>
II-14
<PAGE> 295
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 9, 1996.
KING LOUIE LENEXA, INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ----------------------------------- ----------------
<C> <C> <S>
*
- -----------------------------------
Douglas J. Stanard Chief Executive Officer and August 9, 1996
Director
*
- -----------------------------------
Michael P. Bardaro Treasurer, Chief Financial Officer August 9, 1996
and Chief Accounting Officer
*By: /s/ Terence M. O'Toole
- ----------------------------------
Attorney-In-Fact
</TABLE>
II-15
<PAGE> 296
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 9, 1996.
AMF BEVERAGE COMPANY OF W.VA., INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------ ---------------
<C> <C> <S>
* Chief Executive Officer and Director August 9, 1996
- -----------------------------------
Douglas J. Stanard
* Treasurer, Chief Financial Officer August 9, 1996
- ----------------------------------- and Chief Accounting Officer
Michael P. Bardaro
*By: /s/ Terence M. O'Toole
- ----------------------------------
Attorney-In-Fact
</TABLE>
II-16
<PAGE> 297
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 9, 1996.
AMF BOWLING CENTERS SWITZERLAND INC.
By *
------------------------------------
Guiseppe Avolio
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ---------------------------------- -----------------
<C> <C> <S>
* Chief Executive Officer August 9, 1996
- -----------------------------------
Guiseppe Avolio
* Treasurer, Chief Financial August 9, 1996
- ----------------------------------- Officer, Chief Accounting Officer
Douglas J. Stanard and Director
* Director August 9, 1996
- -----------------------------------
Michael P. Bardaro
*By: /s/ Terence M. O'Toole
- ----------------------------------
Attorney-In-Fact
</TABLE>
II-17
<PAGE> 298
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 9, 1996.
AMF BOWLING CENTERS (AUST)
INTERNATIONAL INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ---------------------------------- -----------------
<C> <C> <S>
* Chief Executive Officer, August 9, 1996
- ----------------------------------- Treasurer, Chief Financial
Douglas J. Stanard Officer, Chief Accounting Officer
and Director
*By: /s/ Terence M. O'Toole
- ----------------------------------
Attorney-In-Fact
</TABLE>
II-18
<PAGE> 299
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 9, 1996.
AMF BOWLING CENTERS (CANADA)
INTERNATIONAL INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ----------------------------------- ----------------
<C> <C> <S>
* Chief Executive Officer, Treasurer, August 9, 1996
- ----------------------------------- Chief Financial Officer, Chief
Douglas J. Stanard Accounting Officer and Director
* Director August 9, 1996
- -----------------------------------
Linda R. Ross
* Director August 9, 1996
- -----------------------------------
Sandra I. Harris
*By: /s/ Terence M. O'Toole
- ----------------------------------
Attorney-In-Fact
</TABLE>
II-19
<PAGE> 300
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 9, 1996.
AMF BOWLING CENTERS (HONG KONG)
INTERNATIONAL INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ----------------------------------- ----------------
<C> <C> <S>
* Chief Executive Officer, Treasurer, August 9, 1996
- ----------------------------------- Chief Financial Officer, Chief
Douglas J. Stanard Accounting Officer and Director
*By: /s/ Terence M. O'Toole
- ----------------------------------
Attorney-In-Fact
</TABLE>
II-20
<PAGE> 301
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 9, 1996.
AMF BOWLING CENTERS
INTERNATIONAL INC.
By *
------------------------------------
Takashi Takeshige
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------ ---------------
<C> <C> <S>
* Chief Executive Officer and August 9, 1996
- ----------------------------------- Managing Director
Takashi Takeshige
* Director August 9, 1996
- -----------------------------------
Douglas J. Stanard
* Treasurer, Chief Financial Officer August 9, 1996
- ----------------------------------- and Chief Accounting Officer
Michael P. Bardaro
*By: /s/ Terence M. O'Toole
- ----------------------------------
Attorney-In-Fact
</TABLE>
II-21
<PAGE> 302
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 9, 1996.
AMF BCO-UK ONE, INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ---------------------------------- -----------------
<C> <C> <S>
* Chief Executive Officer, August 9, 1996
- ----------------------------------- Treasurer, Chief Financial
Douglas J. Stanard Officer, Chief Accounting Officer
and Director
*By: /s/ Terence M. O'Toole
- ----------------------------------
Attorney-In-Fact
</TABLE>
II-22
<PAGE> 303
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 9, 1996.
AMF BCO-UK TWO, INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------ ---------------
<C> <C> <S>
* Chief Executive Officer, Treasurer, August 9, 1996
- ----------------------------------- Chief Financial Officer, Chief
Douglas J. Stanard Accounting Officer and Director
*By: /s/ Terence M. O'Toole
- ----------------------------------
Attorney-In-Fact
</TABLE>
II-23
<PAGE> 304
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 9, 1996.
AMF BCO-FRANCE ONE, INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------ ---------------
<C> <C> <S>
* Chief Executive Officer, Treasurer, August 9, 1996
- ----------------------------------- Chief Financial Officer, Chief
Douglas J. Stanard Accounting Officer and Director
*By: /s/ Terence M. O'Toole
- ----------------------------------
Attorney-In-Fact
</TABLE>
II-24
<PAGE> 305
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 9, 1996.
AMF BCO-FRANCE TWO, INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------ ---------------
<C> <C> <S>
* Chief Executive Officer, Treasurer, August 9, 1996
- ----------------------------------- Chief Financial Officer, Chief
Douglas J. Stanard Accounting Officer and Director
*By: /s/ Terence M. O'Toole
- ----------------------------------
Attorney-In-Fact
</TABLE>
II-25
<PAGE> 306
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 9, 1996.
AMF BOWLING CENTERS SPAIN, INC.
By *
------------------------------------
Asuncion Merinero
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------ ---------------
<C> <C> <S>
* Chief Executive Officer, and August 9, 1996
- ----------------------------------- Managing Director
Asuncion Merinero
* Treasurer, Chief Financial Officer, August 9, 1996
- ----------------------------------- Chief Accounting Officer and
Douglas J. Stanard Director
* Director August 9, 1996
- -----------------------------------
Michael P. Bardaro
*By: /s/ Terence M. O'Toole
- ----------------------------------
Attorney-In-Fact
</TABLE>
II-26
<PAGE> 307
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 9, 1996.
AMF BOWLING MEXICO HOLDING, INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------ ---------------
<C> <C> <S>
* Chief Executive Officer, Treasurer, August 9, 1996
- ----------------------------------- Chief Financial Officer, Chief
Douglas J. Stanard Accounting Officer and Director
*By: /s/ Terence M. O'Toole
- ----------------------------------
Attorney-In-Fact
</TABLE>
II-27
<PAGE> 308
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 9, 1996.
BOLICHES AMF, INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------ ---------------
<C> <C> <S>
* Chief Executive Officer, Treasurer, August 9, 1996
- ----------------------------------- Chief Financial Officer, Chief
Douglas J. Stanard Accounting Officer and Director
*By: /s/ Terence M. O'Toole
- ----------------------------------
Attorney-In-Fact
</TABLE>
II-28
<PAGE> 309
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 9, 1996.
AMF BCO-CHINA, INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------ ---------------
<C> <C> <S>
* Chief Executive Officer, Treasurer, August 9, 1996
- ----------------------------------- Chief Financial Officer, Chief
Douglas J. Stanard Accounting Officer and Director
*By: /s/ Terence M. O'Toole
- ----------------------------------
Attorney-In-Fact
</TABLE>
II-29
<PAGE> 310
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 9, 1996.
AMF BOWLING CENTERS CHINA, INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------ ---------------
<C> <C> <S>
* Chief Executive Officer, Treasurer, August 9, 1996
- ----------------------------------- Chief Financial Officer, Chief
Douglas J. Stanard Accounting Officer and Director
*By: /s/ Terence M. O'Toole
- ----------------------------------
Attorney-In-Fact
</TABLE>
II-30
<PAGE> 311
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------- ------------------------------------------------------------------------------ -----
<C> <S> <C>
2.1 Stock Purchase Agreement, by and among AMF Group Holdings Inc. and the
Sellers, dated as of February 16, 1996.* .....................................
2.2 Agreement among AMF Group Holdings Inc. and the Sellers, dated as of April 11,
1996, amending certain terms of the Stock Purchase Agreement.* ...............
3.1 Certificate of Incorporation of the Company.* ................................
3.2 By-Laws of the Company.* .....................................................
3.3 Certificate of Incorporation of AMF Group Holdings Inc.* .....................
3.4 By-Laws of AMF Group Holdings Inc.* ..........................................
3.5 Certificate of Incorporation of AMF Bowling Holdings Inc.* ...................
3.6 By-Laws of AMF Bowling Holdings Inc.* ........................................
3.7 Certificate of Incorporation of AMF Bowling Centers Holdings Inc.* ...........
3.8 By-Laws of AMF Bowling Centers Holdings Inc.* ................................
3.9 Charter Documents of AMF Bowling, Inc.* ......................................
3.10 Restated By-Laws of AMF Bowling, Inc.* .......................................
3.11 Certificate of Incorporation of AMF Worldwide Bowling Centers Holdings
Inc.* ........................................................................
3.12 By-Laws of AMF Worldwide Bowling Centers Holdings Inc.* ......................
3.13 Charter Documents of AMF Bowling Centers, Inc.* ..............................
3.14 Restated and Amended By-Laws of AMF Bowling Centers, Inc.* ...................
3.15 Articles of Incorporation of Bush River Corporation.* ........................
3.16 Amended and Restated By-Laws of Bush River Corporation.* .....................
3.17 Articles of Incorporation of AMF Beverage Company of Oregon, Inc.* ...........
3.18 By-Laws of AMF Beverage Company of Oregon, Inc.* .............................
3.19 Charter Documents of King Louie Lenexa, Inc.* ................................
3.20 Amended and Restated By-Laws of King Louie Lenexa, Inc.* .....................
3.21 Articles of Incorporation of AMF Beverage Company of W. Va., Inc.* ...........
3.22 By-Laws of AMF Beverage Company of W. Va., Inc.* .............................
3.23 Certificate of Incorporation of AMF Bowling Centers Switzerland Inc.* ........
3.24 By-Laws of AMF Bowling Centers Switzerland Inc.* .............................
3.25 Charter Documents of AMF Bowling Centers (Aust) International Inc.* ..........
3.26 By-Laws of AMF Bowling Centers (Aust) International Inc.* ....................
3.27 Charter Documents of AMF Bowling Centers (Canada) International Inc.* ........
3.28 Amended and Restated By-Laws of AMF Bowling Centers (Canada)
International Inc.* ..........................................................
3.29 Charter Documents of AMF Bowling Centers (Hong Kong) International Inc.* .....
3.30 By-Laws of AMF Bowling Centers (Hong Kong) International Inc.* ...............
3.31 Charter Documents of AMF Bowling Centers International Inc.* .................
3.32 By-Laws of AMF Bowling Centers International Inc.* ...........................
3.33 Charter Documents of AMF BCO-UK One, Inc.* ...................................
3.34 By-Laws of AMF BCO-UK One, Inc.* .............................................
</TABLE>
<PAGE> 312
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------- ------------------------------------------------------------------------------ -----
<C> <S> <C>
3.35 Charter Documents of AMF BCO-UK Two, Inc.*....................................
3.36 By-Laws of AMF BCO-UK Two, Inc.*..............................................
3.37 Charter Documents of AMF BCO-France One, Inc.*................................
3.38 By-Laws of AMF BCO-France One, Inc.*..........................................
3.39 Charter Documents of AMF BCO-France Two, Inc.*................................
3.40 By-Laws of AMF BCO-France Two, Inc.*..........................................
3.41 Certificate of Incorporation of AMF Bowling Centers Spain Inc.*...............
3.42 By-Laws of AMF Bowling Centers Spain Inc.*....................................
3.43 Charter Documents of AMF Bowling Mexico Holding, Inc.*........................
3.44 By-Laws of AMF Bowling Mexico Holding, Inc.*..................................
3.45 Charter Documents of Boliches AMF, Inc.*......................................
3.46 By-Laws of Boliches AMF, Inc. (formerly AMF Bowling Eight, Inc.)*.............
3.47 Charter Documents of AMF BCO-China, Inc.*.....................................
3.48 By-Laws of AMF BCO-China, Inc.*...............................................
3.49 Articles of Incorporation of AMF Bowling Centers China, Inc.*.................
3.50 By-Laws of AMF Bowling Centers China, Inc.*...................................
4.1 Indenture, dated as of March 21, 1996, as supplemented, by and among the
Company, the Guarantors and IBJ Schroder Bank & Trust Company with respect to
the Senior Subordinated Notes.*...............................................
4.2 Indenture, dated as of March 21, 1996, as supplemented, by and among the
Company, the Guarantors and American Bank National Association with respect to
the Senior Subordinated Discount Notes.*......................................
4.3 Form of Exchange Senior Subordinated Note.*...................................
4.4 Form of Exchange Senior Subordinated Discount Note.*..........................
5.1 Opinion of Wachtell, Lipton, Rosen & Katz.*...................................
10.1 Registration Rights Agreement, dated as of March 21, 1996, by and among the
Company, the Guarantors and Goldman, Sachs & Co.*.............................
10.2 Credit Agreement dated as of May 1, 1996 among AMF Group Inc. and the Initial
Lenders and Initial Issuing Banks and Goldman, Sachs & Co. and Citicorp
Securities, Inc. as Arrangers and Goldman, Sachs & Co. as Syndication Agent
and Citibank, N.A. as Administrative Agent.*..................................
10.3 AMF Holdings Inc. 1996 Stock Incentive Plan (contained in Exhibit 10.4).*.....
10.4 Stockholders Agreement, dated as of April 30, 1996, by and among Holdings and
the Stockholders.*............................................................
10.5 Registration Rights Agreement, dated as of April 30, 1996, by and among
Holdings and the Stockholders.*...............................................
10.6 Warrant Agreement, dated as of May 1, 1996, between Holdings and The Goldman
Sachs Group, L.P.*............................................................
10.7 Employment Agreement, dated as of May 1, 1996, by and among Parent, AMF
Bowling, Inc. and Robert L. Morin.*...........................................
10.8 Employment Agreement, dated as of May 1, 1996, by and among Parent, the
Company and Douglas Stanard.*.................................................
</TABLE>
<PAGE> 313
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------- ------------------------------------------------------------------------------ -----
<C> <S> <C>
10.9 Stock Option Agreement, dated as of May 1, 1996, by and among Parent and
Charles M. Diker.* ...........................................................
10.10 Employment Agreement, dated as of May 28, 1996, by and among Parent,
the Company and Stephen E. Hare...............................................
12.1 Statements re computation of ratios.* ........................................
21.1 Subsidiaries of the Company.* ................................................
23.1 Consent of Arthur Andersen LLP.* .............................................
23.2 Consent of Price Waterhouse LLP.* ............................................
23.3 Consent of KPMG Peat Marwick LLP.* ...........................................
23.4 Consent of Wachtell, Lipton, Rosen & Katz (contained in Exhibit 5.1).* .......
24.1 Powers of Attorney.* .........................................................
25.1 Statement of Eligibility and Qualification of Trustee on Form T-1 of IBJ
Schroder under the Trust Indenture Act of 1939.* .............................
25.2 Statement of Eligibility and Qualification of Trustee on Form T-1 of American
Bank under the Trust Indenture Act of 1939.* .................................
27.1 Financial Data Schedule.* ....................................................
99.1 Form of Letter of Transmittal for the 10 7/8% Senior Subordinated Notes
due 2006.* ...................................................................
99.2 Form of Letter of Transmittal for the 12 1/4% Senior Subordinated Discount
Notes due 2006.* .............................................................
</TABLE>
- ------------------
* Previously filed.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
- ----------------------------
ARTHUR ANDERSEN LLP
August 9, 1996
New York, New York
<PAGE> 1
EXHIBIT 23.2
CONSENT OF PRICE WATERHOUSE LLP
We hereby consent to the use in the Prospectus constituting part of Amendment
No. 2 to the Registration Statement on Form S-4 of AMF Group Inc. of our report
dated March 1, 1996, except as to the fifth paragraph under Litigation and
claims - Note 9, which is as of March 6, 1996, and Sale transaction under Note
16, which is as of May 1, 1996 relating to the combined financial statements of
AMF Bowling Group and our report dated January 23, 1996, relating to the
consolidated financial statements of Fair Lanes, Inc., which appear in such
Prospectus. We also consent to the application of such report to the financial
statement schedules for the three years ended December 31, 1995, listed under
Item 21(b) of this Registration Statement when such schedules are read in
conjunction with the financial statements referred to in our report. We also
consent to the references to us under the headings "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Norfolk, Virginia
August 9, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Fair Lanes, Inc.:
We consent to the use of our report dated September 10, 1993 included herein
and to the reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Baltimore, Maryland
August 9, 1996
