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FILED PURSUANT TO RULE 424(b)(1)
FILE NO. 333-26389
PROSPECTUS
AFFINITY GROUP HOLDING, INC.
OFFER TO EXCHANGE THEIR 11% SENIOR NOTES DUE 2007,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT,
FOR ANY AND ALL OF THEIR OUTSTANDING
11% SENIOR NOTES DUE 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.
NEW YORK CITY TIME, ON SEPTEMBER 12, 1997, UNLESS EXTENDED
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The 11% Senior Notes due 2007 are being offered (the "Offering") by Affinity
Group Holding, Inc., a Delaware corporation (the "Company"), and the Company
hereby offers to exchange (the "Exchange Offer") up to $130,000,000 in aggregate
principal amount of the Company's new 11% Senior Notes due 2007 (the "New
Notes") for $130,000,000 in aggregate principal amount of the Company's
outstanding 11% Senior Notes due 2007 (the "Original Notes"). The Original Notes
and the New Notes are sometimes referred to herein collectively as the "Notes."
The terms of the New Notes are substantially identical in all respects
(including principal amount, interest rate and maturity) to the terms of the
Original Notes for which they may be exchanged pursuant to this Exchange Offer,
except that the New Notes will be freely transferable by holders thereof (other
than as provided in the next paragraph) and issued free of any covenant
restricting transfer absent registration. The New Notes will evidence the same
debt as the Original Notes and contain terms which are substantially identical
to the terms of the Original Notes for which they are to be exchanged. For a
complete description of the terms of the Notes, see "Description of the Notes."
There will be no cash proceeds to the Company from the Exchange Offer.
The Original Notes were sold on April 2, 1997, in a transaction not
registered under the Securities Act of 1933, as amended (the "Securities Act"),
in reliance upon the exception provided in Section 4(2) of the Securities Act.
Accordingly, the Original Notes may not be offered, resold or otherwise pledged,
hypothecated or 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 New Notes are being offered
to satisfy the obligations of the Company under a Registration Rights Agreement
relating to the Original Notes. See "The Exchange Offer--Purposes and Effects of
the Exchange Offer." New Notes issued pursuant to the Exchange Offer in exchange
for the Original Notes may be offered for resale, resold or otherwise
transferred by the holders thereof (other than any 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 requirements of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holders' business and such holders have no arrangement with any person
to participate in the distribution of such New Notes. See "The Exchange
Offer--Purpose and Effect of the Exchange Offer."
Each broker-dealer that receives New Notes or its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by so 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 New Notes
received in exchange for Old Notes where such Old 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 165 days after the date
hereof, it will make this Prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
The Notes constitute securities for which there is no established trading
market. Any Original Notes not tendered and accepted in the Exchange Offer will
remain outstanding. The Company does not currently intend to list the New Notes
on any securities exchange. To the extent that any Original Notes are tendered
and accepted in the Exchange Offer, a holder's ability to sell untendered
Original Notes could be adversely affected. No assurances can be given as to the
liquidity of the trading market for either the Original Notes or the New Notes.
The Exchange Offer is not conditioned on any minimum aggregate principal
amount of Original Notes being tendered for exchange. The Exchange Offer will
expire at 5:00 p.m., New York time, on September 12, 1997, unless extended to a
date not later than 60 days from the effective date of the Registration
Statement of which this Prospectus is a part (the "Expiration Date"). Original
Notes tendered pursuant to the Exchange Offer may be withdrawn at any time prior
to the Expiration Date, otherwise, such tenders are irrevocable. The Company
will pay all expenses incident to the Exchange Offer.
The Notes are general unsecured senior obligations of the Company and rank
PARI PASSU with all existing and future indebtedness of the Company and senior
in right of payment to all existing and future subordinated indebtedness. In
addition, the Notes will be effectively subordinated to all existing and future
claims of creditors of the subsidiaries of the Company. As of April 30, 1997,
the Company had $445.3 million of consolidated indebtedness (including $21.0
million of trade payables and $18.8 of deposit liabilities of its thrift and
loan subsidiary) outstanding. This indebtedness includes $303.6 million of
indebtedness (including $21.0 million of trade payables and $18.8 million of
deposit liabilities of its thrift and loan subsidiary) of the Company's
subsidiaries.
SEE "RISK FACTORS" BEGINNING ON PAGE 20 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CAREFULLY CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES
OFFERED HEREBY.
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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
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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 13, 1997.
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AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act with respect to the New Notes offered hereby (the
"Registration Statement"). This Prospectus, which constitutes a part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement, certain portions of which are omitted from the
Prospectus as permitted by the rules and regulations of the Commission. For
further information with respect to the Company and the New Notes offered
hereby, reference is made to the Registration Statement, including the exhibits
thereto, and financial statements and notes filed as a part thereof. Statements
made in the Prospectus concerning the contents of any document referred to
herein are not necessarily complete. With respect to each such document filed
with the Commission as an exhibit to the Registration Statement, reference is
made to the exhibit fora more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by such reference.
The Registration Statement, including the exhibits and schedules thereto,
may be inspected and copied at the Public Reference Section of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549 and at
the regional offices of the commission located at Seven World Trade Center, New
York, NY 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, IL 60661. Copies of such materials may be obtained from the
Public Reference Section of the Commission, Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, DC 20549, and from its public reference
facilities in New York, NY and Chicago, IL, at the prescribed rates. The
Registration Statement can be accessed over the Commission's web site located at
http://www.sec.gov.
As a result of the Exchange Offer, the Company will be subject to the
periodic reporting and other informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Also, under the Indenture
dated as of April 2, 1997 (the "Indenture"), between the Company and United
States Trust Company of New York, as Trustee (the "Trustee"), under which the
Old Notes were issued and the New Notes will be issued, the Company is required
to file with the Commission the periodic reports which would be required if it
were subject to such requirements. In addition, the Indenture requires the
Company to file copies of such reports with the Trustee and mail copies of such
reports to the registered holders of the Old Notes and New Notes.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This Prospectus contains statements that are "forward looking statements,"
and includes, among other things, discussions of the Company's business strategy
and expectations concerning market position, future operations, margins,
profitability, liquidity and capital resources, as well as statements concerning
the integration of acquired operations and the achievement of financial benefits
and operational efficiencies in connection with acquisitions. Forward looking
statements are included in "Offering Memorandum Summary," "The Acquisitions,"
"Selected Financial Data," "Selected Pro Forma Combined Financial Statements,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and "Business Business Strategy." Although the Company
believes that the expectations reflected in such forward looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Generally, these statements relate to business plans or
strategies, projected or anticipated benefits or other consequences of such
plans or strategies, number of acquisitions and projected or anticipated
benefits from acquisitions made by or to be made by the Company (including the
acquisitions of Camping World, Inc. and the Ehlert Publishing companies), or
projections involving anticipated revenues, expenses, earning, levels of capital
expenditures or other aspects of operating results. All phases of the operations
of the Company are subject to a number of uncertainties, risks and other
influences, many of which are outside the control of the Company and any one of
which, or a combination of which, could materially affect the results of the
Company's operations and whether the forward looking statements made by the
Company ultimately prove to be accurate. Important factors that could cause
actual results to differ materially from the Company's expectations are
disclosed in "Risk Factors" and elsewhere in this Offering Memorandum. The term
the "Company" in this paragraph refers to the Company, any of its subsidiaries
and any acquired operations, including the Acquisitions (as defined herein).
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS OFFERING
MEMORANDUM. EXCEPT WHERE THE CONTEXT INDICATES OTHERWISE, THE TERM "COMPANY"
MEANS AFFINITY GROUP HOLDING, INC., ITS WHOLLY OWNED SUBSIDIARY AFFINITY GROUP,
INC. AND ITS PREDECESSORS AND SUBSIDIARIES, TOGETHER WITH CAMPING WORLD, INC.
AND THE EHLERT PUBLISHING COMPANIES AFTER THEIR RESPECTIVE ACQUISITIONS, BUT
EXCLUDES THE OPERATIONS OF THE NATIONAL ASSOCIATION OF FEMALE EXECUTIVES
("NAFE") CLUB WHICH IS CLASSIFIED AS A DISCONTINUED OPERATION.
OVERVIEW
The Company is a member-based direct marketing organization primarily
engaged in selling club memberships to selected recreational affinity groups
principally comprised of recreational vehicle owners, campers, outdoor
vacationers and, to a lesser extent, golfers. The Company's club members form a
receptive audience to which it sells products and services, merchandise and
publications targeted to the recreational interests of such members. The
Company's three principal lines of business are (i) club memberships and related
products, services and club magazines, (ii) specialty retail merchandise
distributed primarily through retail supercenters and mail order catalogs, and
(iii) subscription magazines and other publications including directories.
The Company conducts its operations through: Affinity Group, Inc. ("AGI");
Camping World, Inc. ("Camping World"); and the Ehlert Publishing companies
("Ehlert"). On April 2, 1997, AGI acquired the stock of Camping World, a
specialty retailer offering merchandise and services through retail supercenters
and mail order catalogs primarily to members of its buying club. On March 6,
1997, AGI acquired the stock of Ehlert, a specialty sports and recreation
magazine publisher. Pro forma for the acquisitions of Camping World and Ehlert
(the "Acquisitions"), the Company would have had revenues of $324.0 million and
EBITDA (defined below) of $58.2 million for fiscal 1996. See "--Summary Pro
Forma Combined Financial Data."
Including the Camping World acquisition, the Company has over 1.7 million
paying members enrolled in its recreational affinity clubs, including
approximately 465,000 Camping World President's Club members, and over 3.9
million names in its proprietary database targeted to the recreational
activities of the Company's club members, including approximately 1.0 million
new names from Camping World. Including the Ehlert acquisition, the circulation
of the Company's publications exceeds 4.7 million.
Management believes that the acquisition of Camping World will further its
business strategy and enhance its competitive prospects by providing the
following benefits: (i) opportunities to cross sell club memberships between
AGI's Good Sam Club and Camping World's President's Club through both Camping
World's supercenters and catalog operations as well as AGI's direct mail
operations; (ii) access to Camping World's retail and mail order catalog
distribution channels to increase the penetration of AGI's products and
services, such as its emergency road service program and the recently introduced
extended vehicle warranty program, and access to Camping World's recreational
vehicle ("RV") merchandise which will be marketed to AGI's Good Sam Club
members; and (iii) opportunities to reduce membership, products and services
solicitation costs resulting from the Company's ability to: (a) market through
Camping World's retail and catalog distribution channels, (b) capitalize on the
overlap of the Good Sam Club and the President's Club memberships, and (c)
consolidate the administrative support for certain products and services. The
Company believes that these opportunities will enable it to eliminate workforce
redundancies and to reduce printing, paper, fulfillment and mailing costs.
Management believes the acquisition of Ehlert will allow the Company to increase
advertising revenues for certain of AGI's magazines due to higher combined
circulation of recreational activity publications and will result in cost
savings associated with headcount reductions, reorganization of certain
marketing activities and through the consolidation of publishing operations.
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BUSINESSES
AGI
AGI is a member-based direct marketing company that sells club memberships,
products, services and publications to selected recreational affinity groups.
For the year ended December 31, 1996, AGI generated revenues of $140.0 million,
EBITDA of $37.1 million, income from continuing operations of $5.1 million and a
net loss of $1.5 million. As of December 31, 1996, the Company had an
accumulated stockholder's deficit of $79.4 million. AGI's two principal segments
are: (i) membership services, in which AGI offers membership clubs and related
products and services primarily to RV owners, campers, outdoor vacationers and
golf enthusiasts, and (ii) publications in which AGI offers general circulation
magazines, annual campground and travel directories and books. Approximately 1.3
million members are currently enrolled in AGI's clubs and AGI maintains a
proprietary mailing list of approximately 2.9 million names. AGI believes that
its average annual club renewal rate of approximately 72% during the period 1992
to 1996 compares favorably with other for-profit subscription-based businesses.
AGI's publication business provides an additional revenue source and serves as
the primary vehicle to promote its membership clubs and to market its products
and services.
AGI's club membership revenues, which include revenues from club dues,
products, services and advertising in club magazines, were $98.9 million in
1996. AGI's clubs consist of the Good Sam Club and Coast to Coast clubs, which
are targeted to RV owners, campers and outdoor vacationers, and the Golf Card
club, which is targeted to golf enthusiasts. Members of each club pay dues,
which varies by club, length of enrollment and available club benefits. Good Sam
Club membership provides discounts for overnight stays at participating RV parks
and campgrounds and discounts on membership-sponsored products and services.
Coast to Coast membership provides reciprocal-use privileges and discounts for
overnight stays at approximately 82% of the private RV resorts nationwide and
discounts on membership-sponsored products and services. Golf Card membership
provides discounted playing privileges at over 3,100 golf courses in the U.S.
and Canada. Based on typical usage patterns, AGI estimates that the average
savings derived from club membership represents a multiple of at least two to
three times the annual membership fee for each club.
AGI's approximately 1.3 million club members provide a focused and receptive
group of customers to which it markets products and services. The products and
services either address special needs arising from the activities of club
members or are generally appealing to consumers with demographic characteristics
similar to club members. The two most established programs marketed by AGI are
its emergency road service ("ERS") and its vehicle insurance program ("VIP").
Other products and services marketed by AGI include vehicle financing,
supplemental health and life insurance, credit cards and the recently introduced
extended vehicle warranty program. These products and services are generally
provided to club members by third parties that pay AGI a marketing fee and
assume all fulfillment obligations and underwriting risk.
AGI is the leading publisher for the RV industry in the United States and
Canada. AGI's revenues from publishing operations were $41.1 million in 1996.
AGI's monthly magazines, TRAILER LIFE and MOTORHOME, have a combined paid
circulation exceeding 414,000 copies per issue. Distribution of AGI's annual
directories, the TRAILER LIFE CAMPGROUNDS/RV PARKS AND SERVICE DIRECTORY and the
WOODALL CAMPGROUND DIRECTORY, approximated 320,000 and 284,000 copies,
respectively, in 1996. In addition, the Company publishes separate magazines for
its membership clubs, trade publications targeted to the RV industry, specialty
magazines targeted to motorcycle enthusiasts and other special interest
publications.
CAMPING WORLD
Camping World is a national specialty retailer of merchandise and services
for RV owners. For its fiscal year ended September 30, 1996, Camping World
generated total revenues of $169.8 million and EBITDA of $12.7 million. The 26
Camping World retail supercenters, which are located in 17 states, accounted for
approximately 66% of fiscal 1996 revenues while approximately 21% were derived
from
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catalog sales and approximately 13% were derived from fees or non-merchandise
revenues. Approximately 86% of Camping World's fiscal 1996 revenues were derived
from sales to the members of its President's Club buying group.
The Company believes that Camping World's leading position in the RV
accessory industry results from a high level of name recognition, an effective
dual channel distribution strategy and a commitment to offer a broad selection
of specialized RV products and services at competitive prices combined with
technical assistance and on-site installation. Camping World's supercenters
offer over 8,000 stock keeping units ("SKUs"), approximately 80% of which are
not regularly available in general merchandise stores. In addition, general
merchandise stores do not provide installation or repair services for RV
products. Products sold by Camping World include specialty-sized refrigerators,
housewares and other appliances, bedding and furniture, generators and hydraulic
leveling systems, awnings, folding boats, chairs, bicycles, and sanitation
products. Camping World also markets emergency road service and vehicle
insurance products similar to the products offered by AGI. Camping World
supercenters are strategically located in areas where many RV owners live or in
proximity to destinations frequented by RV users. Camping World's supercenters
are designed to provide one-stop shopping by combining broad product selection,
technical assistance and on-site installation services.
Camping World's mail order operations generate significant revenues and
enhance retail sales by serving as the primary advertising vehicle for the
supercenters and by increasing Camping World's name recognition among RV owners
nationwide. The Company believes that Camping World has the leading share of the
mail order catalog segment for specialty RV products. Camping World's mail order
catalog sales complement its retail sales by targeting customers with limited
access to its retail supercenters and by facilitating purchases of higher
turnover items by regular supercenter customers. Camping World established its
President's Club in 1986 as a means of building customer loyalty and revenues.
President's Club members pay a membership fee, which varies with the length of
membership, and receive a 10% discount on merchandise purchased from Camping
World as well as special mailings including newsletters and flyers offering
selected products and services at reduced prices. At December 31, 1996, the
President's Club had approximately 465,000 members of which approximately
250,000 were also Good Sam Club members. The average annual renewal rate for the
President's Club for the five year period ended September 30, 1996 was 60.7%.
The majority of club memberships are for one year. Camping World recently
upgraded its point-of-sale system, which management believes will increase
sales, generate new club members and increase club renewal rates through
improved customer data collection.
EHLERT
Ehlert is a specialty publisher of sports and recreation magazines focusing
on four niches: snowmobiling, personal watercraft, archery and all-terrain
vehicles ("ATV's"). For the year ended December 31, 1996, Ehlert generated
revenues of $14.2 million and EBITDA of $2.2 million. For the twelve months
ended December 31, 1996, the paid circulation for Ehlert's publications was
approximately 290,000 and controlled circulation for industry and consumer
publications was approximately 1.1 million.
The Company estimates that in 1996, the snowmobile, personal watercraft and
archery groups had advertising revenue shares of approximately 62.3%, 39.6% and
27.5%, respectively, in their applicable sports and recreation magazine segment.
Ehlert's market share leadership position in its magazine segments, its close
contact with manufacturers, distributors, dealers and industry associations, and
its reputation as an advocate for responsible sporting practices has enabled
Ehlert to increase its advertising revenue by approximately 111% over the five
years ended December 31, 1996.
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BUSINESS STRATEGY
The Company's business strategy is to: (i) enhance the enrollment of its
clubs through internal growth and acquisitions; (ii) increase the sales of its
products and services by marketing to club members through the most effective
distribution channels and by developing and enhancing its product and service
offerings; and (iii) expand the circulation of its publications by introducing
new magazines and acquiring publications which are complementary to the
Company's recreational market niches. The Company also seeks to realize
operational efficiencies through the integration of acquired businesses such as
occurred as a result of the Golf Card club and Woodall Publishing acquisitions
in 1990 and 1994, respectively.
ENHANCE CLUB MEMBERSHIP ENROLLMENT
The Company seeks to increase the number of its club members by maximizing
renewals, establishing an optimal mix of channels for soliciting new members and
re-acquiring inactive members. Management believes that the participation levels
and renewal rates of club members reflect the benefits derived from membership.
In order to maintain high participation rates in its clubs, the Company
continuously evaluates member satisfaction and actively responds to changing
member preferences through the enhancement or introduction of new membership
benefits including products and services. The Company also seeks to optimize its
use of alternative channels for acquiring club members. Management believes that
Camping World's supercenters and catalog operations will provide low cost and
highly effective channels for acquiring club members. Camping World has
effectively used these channels to increase its President's Club membership by
approximately 75% during the five years ended September 30, 1996. Camping
World's supercenters and catalog operations can also be used to market
memberships to inactive club members. As a result of the Camping World
acquisition, the Company will add approximately 1.0 million new names to its
existing database. Additionally, Camping World recently upgraded its
point-of-sale system to sell President's Club memberships and renewals at the
check-out register and to record names of prospective club members.
INCREASE SALES OF PRODUCTS AND SERVICES
The Company seeks to increase the sale of its products and services due to
their profitability and the favorable impact such programs have on club
membership growth and retention. Management believes that a substantial
opportunity exists to market its products and services through the national
network of Camping World supercenters and mail order catalogs. A significant
percentage of Good Sam Club members currently subscribe to one or more of its
products and services, such as the emergency road service program and the
recently introduced extended vehicle warranty program. Management believes it
can successfully market such products and services to Camping World President's
Club members who have interests and demographic characteristics similar to those
of Good Sam Club members and for whom there is limited penetration of such
products and services. Management also believes that the Good Sam Club members
who are not currently President's Club members represent a focused group of
customers to which it can sell Camping World's RV accessory merchandise. The
Company regularly studies the feasibility of introducing new products and
services. For example, in 1995, AGI introduced its extended vehicle warranty
program which had approximately 1,600 policies in force as of December 31, 1996.
IMPROVE OPERATING PERFORMANCE
The Company seeks to achieve operating efficiencies by selectively acquiring
and developing recreational affinity groups which enable the Company to increase
membership enrollment and to realize cost savings. The Company also seeks to
enhance its importance with third party providers of products and services by
maintaining high membership enrollment levels in such programs, thereby
increasing the fees it receives from such vendors. Where appropriate, the
Company may consider directly providing certain products and services which had
been provided by third parties.
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Through the Acquisitions, the Company expects to realize $6.2 million in
annual cost savings and operating efficiencies. These anticipated cost
reductions consist of $3.8 million in annual salary and related benefits savings
associated with headcount reductions at AGI and Ehlert and $2.4 million in
annual reductions of operating costs associated with more efficient membership
services, products and services and publishing operations (including reduced
printing and paper costs).
Headcount reductions resulting in estimated annual savings of $2.8 million
were effected at AGI in December 1996 in anticipation of the Camping World
acquisition. Additional annual savings of $1.0 million from headcount reductions
are expected as a result of the Ehlert acquisition. Specific actions to reduce
consolidated operating costs will include: (i) reducing mailing, postage, paper
and fulfillment expenses due in part to the membership overlap between the Good
Sam Club and President's Club; (ii) using lower cost channels for soliciting
club members and selling products and services; and (iii) eliminating
duplicative publication and membership service operations.
ACQUIRE AND DEVELOP AFFINITY GROUPS
The Company believes the experience it has accumulated in managing its
existing recreational affinity groups is applicable to the management of other
recreational activity organizations. In 1990, AGI acquired the Golf Card club
and has successfully grown membership by approximately 47% since its
acquisition. As a result, the Company conducts ongoing evaluations for
developing or acquiring affinity groups for which it can build membership
enrollment and to which it can market products and services. The Company expects
to concentrate its efforts over the near term on integrating the operations of
the Camping World President's Club with AGI's Good Sam Club.
EXPAND NICHE RECREATIONAL PUBLICATIONS
The Company seeks to expand its presence as a leading publisher in select
recreational niches through the introduction of new magazine formats and the
acquisition of other publications in its market or in complementary recreational
market niches. Publications in complementary niches may also provide the Company
with the opportunity to launch new membership clubs, to market its products and
services to members of the new clubs and to develop other products and services
which meet the special needs of such members. The Company believes overall
circulation of its magazines is an important factor in determining the amount of
revenues it can obtain from advertisers. In addition, since paper and printing
costs are a significant part of operating expenses, management also believes
that the Company will achieve improved economies of scale when purchasing these
items following the Acquisitions.
THE ACQUISITIONS
On April 2, 1997, AGI acquired the stock of Camping World. The consideration
for the Camping World acquisition consists of $108.0 million in cash at closing
(including $19.0 million to be paid pursuant to non-competition and consulting
agreements with certain Camping World executives) and $15.0 million to be paid
over the five years following closing pursuant to management incentive
agreements with certain Camping World executives. On March 6, 1997, AGI acquired
the stock of Ehlert for $22.3 million, of which $20.8 million was paid in cash.
In addition, a $1.5 million note was issued by the Company to the seller (the
"Ehlert Note").
The net proceeds from the sale of the Original Notes received by the Company
were approximately $126.1 million. From these net proceeds, the Company repaid
$7.5 million of indebtedness of the Company and made a capital contribution to
AGI of approximately $117.0 million. In addition, simultaneous with completion
of the sale of the Original Notes, AGI entered into a new senior secured credit
facility (the "AGI Credit Facility") consisting of a revolving line of credit of
$45.0 million and a term loan of $30.0 million. See "Description of Other
Indebtedness AGI Credit Facility." AGI used borrowings under the AGI Credit
Facility together with the equity contribution made by the Company to AGI to
finance the
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Acquisitions and pay related transaction fees and expenses. The following table
sets forth the estimated sources and uses of funds in connection with the
Acquisitions and the sale of the Original Notes:
<TABLE>
<CAPTION>
<S> <C>
Sources:
AGI Credit Facility......................................................... $ 30,000,000
Original Notes.............................................................. 130,000,000
Acquisition earnest money deposits.......................................... 3,500,000
Ehlert Note (1)............................................................. 1,500,000
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Total sources............................................................. $ 165,000,000
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Uses:
Repayment of AGI's prior credit facility (2)................................ $ 26,050,000
Camping World acquisition................................................... 108,000,000
Ehlert acquisition (1)...................................................... 22,300,000
Repayment of 9% subordinated note (3)....................................... 2,500,000
Transaction fees and expenses............................................... 6,150,000
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Total uses................................................................ $ 165,000,000
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(1) On April 2, 1997, the Company repaid $1.0 million of the Ehlert Note and the
balance of $0.5 million is due on March 6, 1999 together with interest at 5%
per annum. Of the cash paid at closing of the Ehlert acquisition, $4.0
million was funded from a bridge loan to the Company from AGI Holding Corp.
("Holding") which owns all of the Company's outstanding capital stock. The
bridge loan, together with interest thereon at the rate of 9% per annum, was
repaid from the net proceeds from the sale of the Original Notes. The $22.3
million purchase price for Ehlert does not include $200,000 in non-compete
payments to the principal shareholders of Ehlert which are payable in twelve
equal monthly installments following closing.
(2) Subsequent to December 31, 1996, AGI borrowed an additional $1.0 million
under its existing credit facility to fund a portion of the earnest money
deposit made in February 1997 in connection with the execution of the
acquisition agreement for Camping World. As a result the amount to be repaid
under AGI's existing credit facility has been increased by $1.0 million from
the amount outstanding at December 31, 1996.
(3) The 9% subordinated note due December 31, 1998 represents loans to the
Company from an affiliate of several of the initial purchasers of the
Original Notes in January and February 1997. The proceeds from such loans
were used by the Company to fund a portion of the earnest money deposits for
the Acquisitions.
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SUMMARY OF CORPORATE STRUCTURE
The chart set forth below is a summary of the corporate structure of the
Company (including its parent corporation) after giving effect to the
Acquisitions. The Company is a recently-formed intermediate holding company
whose sole asset consists of all of the stock of AGI.
<TABLE>
<S> <C> <C>
AGI Holding Corp.
("Holding")
100%
Affinity Group Holding, Inc. --Issuer of the Notes
(the "Company") -- Obligor under Camping
World management incentive
agreements and Ehlert Note
100%
Affinity Group, Inc. --Borrower under the AGI
("AGI") Credit Facility
--Issuer of the AGI Notes
100% 100% 100%
Camping World, Inc. Ehlert Publishing companies Other AGI Subsidiaries
("Camping World") ("Ehlert")
</TABLE>
9
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
Purpose of Exchange Offer......... The Original Notes were sold in a private placement (the
"Private Offering") by the Company on April 2, 1997 to
certain accredited institutions through Citicorp
Securities, Inc., Citibank Canada Securities Limited,
Citibank International plc, and CIBC Wood Gundy
Securities Corp., the initial purchasers (the "Initial
Purchasers"). In connection therewith, the Company
executed and delivered, for the benefit of the holders
of the Original Notes, a Registration Rights Agreement
dated April 2, 1997 (the "Registration Rights
Agreement"), which is filed as an exhibit to the
Registration Statement of which this Prospectus is a
part, providing for, among other things, the Exchange
Offer so that the New Notes will be freely transferable
by the holders thereof without registration or any
prospectus delivery requirements under the Securities
Act, except that a "dealer" or any of their "affiliates"
as such terms are defined under the securities Act, who
exchanges Original Notes held for its own account (a
"Restricted Holder") will be required to deliver copies
of this Prospectus in connection with any resale of the
New Notes issued in exchange for such Original Notes.
See "The Exchange Offer--Purposes and Effects of the
Exchange Offer" and "Plan of Distribution" and "Risk
Factors--Consequences of Failure to Exchange."
The Exchange Offer................ The Company is offering to exchange pursuant to the
Exchange Offer up to $130,000,000 aggregate principal
amount of the Company's new 11% Senior Notes due 2007
(the "New Notes") for $130,000,000 aggregate principal
amount of the Company's outstanding 11% Senior Notes due
2007 (the "Original Notes"). The Original Notes and the
New Notes are collectively referred to herein as the
"Notes." The terms of the New Notes, are substantially
identical in all respects (including principal amount,
interest rate and maturity) to the terms of the Original
Notes for which they may be exchanged pursuant to the
Exchange Offer, except that the New Notes are freely
transferable by holders thereof (other than as provided
herein), and are not subject to any covenant regarding
registration under the Securities Act. See "The Exchange
Offer--Terms of the Exchange Offer" and "The Exchange
Offer--Procedures for Tendering."
The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Original Notes being
tendered for exchange.
Expiration Date................... The Exchange Offer will expire at 5:00 p.m., New York
City time on September 12, 1997, which will be at least
twenty (20) business days after the date of this
Prospectus unless extended to a date not later than 60
days from the effective date of the Registration
Statement of which this Prospectus is a par, (the
"Expiration Date").
Conditions of the Exchange
Offer........................... The Company's obligation to consummate the Exchange
Offer will be subject to certain conditions. See "The
Exchange Offer--
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
Conditions of the Exchange Offer." The Company reserves
the right to terminate or amend the Exchange Offer at
any time prior to the Expiration Date upon the
occurrence of any such conditions.
Procedures for Tendering Old
Notes........................... Each holder of Original Notes wishing to accept the
Exchange Offer must complete, sign and date the 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 Original Notes and any
other required documentation to the exchange agent (the
"Exchange Agent") at the address set forth herein.
Original Notes may be physically delivered, but physical
delivery is not required if a confirmation of a
book-entry of such Original Notes to the Exchange
Agent's account at The Depository Trust Company ("DTC"
or the "Depositary") is delivered in a timely fashion.
By executing the Letter of Transmittal, each holder will
represent to the Company that, among other things, the
New Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business of the
person receiving such New Notes, whether or not such
person is the holder, that neither the holder nor any
such other person is engaged in, or intends to engage
in, or has an arrangement or understanding with any
person to participate in, the distribution of such New
Notes and that neither the holder nor any such other
person is an "affiliate", as defined under Rule 405 of
the Securities Act, of the Company. Each broker or
dealer that receives New Notes for its own account in
exchange for Original Notes, where such Original Notes
were acquired by such broker or 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 New Notes. See "The
Exchange Offer--Procedures for Tendering" and "Plan of
Distribution."
Special Procedures for Beneficial
Owners.......................... Any beneficial owner whose Original 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 his Original Notes, either
make appropriate arrangements to register ownership of
the Original Notes in such owner's name or obtain a
properly completed bond power from the registered
holder. The transfer of registered ownership may take
considerable time. See "The Exchange Offer--Procedures
for Tendering."
Guaranteed Delivery Procedures.... Holders of Original Notes who wish to tender their
Original Notes and whose Original Notes are not entirely
available or who cannot deliver their Original Notes
must complete, sign and
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
deliver, the Letter of Transmittal or any other
documents required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date and must
tender their Original 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. See "The
Exchange Offer--Withdrawal of Tenders."
Acceptance of Original Notes and
Delivery of New Notes........... The Company will accept for exchange any and all
Original Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m.New York City time, on
the Expiration Date. The New Notes issued pursuant to
the Exchange Offer will be delivered promptly following
the Expiration Date. See "The Exchange Offer--Terms of
the Exchange Offer."
Exchange Agent.................... United States Trust Company of New York is serving as
Exchange Agent in connection with the Exchange Offer.
See The Exchange Offer--Exchange Agent.
Effect on Holders of the Original
Notes........................... As a result of the making of, and upon acceptance for
exchange of all validly tendered Original Notes pursuant
to the terms of this Exchange Offer, the Company will
have fulfilled one of the covenants contained in the
Registration Rights Agreement and, accordingly, there
will be no increase in the interest rate on the Original
Notes pursuant to the applicable terms of the
Registration Rights Agreement due to the Exchange Offer.
Holders of the Original Notes who do not tender their
Original Notes will be entitled to all the rights and
limitations applicable thereto under the Indenture dated
as of April 2, 1997, among the Company and United States
Trust Company of New York, as trustee (the "Trustee")
relating to the Original Notes and the New Notes (the
"Indenture"), except for any rights under the Indenture
or the Registration Rights Agreement, which by their
terms, terminate or cease to have further effectiveness
as a result of the making of, and the acceptance for
exchange of all validly tendered Original Notes pursuant
to, the Exchange Offer. All untendered Original Notes
will continue to be subject to the restrictions on
transfer provided for in the Original Notes and in the
Indenture. To the extent that Original Notes are
tendered and accepted in the Exchange Offer, the trading
market for untendered Original Notes could be adversely
affected.
Use of Proceeds................... There will be no cash proceeds to the Company from the
exchange pursuant to the Exchange Offer.
</TABLE>
12
<PAGE>
TERMS OF NOTES
The Exchange Offer applies to $130,000,000 principal amount of Original
Notes. The terms of the New Notes are identical in all material respects to the
Old Notes, except for certain transfer restrictions and registration and other
rights relating to the exchange of the Original Notes for New Notes. The New
Notes will evidence the same debt as the Original Notes and will be entitled to
the benefits of the Indenture under which both the Original Notes were, and the
New Notes will be, issued. See "Description of the Notes."
<TABLE>
<S> <C>
Maturity Date..................... April 1, 2007.
Interest Payment Dates............ Interest will accrue from the date of original issuance
and will be payable semi-annually on each October 1 and
April 1, commencing on October 1, 1997.
Optional Redemption............... The Notes are redeemable, in whole or in part, at the
option of the Company at any time on or after April 1,
2002 at the redemption prices set forth herein plus
accrued interest to the redemption date. In addition, at
any time prior to April 1, 2000, with the net cash
proceeds from Public Equity Offerings (as defined
herein), up to 30% of the originally issued aggregate
principal amount of the Notes may be redeemed at the
option of the Company at the redemption price set forth
herein, plus accrued interest to the redemption date.
Change of Control................. In the event of a Change of Control, the Company is
obligated to make an offer to purchase all of the
outstanding Notes at a redemption price of 101% of the
principal amount thereof plus accrued interest to the
redemption date. No assurance can be given that the
Company will have sufficient funds to repurchase the
Notes upon a Change of Control. The Change of Control
provisions do not, however, apply to transactions with
Stephen Adams, the owner of approximately 96% of the
outstanding shares of the Company's parent corporation,
AGI Holding Corp. "Holding", or affiliates of Mr. Adams.
See "Description of the Notes--Change of Control."
Asset Sale Proceeds............... The Company is obligated in certain instances to make
offers to purchase the Notes at a redemption price of
100% of the principal amount thereof plus accrued
interest to the redemption date with the net cash
proceeds of certain sales or other dispositions of
assets. See "Description of the Notes--Certain
Covenants--Disposition of Proceeds of Asset Sales."
Ranking........................... The Notes will be general unsecured obligations of the
Company and will rank PARI PASSU in right of payment
with all existing and future unsubordinated indebtedness
of the Company. The Notes will rank senior in right of
payment to all existing and future subordinated
indebtedness of the Company. The Notes will be
effectively subordinated to all existing and future
claims of creditors of the subsidiaries of the Company,
including AGI. The Company does not currently have any
outstanding indebtedness which is subordinate to the
Notes. As of April 30, 1997, the Company had $445.3
million of consolidated indebtedness
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
(including $21.0 million of trade payables and $18.8 of
deposit liabilities of its thrift and loan subsidiary)
outstanding. This indebtedness includes $303.6 million
of indebtedness (including $21.0 million of trade
payables and $18.8 million of deposit liabilities of its
thrift and loan subsidiary) of the Company's
subsidiaries.
Certain Covenants................. The Indenture contains certain covenants that, among
others, limit the type and amount of additional
indebtedness that may be incurred by the Company or any
of its subsidiaries and impose limitations on
investments loans, advances, the payment of dividends
and the making of certain other payments, the creation
of liens, certain transactions with affiliates and
certain mergers. See "Description of the Notes--Certain
Covenants."
</TABLE>
RISK FACTORS
The information set forth under "Risk Factors" should be carefully
considered in evaluating the Notes and the Company.
14
<PAGE>
SUMMARY FINANCIAL DATA
AFFINITY GROUP HOLDING, INC.
The summary financial data presented below are derived from audited
consolidated financial statements for the years ended December 31, 1992 through
1996 and unaudited financial statements for the three months ended March 31,
1996 and 1997 of the Company. The results of operations for the years ended
December 31, 1994 and 1995 and the three months ended March 31, 1996 have been
restated to give effect to the reclassification of NAFE as a discontinued
operation. The summary financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Company's Consolidated Financial Statements and the related
notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1992 1993 1994(1) 1995(1) 1996 1996(1) 1997
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Membership services
revenues.................. $ 80,491 $ 86,405 $ 91,185 $ 99,194 $ 98,901 $ 23,399 $ 24,250
Publications revenues....... 24,561 29,224 37,601 40,043 41,078 8,194 9,733
--------- --------- --------- --------- --------- --------- ---------
Total revenues.............. 105,052 115,629 128,786 139,237 139,979 31,593 33,983
Gross profit................ 40,610 45,721 49,843 55,334 53,405 10,456 11,733
General and
administrative............ 12,907 13,113 13,615 18,376 16,326 3,908 4,225
Depreciation and
amortization.............. 11,574 11,396 11,020 9,013 8,340 2,057 2,093
Other operating expenses.... 1,500 1,531 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Income from operations...... $ 14,629 $ 19,681 $ 25,208 $ 27,945 $ 28,739 $ 4,491 $ 5,415
--------- --------- --------- --------- --------- --------- ---------
BALANCE SHEET DATA (AT PERIOD END):
Working capital (deficit)
(2)....................... $ (4,165) $ (3,105) $ (4,122) $ (4,265) $ (13,444) $ (8,940) $ (13,243)
Total assets................ 175,044 166,620 180,790 197,699 184,128 187,412 216,542
Deferred revenues (3)....... 62,729 67,236 67,448 68,702 70,113 70,359 73,285
Total debt.................. 151,624 160,643 157,270 164,496 147,375 156,123 168,778
Total stockholder's
(deficit)................. (82,672) (89,072) (74,279) (77,963) (79,434) (77,871) (78,838)
OTHER DATA:
EBITDA (4).................. $ 26,203 $ 31,077 $ 36,228 $ 36,958 $ 37,079 $ 6,548 $ 7,508
EBITDA margin............... 24.94% 26.88% 28.13% 26.54% 26.49% 20.73% 22.09%
Capital expenditures........ $ 1,027 $ 2,680 $ 3,167 $ 4,713 $ 1,743 $ 376 $ 562
Cash flow provided by (used in):
Operating activities...... $ 25,598 $ 17,512 $ 23,801 $ 13,723 $ 16,393 $ 4,530 $ 6,737
Investing activities...... (3,159) (2,013) (22,293) (8,671) (2,832) 3,142 (21,967)
Financing activities...... (15,879) (17,625) (10,883) (1,774) (13,116) (7,756) 22,664
STATISTICAL DATA:
Total club membership....... 1,286,800 1,341,800 1,345,000 1,316,634 1,304,828 1,312,176 1,314,418
Total paid circulation...... 569,000 560,500 598,000 578,504 578,625 603,773 651,485
</TABLE>
- ------------------------------
(1) Restated to give effect to the reclassification of NAFE as a discontinued
operation.
(2) Includes customer deposits recorded as current liabilities by Affinity
Thrift and Loan at December 31, 1995 and 1996, and March 31, 1996 and 1997
of $11.0 million, $15.0 million, $11.6 million and $17.7 million,
respectively.
(3) Deferred revenues represent cash received by AGI in advance of the
recognition of revenues in accordance with generally accepted accounting
principles. Deferred revenues primarily reflect club membership dues, annual
ERS fees and publication subscriptions. These revenues are recognized at the
time the goods or services are provided or over the membership period which
is generally over a twelve month period.
(4) "EBITDA" represents income from operations plus depreciation and
amortization. The Company has included information concerning EBITDA as it
understands that it is used by certain investors as one measure of an
issuer's ability to service or incur indebtedness. EBITDA should not be
construed as an alternative to operating income (as determined in accordance
with generally accepted accounting principles) as an indicator of the
Company's performance or to cash flows from operating activities (as
determined in accordance with generally accepted accounting principles) as a
measure of liquidity.
15
<PAGE>
CAMPING WORLD, INC.
The summary financial data presented below are derived from the audited
consolidated financial statements for the years ended September 30, 1992 through
1996 and the unaudited financial statements for the six months ended March 31,
1996 and 1997 of Camping World. In the opinion of management, the unaudited
financial statements include all adjustments, consisting of normal and recurring
accruals, which management considers necessary for a fair presentation of the
financial position and results of operations for these periods. The summary
financial data should be read in conjunction with Camping World's Consolidated
Financial Statements and the related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
-------------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Merchandise sales..................... $ 112,088 $ 129,612 $ 137,712 $ 143,344 $ 147,255 $ 59,065 $ 62,954
Other revenues........................ 9,910 12,978 16,321 19,079 22,515 9,695 10,812
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues........................ 121,998 142,590 154,033 162,423 169,770 68,760 73,766
Gross profit.......................... 41,710 47,718 53,936 57,472 61,001 25,071 25,752
Selling, general and administrative
expenses............................ 31,930 38,846 42,748 47,531 48,795 22,334 25,089
Compensation expense--redemption of
stock options....................... -- -- -- -- -- -- 2,843
Depreciation and amortization......... 2,273 2,459 2,007 2,137 2,380 1,087 1,408
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from operations......... $ 7,507 $ 6,413 $ 9,181 $ 7,804 $ 9,826 $ 1,650 $ (3,588)
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA AT PERIOD END:
Working capital....................... $ 7,311 $ 6,925 $ 5,390 $ 4,242 $ 6,110 $ 2,492 $ 1,800
Property and equipment, net........... 27,832 27,993 28,221 29,118 32,005 33,467 31,967
Total assets.......................... 64,333 64,622 68,005 71,172 77,698 78,185 83,733
Total debt............................ 39,397 36,513 33,658 30,919 33,623 38,067 36,226
Shareholders' equity.................. 6,898 7,926 10,565 12,654 16,669 12,644 13,437
OTHER DATA:
EBITDA (1)............................ $ 10,064 $ 9,274 $ 11,559 $ 10,359 $ 12,688 $ 2,916 $ 892
EBITDA margin......................... 8.25% 6.51% 7.50% 6.38% 7.47% 4.24% 1.21%
Gross profit.......................... 34.19% 33.47% 35.02% 35.38% 35.93% 36.46% 34.91%
Capital expenditures.................. $ 1,321 $ 1,878 $ 1,655 $ 3,266 $ 5,109 $ 2,980 $ 1,862
Cash flow provided by (used in):
Operating activities................ $ 2,792 $ 2,796 $ 5,973 $ 7,537 $ 3,334 $ (869) $ 2,206
Investing activities................ 4,433 998 (1,511) (3,865) (4,862) (4,837) (1,894)
Financing activities................ (8,263) (3,067) (4,708) (2,949) 2,740 6,785 2,583
RETAIL STORE OPERATING DATA:
Retail stores at period end (2)....... 21 23 23 24 27 25 27
Retail store sales.................... $ 88,548 $ 101,155 $ 108,572 $ 109,783 $ 111,971 $ 46,825 $ 49,288
Percent of retail store sales to club
members............................. 78.70% 79.20% 81.00% 83.30% 84.30% 82.87% 85.12%
Comparable store sales increase
(decrease).......................... (0.70)% 6.50% 6.20% (0.70)% (4.80)% 3.58% 0.14%
CATALOG STATISTICAL DATA:
Catalogs distributed during period
(000 omitted)....................... 8,076 8,783 9,292 9,573 9,075 4,324 4,405
Mail order sales...................... $ 23,540 $ 28,457 $ 29,140 $ 33,561 $ 35,284 $ 12,240 $ 13,666
Percent of mail order sales to club
members............................. 82.90% 88.70% 87.10% 86.10% 88.10% 87.27% 86.78%
Orders processed during period........ 329,000 386,000 386,600 426,000 420,000 139,671 161,989
Catalog response rate................. 4.10% 4.40% 4.20% 4.50% 4.60% 3.23% 3.68%
Average order size (in dollars)....... $ 72 $ 74 $ 75 $ 79 $ 84 $ 88 $ 84
</TABLE>
- ------------------------------
(1) "EBITDA" represents income (loss) from operations plus depreciation and
amortization, purchase discounts equal to $284,000 in 1992, $402,000 in
1993, $371,000 in 1994, $418,000 in 1995, $482,000 in 1996 and $179,000 and
$229,000 for the six months ended March 31, 1996 and 1997, respectively,
which were recorded as interest income in the Camping World statement of
operations and redemption of stock option expense. The Company has included
information concerning EBITDA as it understands that it is used by certain
investors as one measure of an issuer's ability to service or incur
indebtedness. EBITDA should not be construed as an alternative to operating
income (as determined in accordance with generally accepted accounting
principles) as an indicator of Camping World's performance or to cash flows
from operating activities (as determined in accordance with generally
accepted accounting principles) as a measure of liquidity.
(2) Includes supercenters and one 1,800 square foot retail showroom located
within the Bakersfield, California distribution center.
16
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
The summary pro forma combined financial data presented below for the year
ended December 31, 1996 and the three months ended March 31, 1997 are derived
from the Company's Consolidated Financial Statements and the notes thereto,
Camping World's Consolidated Financial Statements and the notes thereto and
Ehlert's Consolidated Financial Statements, all of which, with the exception of
Ehlert's Consolidated Financial Statements, are included elsewhere herein. This
summary should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations," the Company's Consolidated
Financial Statements and the notes thereto, and Camping World's Consolidated
Financial Statements and the notes thereto. See "Selected Pro Forma Combined
Financial Statements." The pro forma combined balance sheet data and the pro
forma combined statement of operations data adjust historical financial data to
give pro forma effect to (i) the Private Offering and the application of the net
proceeds therefrom, (ii) the Acquisitions, and (iii) identified cost savings, as
if they had occurred as of March 31, 1997 with respect to the pro forma balance
sheet and January 1, 1996 with respect to the pro forma combined statements of
operations.
The summary pro forma combined financial data do not purport to be
indicative of the results that would have been obtained had the above-described
transactions been completed on the indicated dates or that may be obtained in
the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996(1)
------------------------------------------------
CAMPING PRO FORMA
COMPANY WORLD EHLERT COMBINED(2)
---------- ---------- --------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................... $ 139,979 $ 169,770 $ 14,249 $ 323,998
Income from operations..................................... 28,739 9,826 2,065 42,958
Income from continuing operations.......................... 5,081 3,975 2,098 5,106
OTHER DATA:
EBITDA (4)................................................. $ 37,079 $ 12,688 $ 2,243 $ 58,189
EBITDA margin.............................................. 26.49% 7.47% 15.74% 17.96%
Interest expense, net (5).................................. $ 16,518 $ 3,078 $ 15 $ 31,797
Capital expenditures....................................... 1,743 5,109 32 6,884
Cash flow provided by (used in):
Operating activities..................................... $ 16,393 $ 3,334 $ 1,579 $ 15,299
Investing activities..................................... (2,832) (4,862) (32) (117,208)
Financing activities..................................... (13,116) 2,740 (1,790) 97,316
RATIO DATA:
EBITDA to interest expense, net............................ 1.83x
EBITDA less capital expenditures to interest expense,
net...................................................... 1.61
Total debt to EBITDA....................................... 5.05
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
------------------------------------------------
CAMPING PRO FORMA
COMPANY WORLD EHLERT(6) COMBINED(2)
---------- ---------- --------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................... $ 33,983 40,188 2,285 $ 76,456
Income from operations..................................... 5,415 (2,768) 17 3,245
Income (loss) from continuing operations................... 596 (2,260) 19 (2,383)
BALANCE SHEET DATA:
Total assets............................................... $ 216,542 83,733 -- $ 378,162
Deferred revenues (3)...................................... 73,285 2,931 -- 76,215
Long-term debt, net of current portion..................... 163,487 22,963 -- 284,488
Stockholders' equity (deficit)............................. (78,838) 13,437 -- (78,838)
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
------------------------------------------------
CAMPING PRO FORMA
COMPANY WORLD EHLERT(6) COMBINED(2)
---------- ---------- --------- -------------
<S> <C> <C> <C> <C>
OTHER DATA:
EBITDA (4)................................................. $ 7,508 813 50 $ 9,915
EBITDA margin.............................................. 22.09% 2.02% 0.0% 12.97%
Interest expense (5)....................................... $ 4,153 909 (2) $ 8,018
Capital expenditures....................................... 562 940 1,502
Cash flow provided by (used in):
Operating activities..................................... $ 6,737 $ 5,494 $ (101) $ 10,716
Investing activities..................................... (21,967) (969) (40) (109,726)
Financing activities..................................... 22,664 952 -- 111,290
RATIO DATA:
EBITDA to interest expense................................. 1.24
EBITDA less capital expenditures to Interest expense....... 1.05
</TABLE>
- ------------------------
(1) For Camping World, the statement of operations and other data is for its
fiscal year ended September 30, 1996.
(2) Pro forma results include estimated cost savings which the Company expects
to realize through: specific headcount reductions undertaken at AGI in
anticipation of the Camping World acquisition; reductions in redundant costs
associated with member acquisition, retention and renewal efforts
principally related to reduced printing, paper, and fulfillment and mailing
expenses; consolidation of the emergency road service programs;
consolidation of publishing operations; and elimination of Ehlert salaries,
incentives, travel, entertainment, insurance, automobile and 401(k) costs.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- -------------------
(IN THOUSANDS)
<S> <C> <C>
Headcount reductions--salaries....................... $ 2,250 $ 562
Headcount reductions--benefits....................... 563 141
Reduction in redundant cost associated with member
acquisition, program administration and publishing
operation expense.................................. 2,369 592
Elimination of Ehlert salaries, incentives, travel,
entertainment, insurance, automobile and 401(k)
costs.............................................. 997 249
------ ------
$ 6,179 $ 1,544
------ ------
------ ------
</TABLE>
(3) Deferred revenues represent cash received by the Company in advance of the
recognition of revenues in accordance with generally accepted accounting
principles. Deferred revenues primarily reflect club membership dues, annual
ERS fees and publications subscriptions. These revenues are recognized at
the time the goods or services are provided or over the membership period
which is generally twelve months.
(4) EBITDA represents income from operations plus depreciation and amortization,
purchase discounts and redemption of stock option expense. See Note 2 to
"--Summary Financial Data--Camping World, Inc." The Company has included
information concerning EBITDA as it understands that it is used by certain
investors as one measure of an issuer's ability to service or incur
indebtedness. EBITDA should not be construed as an alternative to operating
income (as determined in accordance with generally accepted accounting
principles) as an indicator of the Company's performance or to
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cash flows from operating activities (as determined in accordance with
generally accepted accounting principles) as a measure of liquidity.
(5) Includes additional interest expense resulting from the issuance of the
Notes and borrowings under the AGI Credit Facility used to fund the
Acquisitions.
(6) For Ehlert, the operations data for the three months ended March 31, 1997 is
for the period January 1, 1997 through March 5, 1997. Operating results from
March 6, 1997, the acquisition date, through March 31, 1997 are included in
the Company data.
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RISK FACTORS
Prospective purchasers of the Notes should consider carefully the following
factors, as well as other information set forth in the Private Offering, before
making an investment in the Notes.
HOLDING COMPANY STRUCTURE
The Company is a holding company which has no significant assets other than
its investment in AGI. Accordingly, the Company must rely entirely upon
distributions from AGI to generate the funds necessary to make interest payments
on the Notes, management incentive payments to certain Camping World executives
of up to $15.0 million which are payable $1.0 million per year on the first four
anniversaries of the closing of the Camping World acquisition and $11.0 million
on the fifth anniversary, and payments under the $1.5 million Ehlert Note.
Pursuant to the terms of the indenture (the "AGI Indenture") governing the
$120 million 11 1/2% Senior Subordinated Notes due 2003 of AGI (the "AGI
Notes"), AGI is precluded from declaring or paying any dividend or making any
distribution on its capital stock or making any payment on account of the
purchase or redemption of any of its capital stock unless AGI could incur at
least $1.00 in indebtedness in accordance with the covenants in the AGI
Indenture restricting AGI's ability to incur indebtedness and the aggregate
amount of all such dividends, distributions and payments after October 29, 1993
does not exceed the sum of (1) 50% of AGI's consolidated net income (as defined
in the AGI Indenture) (or in the event such consolidated net income is a
deficit, minus 100% of such deficit) after October 29, 1993, and (2) 100% of the
aggregate net proceeds and the fair market value of marketable securities and
property received by AGI from (x) the issue or sale after October 29, 1993 of
capital stock of AGI or any indebtedness or other securities of AGI convertible
into or exercisable or exchangeable for capital stock of AGI which has been so
converted, exercised or exchanged, as the case may be, and (y) dividends or
other distributions received by AGI from any unrestricted subsidiary (as defined
in the AGI Indenture). After giving pro forma effect to the application of the
net proceeds from the Private Offering, the aggregate amount available for
distribution from AGI to the Company under the above provision of the AGI
Indenture would have been $120.8 million as of March 31, 1997.
The AGI Credit Facility contains covenants which are more numerous and more
restrictive regarding the payment of dividends by AGI than are contained in the
AGI Indenture. Substantially all of the assets of AGI and its subsidiaries,
including Ehlert and Camping World, will be pledged as collateral under the AGI
Credit Facility. If the Acquisitions, the Private Offering and the AGI Credit
Facility were consummated at March 31, 1997, AGI would have had $30.0 million
outstanding under the AGI Credit Facility and $45.0 million of undrawn
commitments under the revolving line of credit. Of such undrawn commitments,
$24.5 million could have been borrowed under the limitations on additional
indebtedness in the AGI Indenture. The AGI Credit Facility will expire March 31,
2002.
NET LOSSES AND DEFICIENCY OF EARNINGS TO FIXED CHARGES
AGI acquired its recreation travel membership clubs and publications
business in December 1988, its golf membership club in September 1990, the
Woodall publishing group in May 1994, the NAFE membership club (which is
currently classified as a discontinued operation) in October 1994 and its
financial services business through the acquisitions of Affinity Thrift and Loan
("ATL") in October 1995 and Affinity Insurance Group, Inc. ("AINS") in June
1995. From the initial acquisition in December 1988 through December 31, 1996,
AGI incurred cumulative net losses of approximately $59.0 million. The losses
resulted primarily from (i) interest expense of $128.9 million on debt incurred
to finance these acquisitions or refinance such indebtedness, (ii) interest
expense related to warrants of $32.6 million resulting from valuation of
warrants issued in connection with the 1988 acquisition, which was refinanced in
1993 with the AGI Notes, and (iii) depreciation and amortization of $90.7
million primarily from the amortization of goodwill recorded as a result of such
acquisitions. For the years ended December 31, 1992 and 1993, the
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Company's earnings were insufficient to cover fixed charges by $19.2 million and
$970,000, respectively. See "Selected Financial Data--Affinity Group Holding,
Inc." and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
LEVERAGE AND LIMITED ABILITY OF THE COMPANY TO OBTAIN ADDITIONAL FINANCING
At March 31, 1997, after giving pro forma effect to the Private Offering and
the Acquisitions, the Company's total consolidated debt would have been $292.7
million, and its stockholder's deficit would have been $78.8 million. See
"Capitalization." In the future, the Company intends to use cash generated by
operations to reduce its indebtedness. However, the Company may from time to
time, subject to restrictions imposed by the terms of its indebtedness, pay
dividends or find it more advantageous to employ cash generated by operations
for capital investments and acquisitions. In addition, the Company may, subject
to restrictions imposed by the terms of its indebtedness, incur additional
indebtedness from time to time to finance expansion either through capital
expenditures or additional acquisitions. Such additional indebtedness may be
incurred by AGI, in which case the Notes would be structurally subordinated to
any such indebtedness, and the terms of such indebtedness may impose
restrictions on payments from AGI to the Company.
The degree to which the Company is leveraged could have important
consequences to holders of the Notes including the following: (i) the Company's
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions, general corporate purposes or other purposes
may be impaired; (ii) a substantial portion of the Company's cash flow from
operations must be dedicated to the payment of interest and principal on its
indebtedness; (iii) the Company's high degree of leverage may make it more
vulnerable to economic downturns and may limit its ability to withstand
competitive pressures, to consummate acquisitions or to capitalize on
significant business opportunities; (iv) certain of the Company's borrowings are
at variable rates of interest, which causes the Company to be vulnerable to
increases in interest rates; and (v) borrowings under the AGI Credit Facility
are subject to compliance with various covenants under the AGI Credit Facility
and the limitations on the incurrence of additional indebtedness under the AGI
Indenture. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
The Company's ability to satisfy its debt service obligations will depend
primarily upon its future operating performance, including the successful
integration of Camping World and Ehlert. The operating performance of the
Company will be subject to prevailing business, financial and economic
conditions, many of which are beyond the Company's control. Future debt
repayments by the Company, including the principal amount of the Notes, may
require funds in excess of its available cash flow. There can be no assurance
that the Company will be able to raise additional funds, if necessary, through
future financings. The Indenture pursuant to which the Notes will be issued
imposes several restrictions upon the Company, including restrictions on the
ability of the Company to incur additional indebtedness and pledge assets. These
restrictions under the Indenture and the Company's substantial amount of debt
could limit the Company's ability to obtain additional financing in the future,
if required. See "Capitalization," "Management's Discussion and Analysis of
Results of Operations and Financial Condition--Liquidity and Capital Resources,"
and "Description of the Notes."
STRUCTURAL SUBORDINATION
The Notes will be general unsecured obligations of the Company and will rank
PARI PASSU in right of payment to all existing and future unsubordinated
indebtedness of the Company. However, the Notes will be effectively subordinated
to the claims of secured creditors of the Company to the extent of the value of
the assets securing any secured indebtedness. The Notes will be effectively
subordinated to claims of creditors of AGI, including the lenders under the AGI
Credit Facility, the holders of the AGI Notes and trade creditors. The rights of
the Company and its creditors, including the holders of the Notes, to realize
upon the assets of AGI upon AGI's liquidation or reorganization (and the
consequent rights of the holders
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of the Notes to participate in the realization of those assets) will be subject
to the prior claims of AGI's creditors, including the lenders under the AGI
Credit Facility and the holders of the AGI Notes. In such event, there may not
be sufficient assets remaining to pay amounts due on any or all of the Notes
then outstanding. See "Description of Other Indebtedness." The Indenture will
permit AGI to incur additional indebtedness subject to the limitations contained
in the Indenture on the incurrence of additional indebtedness.
INTEGRATION OF OPERATIONS
The Company's future operations and earnings will be somewhat dependent upon
the Company's ability to integrate the operations of Camping World and Ehlert
into the current operations of AGI. There can be no assurance that management
will be able to implement its integration plans without delay or that, when
implemented, its efforts will result in the operational efficiencies and cost
savings currently anticipated by management. In addition, although the Company
believes that the operations of Camping World are complementary to AGI's current
operations, AGI's management does not have extensive experience in retail store
and catalog operations. Accordingly, there can be no assurance that the Company
will be able to successfully integrate such operations with those of the
Company, and a failure to do so could have a material adverse effect on the
Company's financial position, results of operations and cash flows.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Notes will have
the right to require the Company to purchase such Notes at a price equal to 101%
of the principal amount thereof plus accrued interest to the redemption date. In
the event of a Change of Control, there can be no assurance that the Company
would have access to sufficient funds to purchase all the tendered Notes. The
AGI Indenture contains similar provisions in the event of a Change of Control.
Since the Notes are effectively subordinated to the claims of creditors of the
Company's subsidiaries, including AGI, any AGI Notes which are tendered for
redemption upon a Change of Control would have to be repaid in full before any
payments could be made on the Notes which are tendered for redemption upon a
Change of Control. See "Description of the Notes--Change of Control."
The Change of Control provisions do not apply in the event of certain
transactions with Stephen Adams, who beneficially owns approximately 96% of the
outstanding shares of the Company's parent corporation, or his Affiliates (as
defined in "Description of the Notes--Certain Definitions"). A corporation or
other entity controlled by Mr. Adams or under common control with Mr. Adams
could merge, consolidate or engage in a reorganization transaction with the
Company without a Change of Control occurring under the Indenture or the AGI
Indenture.
GENERAL ECONOMIC CONDITIONS
The Company's activities, including those operations acquired as a result of
the Acquisitions, relate significantly to the amount of leisure time and the
amount of disposable income available to users of its products and services. The
Company's business may, therefore, be sensitive to general economic conditions
affecting the willingness of consumers to purchase club memberships and related
products and services and of advertisers to place advertisements in the
Company's publications. In particular, during the gasoline shortages and
resulting price increases in 1973, 1980 and 1990, there was a reduction in
advertising revenues for AGI's RV publications. For the year ended December 31,
1996, and assuming the Acquisitions occurred on January 1, 1996, the Company's
publishing business accounted for approximately 17% of pro forma revenues.
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CONTROL BY PRINCIPAL SHAREHOLDER
The Company is a wholly-owned subsidiary of Holding, a privately-held
company. Stephen Adams, the Chairman of the Company, will continue to own
approximately 96% of the outstanding shares of Holding after giving effect to
the Private Offering. Accordingly, Mr. Adams will be able to elect the Company's
directors and to control matters submitted to the vote of the Company's
shareholders. See "Principal Shareholders and Security Ownership of Management."
REGULATORY
The Company's operations (including the operations of Camping World and
Ehlert) are subject to varying degrees of federal, state and local regulation.
The Company's outbound telemarketing, direct mail, emergency road service
program, insurance and thrift and loan activities are currently subject to
regulation. Specifically, a principal source of leads for the Company's direct
response marketing efforts is new vehicle registrations provided by motor
vehicle departments in various states. Currently, nineteen states, including
California, restrict access to motor vehicle registration information.
California, the state with the Company's largest number of members, discontinued
providing access to motor vehicle registration information in 1989. If many
other states adopt a similar restriction, direct response marketing costs could
significantly increase.
In addition to the existing regulatory framework, new regulatory efforts
impacting the Company's operations may be proposed from time to time in the
future at the federal, state and local level. There can be no assurance that
such regulatory efforts will not have a material adverse effect on the Company's
ability to operate its businesses or its results of operations.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Original Notes who do not exchange their Original Notes for New
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Original Notes as set forth in the legend
thereon as a consequence of the issuance of the Original Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Original Notes may not be offered or sold, unless registered under
the Securities act, except pursuant to an exemption from, or in a transaction
not subject to, the securities Act and applicable state securities laws. The
Company does not currently anticipate that it will register the Original Notes
under the Securities Act. New Notes issued pursuant to the Exchange Offer in
exchange for Original Notes may be offered for resale, resold or otherwise
transferred by Holders 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 New Notes are acquired in the ordinary
course of such holders' business and such holders have not arrangements with any
person to participate in the distribution of such Notes. Each broker-dealer that
receives New 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 New Notes. The Letter of Transmittal states 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 New Notes received in exchange for
Original Notes where such Original 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 165 days after the effective date of this
Prospectus, it will make this Prospectus available to any broker-dealer for use
in connection with any such resale. See "Plan of Distribution." However, to
comply with the securities laws of certain jurisdictions, if applicable, the New
Notes may not be offered or sold unless they have been registered or qualified
for sale in such jurisdictions or an exemption from registration or
qualification is available and is complied with. To the extent that Original
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Notes are tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted Original Notes will be adversely
affected.
THE EXCHANGE OFFER
PURPOSES AND EFFECTS OF THE EXCHANGE OFFER
The Original Notes were sold by the Company on April 2, 1997 to the Initial
Purchasers, who resold the Original Notes to "qualified institutional buyers"
(as defined in Rule 144A under the Securities Act) and other institutional
"accredited investors" (as defined in Rule 501(a) under the Securities Act). In
connection with the sale of the Original Notes, the Company and the Initial
Purchasers entered into a Registration Rights Agreement dated as of April 2,
1997 (the "Registration Rights Agreement") pursuant to which the Company agreed
to file with the Commission a registration statement (the "Exchange Offer
Registration Statement") with respect to an offer to exchange the Original Notes
for New Notes within 30 days following the issuance of the Original Notes. In
addition, the Company agreed to use its best efforts to cause the Exchange Offer
Registration Statement to become effective under the Securities Act and to issue
the New Notes pursuant to the Exchange Offer. 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 Exchange Offer is being made pursuant to the Registration Rights
Agreement to satisfy the Company's obligations thereunder. The term "holder,"
with respect to the Exchange Offer, means any person in whose name Original
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, or any
person whose Original Notes are held of record by the Depository. The Company is
generally not required to file any registration statement to register any
outstanding Original Notes. Holders of Original Notes who do not tender their
Original Notes or whose Original Notes are tendered but not accepted would have
to rely on exemptions to registration requirements under the securities laws,
including the Securities Act, if they wish to sell their Original Notes.
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties unrelated to the Company, the Company
believes that the New Notes issued pursuant to the Exchange Offer in exchange
for Original Notes may be offered for resale, resold and otherwise transferred
by any holder of such New Notes (other than a person that is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act and except
as set forth in the next paragraph) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business and such
holder is not participating and does not intend to participate, and has no
arrangement or understanding with any person to participate, in the distribution
of such New Notes. See "KC-III Communications Corporation," SEC No-Action Letter
(available May 14, 1993); "Mary Kay Cosmetics, Inc.," SEC No-Action Letter
(available June 5, 1991); "Morgan Stanley & Co., Incorporated," SEC No-Action
Letter (available June 5, 1991); and "Exxon Capital Holdings Corporation," SEC
No-Action Letter (available May 13, 1988). Each broker-dealer that receives New
Notes for its own account in exchange for Original Notes, where such Original
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 New Notes. See "Plan of
Distribution."
If any person were to be participating in the Exchange Offer for the purpose
of distributing securities in a manner not permitted by the Commission's
interpretation (i) the position of the staff of the Commission enunciated in
"Exxon Capital Holdings Corporation" or similar interpretive letters would be
inapplicable to such person and (ii) such person would be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction.
The Exchange Offer is not being made to, nor will the Issuer accept
surrenders for exchange from, holders of Original Notes in any jurisdiction in
which the Exchange Offer or the acceptance thereof would
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not be in compliance with the securities or Blue Sky laws of such jurisdiction.
Prior to the Exchange Offer, however, the Company will use their best efforts to
register or qualify the New News for Offer and sale under the securities or Blue
Sky laws of such jurisdiction as is necessary to permit consummation of the
Exchange Offer and do any and all other acts or things necessary or advisable to
enable the offer and sale in such jurisdictions of the New Notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept any and
all Original Notes validly tendered prior to 5:00 p.m., New York City time, on
the Expiration Date (as defined below). The Company will issue up to
$130,000,000 aggregate principal amount of New Notes in exchange for a like
principal amount of outstanding Original Notes which are validly tendered and
accepted in the Exchange Offer. Subject to the conditions of the Exchange Offer
described below, the Company will accept any and all Original Notes which are so
tendered. Holders may tender some or all of their Original Notes pursuant to the
Exchange Offer.
The form and terms of the New Notes will be the same in all material
respects as the form and terms of Original Notes, except that the New Notes will
be registered under the Securities Act and hence will not bear legends
restricting the transfer thereof.
Holders of Original Notes do not have any appraisal or dissenters' rights
under the Indenture in connection with the Exchange Offer. The Company intends
to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement. Original Notes which are not tendered for
exchange or are tendered but not accepted in the Exchange Offer will remain
outstanding and be entitled to the benefits of the Indenture, but will not be
entitled to any registration rights under the Registration Rights Agreement.
The Company shall be deemed to have accepted validly tendered Original Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent for the Exchange Offer. The Exchange Agent will act as agent for
the tendering holders for the purposes of receiving the New Notes from the
Company.
If any tendered Original Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Original Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Original Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letters of Transmittal, transfer taxed with respect to the exchange of Original
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENTS
The Exchange Offer will expire at 5:00 p.m., New York City Time, on
September 12, 1997, which will be at least twenty (20) business days after the
date of this Prospectus subject to extension by the Company by notice to the
Exchange Agent as herein provided. The Issuer reserves the right to so extend
the Exchange Offer at its discretion, in which event the term "Expiration Date"
shall mean the time and date on which the Exchange Offer as so extended shall
expire. The Company will notify the Exchange Agent of any extension by oral or
written notice and will make a public announcement thereof, each prior to 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date.
The Company reserves the right (i) to delay accepting for exchange any
Original Notes for any New Notes or to extend or terminate the Exchange Offer
and not accept for exchange any Original Notes for
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any New Notes if any of the events set forth below under the caption "Conditions
of the Exchange Offer" shall have occurred and shall not have been waived by the
Company by giving oral or written notice of such delay or termination to the
Exchange Agent, or (ii) to amend the terms of the Exchange Offer in any manner.
Any such delay in acceptance for exchange, extension or amendment will be
followed as promptly as practicable by 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 in a manner
reasonably calculated to inform the holder of New Notes of such amendment and
the Company will extend the Exchange Offer for a period of five to 10 business
days, depending upon the significance of the amendment and the manner of
disclosure to the holders of the New Notes, if the Exchange Offer would
otherwise expire during the such five to 10 business-day period. The rights
reserved by the Company in this paragraph are in addition to the Company's
rights set forth below under the caption "Conditions of the Exchange Offer."
PROCEDURES FOR TENDERING
Only a holder of Original Notes may tender such Original Notes in the
Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign
and date the 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 Original Notes (unless such tender is being effected pursuant to the
procedure for book-entry transfer described below) and any other required
documents, to the Exchange Agent prior to 5:00 P.M., New York City time, on the
Expiration Date.
Any financial institution that is a participant in the Depositary's
Book-Entry Transfer Facility system may make book-entry deliver of the Original
Notes by causing the Depositary to transfer such Original Notes into the
Exchange Agent's account in accordance with the Depositary's procedure for such
transfer. Although delivery of Original notes may be effected through book-entry
transfer into the Exchange Agent's account at the Depositary, the Letter of
Transmittal (or facsimile thereof), with any required signature guarantees and
any other required documents, must, in any case, be transmitted to and received
or confirmed by the Exchange Agent at its addresses set forth in "Exchange
Agent" below prior to 5:00 P.M., New York City time, on the Expiration Date.
DELIVERY OF DOCUMENTS TO THE DEPOSITARY IN ACCORDANCE WITH ITS PROCEDURES DOES
NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The tender by a holder of Original Notes 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 Original Notes and the Letter of Transmittal and
all other required documents to the Exchange Agent is at the election and risk
of the holders. 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 Original Notes should be sent to the Company. Holders
may request their respective brokers, dealers, commercial banks, trust companies
or nominees to effect the tenders for such holders.
Signatures on a 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 Original Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal, or (ii) for 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 of a signature guarantee program
within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible
Institution").
If the Letter of Transmittal or any Original Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or
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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.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance and withdrawal of tendered Original 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
Original Notes not properly tendered or any Original 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 Original 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 Original Notes must be cured within such times as the
Company shall determine. Although the Company intend to request the Exchange
Agent to notify holders of defects or irregularities with respect to tenders of
Original Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Original Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Original Notes received by the
Exchange Agent 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
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
By tendering, each holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person receiving such New Notes,
whether or not such person is the holder and that neither the holder nor any
such other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes and that neither the holder
nor any such other person is an "affiliate", ad defined in Rule 405 under the
Securities Act, of the Company. If the holder is a broker-dealer that will
receive New Notes for its own account in exchange for Original Notes that were
acquired as a result of market-making activities or other trading activities,
such holder by tendering will acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Original Notes and (i) whose Original Notes
are not immediately available, or (ii) who cannot deliver their Original Notes
and other required documents to the Exchange Agent, or cannot complete the
procedure 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 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 Original Notes (if available) and the principal amount
of Original Notes tendered together with a duly executed Letter of
Transmittal (or a facsimile thereof), stating that the tender is being
made thereby and guaranteeing that, within three business days after the
Expiration Date, the certificate(s) representing the Original Notes to be
tendered in proper form for transfer (or a confirmation of a book-entry
transfer into the Exchange Agent's account at the Depositary of Original
Notes delivered electronically) with any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with
the Exchange Agent; and
(c) Such certificate(s) representing all tendered Original Notes in proper
form for transfer (or confirmation of a book-entry transfer into the
Exchange Agent's account at the Depositary of Original Notes delivered
electronically) and all other documents required by the Letter of
27
<PAGE>
Transmittal are received by the Exchange agent within three business days
after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holder who wish to tender their Original Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Original Notes may be
withdrawn at any time prior to 5:00 P.M., New York City time, on the Expiration
Date, unless previously accepted for exchange.
To withdraw a tender of Original Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 P.M., New York City time, on
the Expiration Date, and prior to acceptance for exchange thereof by the
Company. Any such notice of withdrawal must (i) specify the name of the person
having deposited the Original Notes to be withdrawn (the "Depositor"), (ii)
identify the Original Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Original Notes), (iii) be signed by the
Depositor in the same manner as the original signature on the Letter of
Transmittal by which such Original Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Original Notes registered the transfer of
such Original Notes into the name of the person withdrawing the tender, and (iv)
specify the name in which any such Original Notes are to be registered, if
different from that of the Depositor. All questions as to the validity, form and
eligibility (including time of receipt) of such withdrawal notices will be
determined by the Company, whose determination shall be final and binding on all
parties. Any Original Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no New Notes will be issued with
respect thereto unless the Original Notes so withdrawn are validly re-tendered.
Any Original Notes which have been tendered but which are not accepted for
exchange or which are withdrawn 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 Original Notes may be
re-tendered by following one of the procedures described above under "Procedures
for Tendering" at any time prior to the Expiration Date.
CONDITIONS OF THE EXCHANGE OFFER
In addition, and notwithstanding any other term of the Exchange Offer, the
Company will not be required to accept for exchange any Original Notes for any
New Notes tendered and may terminate or amend the Exchange Offer as provided
herein before the Expiration Date, if any of the following conditions exist:
(a) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency or regulatory authority with respect to
the Exchange Offer which, in the judgment of the Company, could
reasonably be expected to materially impair the ability of the Company to
proceed with the Exchange Offer or have a material adverse effect on the
contemplated benefits of the Exchange Offer to the Company; or
(b) there shall have occurred any change, or any development involving a
prospective change, in the business or financial affairs of the Company,
which in the judgment of the Company, could reasonably be expected to
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
(c) there shall have been proposed, adopted or enacted any law, statute,
rule or regulation which, in the judgment of the Company, could
reasonably be expected to materially impair the ability of the Company to
proceed with the Exchange Offer or have a material adverse effect on the
contemplated benefits of the Exchange Offer to the Company; or
28
<PAGE>
(d) there shall have occurred (i) any general suspension of, shortening of
hours for, or limitation on prices for trading in securities on the New
York Stock Exchange (whether or not mandatory), (ii) a declaration of a
banking moratorium or any suspension of payments in respect of banks by
Federal or state authorities in the United States (whether or not
mandatory), (iii) a commencement of a war, armed hostilities or other
international or national crisis directly or indirectly involving the
United States, (iv) any limitation (whether or not mandatory) by any
governmental authority on, or other event having a reasonable likelihood
of affecting, the extension of credit by banks or other lending
institutions in the United States, or (v) in the case of any of the
foregoing existing at the time of the commencement of the Exchange Offer,
a material acceleration or worsening thereof.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to such
conditions or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. If the Company waives or amends the
foregoing conditions, the Company will, if required by applicable law, extend
the Exchange Offer for a minimum of five business days from the date the Company
first give notice, by public announcement or otherwise, of such waiver or
amendment, if the Exchange Offer would otherwise expire within such five
business-day period. Any determination by the Company concerning the events
described above will be final and binding upon all parties.
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitation may be
made by telegraph, telephone 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, dealers or other
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. The
Company may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of this Prospectus, Letters of Transmittal and related documents to the
beneficial owners of the Original Notes and in handling or forwarding tenders
for exchange. The Company will pay the other expenses to be incurred in
connection with the Exchange Offer, including fees and expenses of the Trustee,
accounting and legal fees and printing costs.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Original Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Original 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 Original Notes tendered,
or if tendered Original 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 Original Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any to her persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE ORIGINAL NOTES
Generally, holders (other than any holder who is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) who exchange
their Original Notes for New Notes pursuant to the Exchange Offer may offer such
New Notes for resale, resell such New Notes, and otherwise transfer such
29
<PAGE>
New Notes without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided such New Notes are acquired in the
ordinary course of the holders' business, and such holders have no arrangement
with any person to participate in a distribution of such New Notes. Each
broker-dealer that receives New Notes for its own account in exchange for
Original Notes, where such Original 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 New Notes. See "Plan of Distribution." To comply with the securities laws
of certain jurisdictions, it may be necessary to qualify for sale or register
the New Notes prior to offering or selling such New Notes. Upon request by
Holders prior to the Exchange Offer, the Company will register or qualify the
New Notes in certain jurisdictions subject to the conditions in the Registration
Rights Agreement. If a holder does not exchange such Original Notes for New
Notes pursuant to the Exchange Offer, such Original Notes will continue to be
subject to the restrictions on transfer contained in the legend thereon and will
not have the benefit of any covenant regarding registration under the Securities
Act. In general, the Original Notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to the exemption from, or
in a transaction not subject to, the Securities Act and applicable state
securities laws. To the extent that Original Notes are tendered and accepted in
the Exchange Offer, a holder's ability to sell untendered Original Notes could
be adversely affected.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Original
Notes, as reflected in the Company's accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purpose will be recognized
by the Company upon the consummation of the Exchange Offer. The expenses of the
Exchange Offer will be amortized by the Company over the term of the New Notes
under generally accepted accounting principles.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange Agent
for the Exchange Offer. All correspondence in connection with the Exchange Offer
and the Letter of Transmittal should be addressed to the Exchange Agent, as
follows:
<TABLE>
<S> <C>
By Hand: By Overnight Courier/Mail:
United States Trust Company
United States Trust Company of New York
Of New York 770 Broadway, 13th Floor
Corporate Trust Window New York, New York 10007
111 Broadway, Lower Level Attention: Corporate Trust
New York, New York 10006 Department
</TABLE>
Facsimile Transmission:
(212) 780-0592
(For Eligible Institutions Only)
Confirm by Telephone:
(800) 548-6565
Requests for additional copies of this Prospectus or the Letter of
Transmittal should be directed to the Exchange Agent.
30
<PAGE>
THE ACQUISITIONS
On April 2, 1997, AGI acquired the stock of Camping World. The consideration
for the Camping World acquisition consisted of $108.0 million in cash at
closing, including $19.0 million for non-competition and consulting agreements
with certain Camping World executives. In addition, the Company entered into
management incentive agreements with certain Camping World executives pursuant
to which up to an additional $15.0 million will be paid subsequent to closing
subject to Camping World achieving certain operating goals. Such contingent
amounts will be payable in $1.0 million annual installments on the first four
anniversaries of the closing and $11.0 million on the fifth anniversary of the
closing. This obligation is treated as indebtedness of the Company at its
discounted present value ($10.0 million as of the closing). The purchase price
for the Camping World will be subject to certain adjustments. As a result of the
acquisition of Camping World, David B. Garvin, the Chairman and founder of
Camping World, and Thomas A. Donnelly, the President of Camping World, have
joined the Company's Board of Directors.
On March 6, 1997, AGI acquired the stock of Ehlert for $22.3 million, of
which $20.8 million was paid in cash at closing. In addition, the Company issued
a note for $1.5 million to the seller (the "Ehlert Note"), of which $1.0 million
was recently paid. The balance of the Ehlert Note is payable on March 6, 1999
together with interest at 5% per annum. In addition, AGI entered into
non-competition agreements with Ehlert's principal stockholders for $200,000
payable in twelve equal monthly installments following closing. As a result of
the acquisition of Ehlert, John Ehlert, the founder and principal stockholder of
Ehlert, joined the Company's Board of Directors.
31
<PAGE>
USE OF PROCEEDS
Neither the Company nor any of its subsidiaries will receive any proceeds as
a result of the exchange of the Original Notes for the New Notes. The Company
used the proceeds from the sale of the Original Notes, net of discounts, closing
costs and repayment of approximately $7.5 million of the Company's indebtedness
to make an equity capital contribution to AGI. AGI used such contribution
together with borrowings under the AGI Credit Facility to pay the cash portion
of the consideration for the Acquisitions and related transaction fees and
expenses.
The following table sets forth the estimated sources and uses of funds in
connection with the Acquisitions and the Private Offering:
<TABLE>
<S> <C>
Sources:
AGI Credit Facility (1)..................................... $30,000,000
Original Notes.............................................. 130,000,000
Acquisition earnest money deposits (2)...................... 3,500,000
Ehlert Note (3)............................................. 1,500,000
-----------
Total sources........................................... $165,000,000
-----------
-----------
Uses:
Repayment of AGI's existing credit facility (4)............. $26,050,000
Camping World acquisition (5)............................... 108,000,000
Ehlert acquisition (6)...................................... 22,300,000
Repayment of 9% subordinated note (7)....................... 2,500,000
Transaction fees and expenses (8)........................... 6,150,000
-----------
Total uses.............................................. $165,000,000
-----------
-----------
</TABLE>
- ------------------------
(1) Simultaneous with completion of the Private Offering, AGI entered into the
AGI Credit Facility which provides a senior secured credit facility
consisting of a revolving line of credit of $45.0 million and a term loan of
$30.0 million. See "Description of Other Indebtedness AGI--Credit Facility."
(2) Consists of a $2.5 million earnest money deposit made in connection with the
Camping World acquisition and a $1.0 million earnest money deposit made in
connection with the Ehlert acquisition. See Notes (6) and (7) below.
(3) The Company paid a portion of the consideration for the Ehlert acquisition
by issuance of the Ehlert Note. On April 2, 1997, the Company repaid $1.0
million of the Ehlert Note and the balance of $0.5 million is due on March
6, 1999 together with interest at 5% per annum. The Ehlert Note is subject
to reduction for any adjustments to the purchase price for Ehlert and may be
offset against for indemnity claims under the acquisition agreement.
(4) Subsequent to December 31, 1996, AGI borrowed an additional $1.0 million
under its existing credit facility to fund a portion of the earnest money
deposit made in February 1997 in connection with the execution of the
acquisition agreement for Camping World. As a result the amount to be repaid
under AGI's existing credit facility has been increased by $1.0 million from
the amount outstanding at December 31, 1996.
(5) Includes $19.0 million of non-competition and consulting payments made at
closing of the Camping World acquisition. Does not include management
incentive payments to certain Camping World executives in the aggregate of
up to $15.0 million which are payable $1.0 million per year on the first
four anniversaries of the closing of the Camping World acquisition and $11.0
million on the fifth anniversary, subject to achieving certain operating
results for Camping World.
32
<PAGE>
(6) Includes repayment of a bridge loan (bearing interest at the rate of 9% per
annum) of $4.0 million from Holding, the proceeds of which were used to pay
a portion of the cash consideration for Ehlert. See Note (8) below. Of the
$22.3 million purchase price for Ehlert, $20.8 million was paid in cash at
closing and the balance by issuance of the Ehlert Note by the Company. See
Note (3) above. Does not include $200,000 in non-compete payments to the
principal shareholders of Ehlert which are payable in twelve equal monthly
installments following the Ehlert closing.
(7) The 9% subordinated note due December 31, 1998 is held by an affiliate of
several of the Initial Purchasers, the proceeds of which were used to fund a
portion of the earnest money deposits for the Acquisitions. See Note (8)
below.
(8) Represents estimated transaction fees and expenses, including the Initial
Purchasers' discount, printing expenses, attorneys' fees, accounting fees,
and interest related to the bridge loan, the 9% subordinated note and the
Ehlert acquisition.
33
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1997 and as adjusted to reflect the Private Offering and the Acquisitions.
This table should be read in conjunction with the "Use of Proceeds," "Selected
Financial Data" and the financial statements contained herein.
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total debt (including current portion of long-term debt):
AGI's existing credit facility......................................................... $ 38,600 --
AGI Credit Facility.................................................................... -- $ 30,000(1)
Mortgages and other long-term obligations.............................................. 2,178 2,178
AGI Notes.............................................................................. 120,000 120,000
Original Notes......................................................................... -- 130,000
Holding Corp. Note..................................................................... 4,000 --
Citicorp Note.......................................................................... 2,500 --
Ehlert Note............................................................................ 1,500 500(2)
Management incentive................................................................... -- 10,000(3)
---------- -----------
Total debt........................................................................... $ 168,778 $ 292,678
Stockholder's deficit:
Common stock, $.01 par value, 1,000 shares authorized, 100 shares outstanding.......... 1 1
Additional paid-in capital............................................................. 12,021 12,021
Accumulated deficit.................................................................... (90,860) (90,860)
---------- -----------
Total stockholder's deficit.......................................................... (78,838) (78,838)
---------- -----------
Total capitalization............................................................... $ 89,940 $ 213,840
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) Simultaneous with completion of the Private Offering, AGI entered into the
AGI Credit Facility which provides a senior secured credit facility
consisting of a revolving line of credit of $45.0 million and a term loan of
$30.0 million. If the Acquisitions, the Private Offering and the AGI Credit
Facility were consummated at March 31, 1997, AGI would have had $30.0
million outstanding under the AGI Credit Facility and $45.0 million of
undrawn commitments under the revolving line of credit. Of such undrawn
commitments, $24.5 million could have been borrowed under the limitations on
additional indebtedness in the AGI Indenture. The AGI Credit Facility
expires March 31, 2002. See "Use of Proceeds," "Management's Discussion and
Analysis and Analysis of Financial Condition and Results of
Operation--Liquidity and Capital Resources," and "Description of Other
Indebtedness--AGI Credit Facility."
(2) The Ehlert Note was issued by the Company as a portion of the purchase price
for the Ehlert acquisition. On April 2, 1997, the Company repaid $1.0
million of the Ehlert Note and the balance of the $0.5 million is due on
March 6, 1999 together with interest at 5% per annum. The Ehlert Note is
subject to reduction for adjustments to the purchase price for Ehlert and
may be offset against for indemnity claims under the acquisition agreement.
(3) Consists of (i) the present value (using a 10% discount rate) of the $15.0
million in management incentive payments to certain Camping World executives
which are, subject to achievement of certain operating results for Camping
World, payable $1.0 million per year on the first four anniversaries of the
closing of the Camping World acquisition and $11.0 million on the fifth
anniversary. Non-compete payments of $200,000 to the principal shareholders
of Ehlert which are payable in twelve equal monthly installments following
the Ehlert closing are included in accrued liabilities.
34
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data of the Company for each of the five years ended
December 31, 1996 and as of December 31 for each year are derived from the
audited consolidated financial statements of the Company. The selected financial
data of the Company for the three months ended March 31, 1996 and 1997 are
derived from unaudited consolidated financial statements. The unaudited
consolidated financial statements include all adjustments, consisting of normal
and recurring accruals, considered necessary for a fair presentation of the
financial position and the results of operations for these periods. The results
of operations for the years ended December 31, 1994 and 1995 and the three
months ended March 31, 1996 have been restated to give effect to the
reclassification of NAFE as a discontinued operation. The selected financial
data of the Company should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements and the notes thereto included elsewhere
herein.
The selected financial data of Camping World for each of the five years
ended September 30, 1996 and as of September 30 for each year are derived from
the audited consolidated financial statements of Camping World. The selected
financial data of Camping World for the six months ended March 31, 1996 and 1997
and as of March 31, 1996 and 1997 are derived from the unaudited consolidated
financial statements. The unaudited consolidated financial statements include
all adjustments, consisting of normal and recurring accruals, considered
necessary for a fair presentation of the financial position and the results of
operations for these periods. The selected financial data should be read in
conjunction with the Consolidated Financial Statements of Camping World and
notes thereto included elsewhere herein.
35
<PAGE>
AFFINITY GROUP HOLDING, INC.
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1992 1993 1994(1) 1995(1) 1996 1996 (1) 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Membership services revenues....... $ 80,491 $ 86,405 $ 91,185 $ 99,194 $ 98,901 $ 23,399 $ 24,250
Publications revenues.............. 24,561 29,224 37,601 40,043 41,078 8,194 9,733
--------- --------- --------- --------- --------- --------- ---------
Total revenues..................... 105,052 115,629 128,786 139,237 139,979 31,593 33,983
Membership services expense........ 45,595 47,751 51,795 54,203 57,003 13,589 14,545
Publications expense............... 18,847 22,157 27,148 29,700 29,571 7,548 7,705
--------- --------- --------- --------- --------- --------- ---------
Gross profit....................... 40,610 45,721 49,843 55,334 53,405 10,456 11,733
General and administrative......... 12,907 13,113 13,615 18,376 16,326 3,908 4,225
Depreciation and amortization...... 11,574 11,396 11,020 9,013 8,340 2,057 2,093
Other operating expenses........... 1,500 1,531 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses........... 25,981 26,040 24,635 27,389 24,666 5,965 6,318
Income from operations............. 14,629 19,681 25,208 27,945 28,739 4,491 5,415
Interest expense, net debt......... (15,191) (13,111) (16,716) (16,433) (16,518) (4,176) (4,153)
Interest expense warrants.......... (18,257) (6,990) -- -- -- -- --
Other non-operating expense, net... (331) (550) (811) (1,579) (996) -- 8
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing
operations before income taxes... (19,150) (970) 7,681 9,933 11,225 315 1,270
Income tax benefit (expense)....... (375) 1,970 13,255 (5,047) (6,144) (139) (674)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing
operations....................... $ (19,525) $ 1,000 $ 20,936 $ 4,886 $ 5,081 $ 176 $ 596
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Ratio of earnings to fixed
charges (2)...................... -- -- 1.43 1.58 1.66 1.07 1.30
BALANCE SHEET DATA (AT PERIOD END):
Working capital (deficit) (3)...... $ (4,165) $ (3,105) $ (4,122) $ (4,265) $ (13,444) $ (8,940) $ (13,243)
Total assets....................... 175,044 166,620 180,790 197,699 184,128 187,412 216,542
Deferred revenues (4).............. 62,729 67,236 67,448 68,702 70,113 70,359 73,285
Total debt......................... 151,624 160,643 157,270 164,496 147,375 156,123 168,778
Warrants subject to put rights..... 25,645 -- -- -- -- -- --
Total stockholder's (deficit)...... (82,672) (89,072) (74,279) (77,963) (79,434) (77,871) (78,838)
OTHER DATA:
EBITDA (5)......................... $ 26,203 $ 31,077 $ 36,228 $ 36,958 $ 37,079 $ 6,548 $ 7,508
EBITDA margin...................... 24.94% 26.88% 28.13% 26.54% 26.49% 20.73% 22.09%
Capital expenditures............... $ 1,027 $ 2,680 $ 3,167 $ 4,713 $ 1,743 $ 376 $ 562
Cash flow provided by (used in):
Operating activities............. $ 25,598 $ 17,512 $ 23,801 $ 13,723 $ 16,393 $ 4,530 $ 6,737
Investing activities............. (3,159) (2,013) (22,293) (8,671) (2,832) 3,142 (21,967)
Financing activities............. (15,879) (17,625) (10,883) (1,774) (13,116) (7,756) 22,664
STATISTICAL DATA:
Total club membership.............. 1,286,800 1,341,800 1,345,000 1,316,634 1,304,828 1,312,176 1,314,418
Total paid magazine circulation.... 569,000 560,500 598,000 578,504 578,625 603,773 651,485
</TABLE>
- ------------------------
(1) Restated to give effect to the reclassification of NAFE as a discontinued
operation.
(2) Earnings consist of income from continuing operations before income taxes
plus fixed charges. The Company's fixed charges consist of interest expense,
net plus amortization of deferred financing costs.
36
<PAGE>
Earnings were not sufficient to cover fixed charges by $19,150,000 and
$970,000 for the years ended December 31, 1992 and 1993, respectively.
(3) Includes customer deposits recorded as current liabilities by Affinity
Thrift and Loan at December 31, 1995 and 1996, and March 31, 1996 and 1997
of $11.0 million, $15.0 million, $11.6 million and $17.7 million,
respectively.
(4) Deferred revenues represent cash received by AGI in advance of the
recognition of revenues in accordance with generally accepted accounting
principles. Deferred revenues primarily reflect club membership dues, annual
ERS fees and publication subscriptions. These revenues are recognized at the
time the goods or services are provided or over the membership period which
is generally over a twelve month period.
(5) "EBITDA" represents income from operations plus depreciation and
amortization. The Company has included information concerning EBITDA as it
understands that it is used by certain investors as one measure of an
issuer's ability to service or incur indebtedness. EBITDA should not be
construed as an alternative to operating income (as determined in accordance
with generally accepted accounting principles) as an indicator of the
Company's performance or to cash flows from operating activities (as
determined in accordance with generally accepted accounting principles) as a
measure of liquidity.
37
<PAGE>
CAMPING WORLD, INC.
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Merchandise sales........................ $ 112,088 $ 129,612 $ 137,712 $ 143,344 $ 147,255 $ 59,065 $ 62,954
Other revenues........................... 9,910 12,978 16,321 19,079 22,515 9,695 10,812
--------- --------- --------- --------- --------- --------- ---------
Total revenues........................... 121,998 142,590 154,033 162,423 169,770 68,760 73,766
Gross profit............................. 41,710 47,718 53,936 57,472 61,001 25,071 25,752
Selling, general and administrative
expense................................ 31,930 38,846 42,748 47,531 48,795 22,334 25,089
Compensation expense--redemption of stock
options................................ -- -- -- -- -- -- 2,843
Depreciation and amortization............ 2,273 2,459 2,007 2,137 2,380 1,087 1,408
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations............ 7,507 6,413 9,181 7,804 9,826 1,650 (3,588)
Interest expense, net.................... (5,081) (4,583) (3,962) (3,424) (3,078) (1,666) (1,668)
Other non-operating expense.............. (490) (89) (144) -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes........ 1,936 1,741 5,075 4,380 6,748 (16) (5,256)
Income tax benefit (expense)............. (794) (714) (2,081) (1,796) (2,773) 7 2,024
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary item
of $346 in 1994........................ $ 1,142 $ 1,027 $ 2,994 $ 2,584 $ 3,975 $ (9) $ (3,232)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
BALANCE SHEET DATA AT PERIOD END:
Working capital.......................... $ 7,311 $ 6,925 $ 5,390 $ 4,242 $ 6,110 $ 2,492 $ 1,800
Property and equipment, net.............. 27,832 27,993 28,221 29,118 32,005 33,467 31,967
Total assets............................. 64,333 64,622 68,005 71,172 77,698 78,185 83,733
Total debt............................... 39,397 36,513 33,658 30,919 33,623 38,067 36,226
Shareholders' equity..................... 6,898 7,926 10,565 12,654 16,669 12,644 13,437
OTHER DATA:
EBITDA (1)............................... $ 10,064 $ 9,274 $ 11,559 $ 10,359 $ 12,688 $ 2,916 $ 892
EBITDA margin............................ 8.25% 6.51% 7.50% 6.38% 7.47% 4.24% 1.21%
Gross profit............................. 34.19% 33.47% 35.02% 35.38% 35.93% 36.46% 34.91%
Capital expenditures..................... $ 1,321 $ 1,878 $ 1,655 $ 3,266 $ 5,109 $ 2,980 $ 1,862
Cash flow provided by (used in):
Operating activities................... $ 2,792 $ 2,796 $ 5,973 $ 7,537 $ 3,334 $ (869) $ 2,206
Investing activities................... 4,433 998 (1,511) (3,865) (4,862) (4,837) (1,894)
Financing activities................... (8,263) (3,067) (4,708) (2,949) 2,740 6,785 2,583
RETAIL STORE OPERATING DATA:
Retail stores at period end (2).......... 21 23 23 24 27 25 27
Retail store sales....................... $ 88,548 $ 101,155 $ 108,572 $ 109,783 $ 111,971 $ 46,825 $ 49,288
Percent of retail store sales to club
members................................ 78.70% 79.20% 81.00% 83.30% 84.30% 82.87% 85.12%
Comparable store sales increase
(decrease)............................. (0.70)% 6.50% 6.20% (0.70)% (4.80)% 3.58% 0.14%
CATALOG STATISTICAL DATA:
Catalogs distributed during period (000
omitted)............................... 8,076 8,783 9,292 9,573 9,075 4,324 4,405
Mail order sales......................... $ 23,540 $ 28,457 $ 29,140 $ 33,561 $ 35,284 $ 12,240 $ 13,666
Percent of mail order sales to club
members................................ 82.90% 88.70% 87.10% 86.10% 88.10% 87.27% 86.78%
Orders processed during period........... 329,000 386,000 386,600 426,000 420,000 138,671 161,989
Catalog response rate.................... 4.10% 4.40% 4.20% 4.50% 4.60% 3.23% 3.68%
Average order size (in dollars).......... $ 72 $ 74 $ 75 $ 79 $ 84 $ 88 $ 84
</TABLE>
- ------------------------------
(1) "EBITDA" represents income (loss) from operations plus depreciation and
amortization, purchase discounts equal to $284,000 in 1992, $402,000 in
1993, $371,000 in 1994, $418,000 in 1995, $482,000 in 1996 and $179,000 and
$229,000 for the six months ended March 31, 1996 and 1997, respectively,
which were recorded as interest income in the Camping World statement of
operations and redemption of stock option expense. The Company has included
information concerning EBITDA as it understands that it is used by certain
investors as one measure of an issuer's ability to service or incur
indebtedness. EBITDA should not be construed as an alternative to operating
income (as determined in accordance with generally accepted accounting
principles) as an indicator of Camping World's performance or to cash flows
from operating activities (as determined in accordance with generally
accepted accounting principles) as a measure of liquidity.
(2) Includes supercenters and one 1,800 square foot retail showroom located
within the Bakersfield, California distribution center.
38
<PAGE>
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited pro forma combined financial statements presented below for
the year ended December 31, 1996 and the three months ended March 31, 1997 are
derived from the Company's Consolidated Financial Statements and the notes
thereto, Camping World's Consolidated Financial Statements and the notes thereto
and Ehlert's Consolidated Financial Statements and the notes thereto, all of
which, with the exception of Ehlert's Consolidated Financial Statements, are
included elsewhere herein. This summary should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Company's Consolidated Financial Statements and the related
notes thereto, and Camping World's Consolidated Financial Statements and the
notes thereto. The unaudited pro forma combined statement of operations has been
adjusted to give pro forma effect to (i) the Private Offering and the
application of the net proceeds therefrom, (ii) the Acquisitions, and (iii)
identified cost savings, as if they had occurred as of January 1, 1996. The
unaudited pro forma combined balance sheet has been adjusted to give pro forma
effect to (i) the Private Offering and the application of the net proceeds
therefrom and (ii) the Acquisitions, as if they had occurred as of March 31,
1997.
The Acquisitions will be accounted for using the purchase method of
accounting. Under purchase accounting, the total purchase price and fair value
of liabilities assumed will be allocated to the tangible and intangible assets
and liabilities based on their respective fair values as of the closing of such
acquisitions. The unaudited pro forma combined balance sheet reflects
preliminary estimates, which are subject to final determinations of the
allocation of the purchase price. The pro forma adjustments represent
management's preliminary determination of purchase accounting adjustments and
are based upon available information and certain assumptions that the Company
considers reasonable under the circumstances. Consequently, the amounts
reflected in the unaudited pro forma combined balance sheet are subject to
change. Management does not expect that differences between the preliminary and
final purchase price allocation will have a material impact on the Company's
financial position and/or results of operations.
The unaudited pro forma combined financial statements do not purport to be
indicative of the results that would have been obtained had the above-described
transactions been completed on the indicated dates or that may be obtained in
the future.
39
<PAGE>
PRO FORMA COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------------------------------------
CAMPING PRO FORMA
COMPANY WORLD ADJUSTMENTS COMBINED
---------- --------- -------------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents....................................... $ 11,712 $ 6,680 $ -- $ 18,392
Inventories..................................................... 1,657 31,331 189(1) 33,177
Other current assets............................................ 24,169 5,410 -- 29,579
---------- --------- -------------- -----------
Total current assets............................................ 37,538 43,421 189 81,148
Property and equipment.......................................... 10,860 31,967 10,000(2) 52,827
Intangible assets............................................... 133,139 6,088 69,582(3) 208,809
Other non-current assets........................................ 35,005 2,257 (1,884)(4) 35,378
---------- --------- -------------- -----------
Total assets.................................................... $ 216,542 $ 83,733 $ 77,887 $ 378,162
---------- --------- -------------- -----------
---------- --------- -------------- -----------
Short-term debt and current portion of long-term debt........... $ 5,291 $ 13,264 $ (10,364)(5) $ 8,191
Other current liabilities....................................... 45,490 26,014 (350)(6) 71,154
---------- --------- -------------- -----------
Total current liabilities....................................... 50,781 39,278 (10,714) 79,345
Deferred revenue, including current portion..................... 73,285 2,931 -- 76,216
Long-term debt, net of current portion.......................... 163,487 22,963 98,038(5) 284,488
Other non-current liabilities................................... 7,827 5,124 4,000(7) 16,951
Stockholder's equity (deficit).................................. (78,838) 13,437 (13,437)(8) (78,838)
---------- --------- -------------- -----------
Total liabilities and stockholder's equity (deficit)............ $ 216,542 $ 83,733 $ 77,887 $ 378,162
---------- --------- -------------- -----------
---------- --------- -------------- -----------
</TABLE>
40
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996(9)
-----------------------------------------------------------
CAMPING PRO FORMA
COMPANY WORLD EHLERT ADJUSTMENTS COMBINED
---------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net revenues............................ $ 139,979 $ 169,770 $ 14,249 $ $ 323,998
Cost applicable to net revenues......... 86,574 108,769 7,209 (5,182) 10) 197,370
---------- ---------- --------- ----------- -----------
Gross profit............................ 53,405 61,001 7,040 5,182 126,628
Selling, general and administrative
expense............................... 16,326 48,795 4,797 (997) 11) 68,921
Depreciation and amortization........... 8,340 2,380 178 3,851 (12 14,749
---------- ---------- --------- ----------- -----------
Income from operations.................. 28,739 9,826 2,065 2,328 42,958
Interest expense, net................... (16,518) (3,078) (15) (12,186) 13) (31,797)
Other non-operating expense, net........ (996) -- 48 (948)
---------- ---------- --------- ----------- -----------
Income from continuing operations before
income taxes.......................... 11,225 6,748 2,098 (9,858) 10,213
Income tax expense...................... (6,144) (2,773) -- 3,810 (14 (5,107)
---------- ---------- --------- ----------- -----------
Income from continuing operations....... $ 5,081 $ 3,975 $ 2,098 $ (6,048) $ 5,106
---------- ---------- --------- ----------- -----------
---------- ---------- --------- ----------- -----------
OTHER DATA:
EBITDA(15).............................. $ 37,079 $ 12,688 $ 2,243 $ 6,179 $ 58,189
EBITDA margin........................... 26.49% 7.47% 15.74% 17.96%
Capital expenditures.................... $ 1,743 $ 5,109 $ 32 $ 6,884
Cash flow provided by (used in):
Operating activities.................. $ 16,393 $ 3,334 $ 1,579 $ (6,007) $ 15,299
Investing activities.................. (2,832) (4,862) (32) (109,482) (117,208)
Financing activities.................. (13,116) 2,740 (1,790) 109,482 97,316
RATIO DATA:
EBITDA to interest expense, net......................................................... 1.83x
EBITDA less capital expenditures to interest expense, net............................... 1.61
Total debt to EBITDA.................................................................... 5.05
</TABLE>
41
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
-------------------------------------------------------------
CAMPING PRO FORMA
COMPANY WORLD EHLERT(16) ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net revenues........................... $ 33,983 $ 40,188 $ 2,285 $ -- $ 76,456
Cost applicable to net revenues........ 22,250 26,443 1,262 (1,295) 10) 48,660
---------- ---------- ----------- ----------- -----------
Gross profit........................... 11,733 13,745 1,023 1,295 27,796
Selling, general and administrative
expense.............................. 4,225 13,005 973 (249) 11) 17,954
Compensation expense-- redemption of
stock options........................ -- 2,843 -- -- 2,843
Depreciation and amortization.......... 2,093 665 33 963(12) 3,754
---------- ---------- ----------- ----------- -----------
Income from operations................. 5,415 (2,768) 17 581 3,245
Interest expense, net.................. (4,153) (909) 2 (2,958) 13) (8,018)
Other non-operating expense, net....... 8 -- -- -- 8
---------- ---------- ----------- ----------- -----------
Income from continuing operations
before income taxes.................. 1,270 (3,677) 19 (2,377) (4,765)
Income tax expense..................... (674) 1,417 -- 1,639(14) 2,382
---------- ---------- ----------- ----------- -----------
Income from continuing operations...... $ 596 $ (2,260) $ 19 $ (738) $ (2,383)
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
OTHER DATA:
EBITDA(15)............................. $ 7,508 $ 813 $ 50 $ 1,544 $ 9,915
EBITDA margin.......................... 22.09% 2.02% 12.97%
Capital expenditures................... $ 562 $ 940 $ -- $ 1,502
Cash flow provided by (used in):
Operating activities................. $ 6,737 $ 5,494 $ (101) $ (1,414) $ 10,716
Investing activities................. (21,967) (969) (40) (86,750) (109,726)
Financing activities................. 22,664 952 -- 87,674 111,290
RATIO DATA:
EBITDA to interest expense, net.......................................................... 1.24
EBITDA less capital expenditures to interest expense, net................................ 1.05
</TABLE>
42
<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(UNAUDITED)
Pro forma adjustments reflect estimates which will be refined as additional
information is obtained, particularly in the areas of fair value of property and
equipment and related depreciation expense, and any adjustment to be made to the
purchase price in accordance with the purchase agreements.
Pro forma adjustments have been made to the Pro Forma Combined Balance Sheet
to reflect the following:
(1) Record write-up of Camping World inventory from LIFO cost to estimated fair
value in accordance with the purchase method of accounting.
(2) Record write-up in Camping World property and equipment acquired to
estimated fair market value in accordance with the purchase method of
accounting. The purchase price allocation to property and equipment,
excluding land, will be amortized over the estimated useful lives ranging
from 3 to 25 years.
(3) Elimination of previously recorded Camping World goodwill ($6.1 million)
and the recording of goodwill, noncompete, consulting and management
incentive payments and fees and expenses resulting from the Acquisitions in
accordance with the purchase method of accounting. Goodwill will be
amortized on a straight line basis over 40 years. Noncompete and consulting
agreements will be amortized over the terms of the agreements, fifteen
years. Financing costs will be amortized over the life of the debt (5 to 10
years).
(4) Elimination of previously recorded Camping World deferred financing cost.
(5) Record issuance of debt in connection with the repayment of AGI's existing
credit facility and the Acquisitions consisting of $130.0 million of the
Notes, $30.0 million of borrowings under the AGI Credit Facility in
connection with the repayment of AGI's existing credit facility and the
Acquisitions, $10.0 million of discounted management incentive payments and
the Ehlert Note, net of Camping World's long-term debt to be paid at
closing.
(6) Elimination of Camping World liabilities to be paid at closing.
(7) Establishment of deferred income tax liability in accordance with the
purchase method accounting.
(8) Elimination of shareholders' equity in accordance with the purchase method
of accounting.
Pro forma adjustments have been made to the Pro Forma Combined Statement of
Operations to reflect the following:
(9) Amounts for Camping World are for its fiscal year ended September 30, 1996.
(10) Pro forma results include estimated cost savings which the Company expects
to realize through: specific headcount reductions undertaken at AGI in
anticipation of the Camping World acquisition; reductions in redundant costs
associated with member acquisition, retention and renewal efforts
principally related to reduced printing, paper, and fulfillment and mailing
expenses; consolidation of the emergency road service programs; and
consolidation of publishing operations. Although management intends to
implement its cost savings prudently, there can be no assurance that all of
the anticipated cost savings associated with these measures will be
realized.
43
<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- -------------------
<S> <C> <C>
Headcount reduction--salaries......................... $ 2,250(a) $ 562(c)
Headcount reduction benefits.......................... 563(a) 141(c)
Reduction in redundant cost associated with member
acquisition, retention, renewals and magazine
production.......................................... 2,369(b) 592(c)
------ ------
$ 5,182 $ 1,295
------ ------
------ ------
</TABLE>
- ------------------------
(a) In anticipation of the Camping World acquisition, AGI eliminated 58
employees in December 1996 resulting in annual pro forma savings of
$2,250 in salary expense and an estimated $563 of related benefits
expense savings.
(b) The Company estimates that it can achieve $2,369 in annual cost savings
from the following:
- As a result of the estimated 250,000 overlapping club members in the
Good Sam Club and the President's Club and through availability of
lower cost channels from which to solicit club members, the Company
expects to realize $1,474 in annual savings on printing, fulfillment
and mailing expenses.
- The Company expects to realize $387 in annual savings as a result of
the consolidation of its emergency road service program.
- Through the consolidation of publishing operations, the Company
expects to realize $508 in savings principally on paper costs.
(c) Represents 25% of annual cost savings as they are anticipated to occur
evenly throughout the year.
(11) Elimination of Ehlert salaries, incentives, travel, entertainment,
insurance, automobile and 401(k) costs.
(12) Record incremental amortization of intangible assets over 5 to 40 years and
depreciation on write-up of property and equipment.
(13) Record incremental interest expense:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- -------------------
<S> <C> <C>
Notes at 11%.......................................... $ 14,300 $ 3,575
Increase in senior secured indebtedness at 8.5%....... 421 105
Discounted management incentive payments at 10% and
other............................................... 1,040 260
------- ------
15,761 3,940
Less: interest on acquired indebtedness repaid at
closing............................................. (3,575) (982)
------- ------
$ 12,186 $ 2,958
------- ------
------- ------
</TABLE>
(14) Record income tax effect on pro forma combined operations at an assumed
effective rate of 50%.
44
<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(UNAUDITED)
(15) EBITDA represents income from operations plus depreciation, amortization,
purchase discounts and redemption of stock option expense. See Note 2 to
"Selected Financial Data--Camping World, Inc." The Company has included
information concerning EBITDA as it understands that it is used by certain
investors as one measure of an issuer's ability to service or incur
indebtedness. EBITDA should not be construed as an alternative to operating
income (as determined in accordance with generally accepted accounting
principles) as an indicator of the Company's performance or to cash flows
from operating activities (as determined in accordance with generally
accepted accounting principles) as a measure of liquidity.
(16) For Ehlert, the operations data for the three months ended March 31, 1997
is for the period January 1, 1997 through March 5, 1997. Operating results
from March 6, 1997, the acquisition date, through March 31, 1997 are
included in the Company data.
45
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion is based on the Company's Consolidated Financial
Statements included elsewhere herein. The Company's revenues are derived
principally from membership services, including club membership dues and
marketing fees paid to the Company for services provided by third parties, and
from publications, including subscriptions and advertising. In the fourth
quarter of 1996, the Company adopted a plan to dispose of the operations of the
NAFE club which was acquired in 1994. The "Results of Operations" discussion
below excludes the operations of NAFE since it has been classified as a
discontinued operation. During the three years ended December 31, 1996, the
Company completed three other acquisitions: (i) Woodall Publishing, a publisher
of an annual campground directory and other camping and RV publications, in May
1994, (ii) AINS, an insurance company domiciled in the state of Colorado, in
June 1995, and (iii) ATL, a thrift and loan company based in California, in
October 1995.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1996
REVENUES
Revenues of $34.0 million for the first quarter of 1997 increased by
approximately $2.4 million or 7.6% from the comparable period in 1996. Excluding
the Ehlert operations acquired March 6, 1997, revenues were $32.8 million for
the first quarter of 1997 compared to $31.6 million for the comparable period in
1996, a 3.8% increase.
Membership services revenue of $24.3 million for the first quarter of 1997
increased by approximately $0.9 million from the comparable period in 1996 due
to a $1.0 million revenue increase from the new extended vehicle warranty
program, partially offset by a $0.4 million decrease in club membership revenue.
The decrease in club membership revenue resulted from reduced membership
enrollment in the Coast to Coast clubs and the Coast to Coast annual rally being
held in the second quarter of 1997 compared to the first quarter of 1996. This
decrease was only partially offset by revenue increases in the Good Sam Club.
Publication revenue of $9.7 million for the first quarter of 1997 increased
by $1.5 million from the comparable period in 1996. This revenue increase was
primarily due to $1.2 million in additional revenue from Ehlert acquired in
March 1997, and from increased book sales.
COSTS APPLICABLE TO REVENUES
Costs applicable to revenues totaled $22.3 million for the first quarter of
1997, an increase of $1.1 million or 5.3% over the comparable period in 1996.
Excluding the Ehlert operations acquired in March 1997, costs applicable to
revenues increased only $0.2 million for the first quarter of 1997 versus the
first quarter of 1996.
Membership services costs and expenses increased by approximately $1.0
million or 7.0% to $14.6 million in the first quarter of 1997 compared to $13.6
million in 1996. This increase was largely a result of expenses associated with
the new extended vehicle warranty program, marketing expenses relating to a
credit card member benefit program introduced in the fourth quarter of 1996 and
increased emergency road service program expenses. These increases were only
partially offset by reduced club membership costs.
Publication costs and expenses of $7.7 million for the first quarter of 1997
increased $0.2 million or 2.1% compared to the first quarter of 1996. Excluding
the Ehlert operations acquired in March 1997, costs decreased by $0.7 million
over the comparable period in 1996. This decrease is primarily due to lower
46
<PAGE>
CAMPGROUND DIRECTORY expenses, changing the annual issue of TOURING RIDER to the
second quarter in 1997 compared to the first quarter for 1996 and reduced paper
costs realized in the first quarter of 1997 as a result of paper contract
renegotiations.
OPERATING EXPENSES
General and administrative expenses of $4.2 million for the first quarter of
1997 were $0.3 million over the first quarter of 1996 due to additional Ehlert
expenses of $0.2 million and $0.3 million in accrued phantom stock expenses in
the first quarter of 1997 which were only partially offset by a net reduction in
other general and administrative expenses compared to the first quarter of 1996.
Depreciation and amortization expenses of $2.1 million were approximately the
same as the first quarter of 1996.
INCOME FROM OPERATIONS
Income from operations for the first quarter of 1997 increased by $0.9
million or 20.6% to $5.4 million compared to $4.5 million for the first quarter
of 1996. This increase was primarily due to a $1.4 million increase in gross
profit from publications which were only partially offset by a $0.4 million
increase in operating expenses.
NON-OPERATING EXPENSES
Non-operating expenses were $4.1 million for the first quarter of 1997,
compared to $4.2 million for the same period in 1996 due to slightly higher
interest rates on lower average borrowings during the first quarter of 1997.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations before income taxes in the first quarter
of 1997 was $1.3 million compared to $0.3 million for the first quarter of 1996.
This increase is due to the increase in gross profit from publications which was
only partially offset by the increase in operating expenses discussed above. As
further described in Note 3 to the unaudited consolidated financial statements,
the Company adopted a plan to dispose of the assets of NAFE in the fourth
quarter of 1996. NAFE operating losses in the first quarter of 1997 were
included in the estimated loss on disposal accrued for in 1996.
INCOME TAXES
In the first quarter of 1997, the Company recognized a $0.7 million tax
expense compared to $0.1 million tax expense in the first quarter of 1996.
NET INCOME
The net income in the first quarter of 1997 was $0.6 million compared to net
income of $0.1 million for the same period in 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
REVENUES
Revenues for 1996 of $140.0 million increased slightly from $139.2 million
for 1995 due to a $1.0 million increase in publications revenues partially
offset by a $0.3 million decrease in membership services revenues. Excluding the
ATL and AINS operations acquired in October and June of 1995, respectively,
revenues were $138.9 million in 1996 compared to $139.0 million in 1995.
Membership services revenues for 1996 of $98.9 million decreased slightly
from $99.2 million for 1995. The $0.3 million decrease in membership services
revenues resulted from $0.8 million in additional
47
<PAGE>
revenues from the financial services operations of ATL and AINS which were
acquired in 1995 and an increase in RV financing and extended vehicle warranty
program income, which were offset by a net decrease of $0.9 million in club
membership revenues due primarily to reduced membership enrollment in the Coast
to Coast clubs and a $0.2 million net decrease in marketing and commission fee
income largely composed of a decrease in the emergency road service program
income.
Publications revenues for 1996 of $41.1 million increased 2.8% from $40.0
million for 1995. This increase was primarily due to higher advertising income
associated with higher advertising lineage and advertising rates.
COSTS APPLICABLE TO REVENUES
Costs applicable to revenues (membership services and publications expenses)
for 1996 were $86.6 million or 61.8% of revenues compared to $83.9 million or
60.3% of revenues for 1995. Excluding the ATL and AINS operations acquired in
1995, costs applicable to revenues were $84.0 million or 60.5% of revenues for
1996 compared to $83.3 million or 59.9% of revenues for 1995. Costs associated
with operations acquired in 1995 contributed $2.0 million of the $2.7 million
overall increase. The balance of the increase related to increased expenses
associated with the development of an Internet web site, the introduction of an
extended warranty program and higher club development, membership service and
marketing costs. Such increases were only partially offset by savings from the
discontinuance of a direct mail catalog in 1996, a reduction in marketing
expense for the VIP program and reduced membership enrollment expense in the
Coast to Coast clubs.
OPERATING EXPENSES
Operating expenses for 1996 of $24.7 million or 17.6% of revenues decreased
by $2.7 million or 9.9% from $27.4 million or 19.7% of revenues for 1995. The
$2.7 million decrease in operating expenses was attributed to recording no
phantom stock expense in 1996, a net decrease in other administrative costs as
well as lower amortization expenses as certain customer lists and other
intangibles were amortized in full in 1995.
INCOME FROM OPERATIONS
Income from operations of $28.7 million or 20.5% of revenues for 1996
increased by $0.8 million or 2.8% compared to $27.9 million or 20.1% of revenues
for 1995. Excluding the operations of ATL and AINS which were acquired in 1995,
income from operations of $30.4 million or 21.9% of revenues for 1996 increased
by $2.1 million or 7.4% compared to $28.3 million or 20.3% of revenues for 1995.
The improvement in operating income excluding operations acquired in 1995 is
primarily a result of lower operating expenses as discussed above.
NON-OPERATING EXPENSES
Non-operating expenses for 1996 were $17.5 million compared to $18.0 million
for 1995. The decrease is primarily due to non-recurring expenses in the amount
of a $1.0 million provision for management restructuring charges in 1996
compared to a $1.2 million facility relocation expense and a $0.4 million loss
on sale of assets in 1995. The slight increase in interest expense resulted from
higher average borrowings which were largely offset by lower interest rates.
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
Income from continuing operations before income taxes for 1996 was $11.2
million compared to $9.9 million for 1995. The increase was primarily due to
lower operating expenses as discussed above which were only partially offset by
costs associated with ATL and AINS which were acquired in 1995.
48
<PAGE>
INCOME TAXES
Income taxes for 1996 increased by $1.1 million to $6.1 million from $5.0
million in 1995 as a result of higher pre-tax income. The effective income tax
rate in both 1996 and 1995 is higher than statutory rates due primarily to the
amortization of non-deductible goodwill.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations for 1996 was $5.1 million compared to $4.9
million for 1995. The increase was primarily due to lower operating expenses
which were only partially offset by costs associated with ATL and AINS which
were acquired in 1995.
DISCONTINUED OPERATIONS
As further described in Note 18 to the consolidated financial statements,
AGI adopted a plan to dispose of the assets of NAFE in the fourth quarter of
1996. Aggregate losses of $6.6 million, net of taxes, were recognized in 1996
from such discontinued operations. The loss from NAFE in 1996 resulted from a
27% decrease in membership revenues in 1996 compared to 1995 while the
percentage of costs applicable to revenues increased in 1996 compared to 1995.
NET LOSS
Net loss for 1996 was $1.5 million compared to net income of $5.3 million
for 1995. This difference resulted from a $2.0 million decrease in gross profit
from club membership services, a $1.1 million decrease in gross profit for ATL
and AINS, a $1.1 million increase in income taxes and a $7.0 million increase in
the loss from NAFE. These losses were partially offset by a $1.2 million
increase in gross profit from publications and a $3.2 million decrease in
operating and non-operating expenses.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
REVENUES
Revenues for 1995 of $139.2 million increased by 8.1% from $128.8 million
for 1994. Excluding the operations acquired in 1995 (ATL and AINS) and in 1994
(Woodall Publishing), revenues were $128.6 million in 1995 compared to $121.3
million in 1994, an increase of 6.0%.
Membership services revenues for 1995 of $99.2 million increased 8.8% from
$91.2 million for 1994. Excluding revenues from the operations acquired in 1995
and 1994, membership service revenues were $98.9 million for 1995 and $91.2
million for 1994, an increase of 8.4%. The increase reflects additional revenues
associated with the introduction of a new overnight camping card in July 1994
and an increase in products and services sold to club members, primarily
marketing fees from the VIP program. The increase was partially offset by lower
club dues associated with a 2.1% decline in club membership enrollment.
Publications revenues for 1995 of $40.0 million increased 6.5% from $37.6
million for 1994. Excluding the revenues from operations acquired in 1995 and
1994, publication revenues for 1995 were $29.7 million compared to $30.1 million
for 1994, a decrease of 1.3%. The overall increase in publication revenues
reflects $2.8 million in additional revenues associated with Woodall Publishing
acquired in 1994 which more than offset a net decrease of $0.4 million in
revenues from certain existing general circulation magazines and the campground
directory.
COSTS APPLICABLE TO REVENUES
Costs applicable to revenues (membership services and publication expenses)
for 1995 were $83.9 million or 60.3% of revenues compared to $78.9 million or
61.3% of revenues in 1994. Excluding costs from the operations acquired in 1995
and 1994, costs applicable to revenues for 1995 were $75.7 million or
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58.9% of revenues compared to $74.3 million or 61.3% of revenues for 1994. Costs
associated with the operations acquired in 1995 and 1994 contributed $3.8
million of the $5.0 million overall increase. The balance of the increase was
associated with increases in membership service costs, new product development
costs and higher publishing costs which were partially offset by a decrease in
costs associated with the VIP program.
OPERATING EXPENSES
Operating expenses for 1995 were $27.4 million or 19.7% of revenues compared
to $24.6 million or 19.1% of revenues for 1994. Excluding operating expenses
from the operations acquired in 1995 and 1994, operating expenses for 1995 were
$26.0 million or 20.2% of revenues compared to $23.9 million or 19.7% of
revenues for 1994. General and administrative expenses associated with the
operations acquired in 1995 and 1994 accounted for $0.7 million of the overall
increase. Other increases in operating expenses were related primarily to
increases in amortization expense associated with the newly acquired businesses
and upgrades to the membership information system which were partially offset by
reduced expenses associated with management's deferred phantom stock plan and
decreases in amortization expenses for certain customer lists and financing
fees.
INCOME FROM OPERATIONS
Income from operations was $27.9 million or 20.1% of revenues for 1995
compared to $25.2 million or 19.6% for 1994. Excluding operations acquired in
1995 and 1994, income from operations in 1995 was $27.2 million or 20.9% of
revenues compared to $23.1 million or 19.0% in 1994. The overall $2.7 million
increase was due to a $4.1 million increase from operations other than from
businesses acquired in 1995 or 1994 primarily from increased marketing fees for
the VIP program which was partially offset by a $1.4 million reduction in income
from operations of the businesses acquired in 1995 and 1994.
NON-OPERATING EXPENSES
Non-operating expenses for 1995 were $18.0 million compared to $17.5 million
for 1994. A decrease in interest expense as a result of a reduction in interest
rates was more than offset by a $0.8 million net increase in facility relocation
expenses in 1995.
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
Income from continuing operations before income taxes for 1995 was $9.9
million compared to $7.7 million in 1994. This $2.2 million increase is
primarily due to additional revenues recognized on the sale of certain products
and services as discussed above.
INCOME TAXES
The Company's effective income tax rate in 1995 was higher than statutory
rates due primarily to amortization of non-deductible goodwill. Income tax
expense in 1995 was $5.0 million compared to an income tax benefit of $13.3
million in 1994. The tax benefits recognized in 1994 were primarily the result
of the recognition of deferred tax assets for which valuation allowances had
been previously provided.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations was $4.9 million in 1995 compared with
$20.9 million in 1994. This reduction reflects the impact of a one-time gain
associated with the recognition of deferred tax assets in 1994 offset in part by
higher income before taxes.
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DISCONTINUED OPERATIONS
As further described in Note 18 to the Company's consolidated financial
statements, NAFE's income from operations was $0.7 million in 1995 compared to
$0.4 million in 1994. The increase is a result of only two months of operations
in 1994 and a gross profit percentage of 23.9% in 1995 compared to 45.9% in
1994.
EXTRAORDINARY ITEM
In October 1994, the Company entered into a new senior credit agreement. Due
to the new credit facility, unamortized discounts and fees related to previous
borrowing arrangements were written off as an extraordinary item in 1994. The
total write-off of $2.1 million was recognized net of a tax benefit of $800,000.
NET INCOME
Net income for 1995 was of $5.3 million compared to $19.9 million for 1994.
Increases in income from operations in 1995 compared to 1994 were more than
offset by the difference between the income tax expense recognized in 1995 of
$5.3 million and the $13.9 million income tax benefit recognized in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company is a holding company whose only asset is the capital stock of
AGI. Cash dividends from AGI are expected to be the sole source of funds to pay
(i) interest payments on the Notes, (ii) management incentive payments to
certain Camping World executives in the aggregate of up to $15.0 million which
are payable $1.0 million per year on the first four anniversaries of the closing
of the Camping World acquisition and $11.0 million on the fifth anniversary,
subject to achievement of certain operating results for Camping World and (iii)
the $1.5 million Ehlert Note. After giving pro forma effect to the application
of the net proceeds from the Private Offering, including the capital
contribution by the Company to AGI, the limitations on dividends by AGI to the
Company contained in the AGI Indenture would have permitted AGI to make dividend
distribution to the Company of up to $120.8 million as of March 31, 1997.
If the Acquisitions had been completed on March 31, 1997, the Company would
have had consolidated cash and cash equivalents of $18.4 million of which $7.9
million was held by ATL and AINS and is not available to the Company due to
regulatory restrictions. If the Acquisitions, the Private Offering and the AGI
Credit Facility were consummated as of March 31, 1997, AGI would have had $30.0
million outstanding under the AGI Credit Facility and $45.0 million of undrawn
commitments under the revolving line of credit. Of such undrawn commitments,
$24.5 million could have been borrowed under the limitations on indebtedness in
the AGI Indenture. The AGI Indenture limits borrowings under the AGI Credit
Facility to 150% of AGI's consolidated cash flow (as defined) for the preceding
four fiscal quarters. For the purposes of this calculation, the results of
Camping World and Ehlert are only included for periods after their acquisition.
If the results of Camping World and Ehlert were included on a pro forma basis
for 1996, the full amount of the AGI Credit Facility would have been available
for borrowing at March 31, 1997.
As a result of the Camping World, Ehlert and other acquisitions and related
financings, the Company is highly leveraged and expects to continue to be highly
leveraged for the foreseeable future. As of March 31, 1997 and giving pro forma
effect to the Acquisitions, the issuance of the Notes offered hereby and the
consummation of the AGI Credit Facility, the Company's consolidated debt would
have consisted of $130.0 million of the Notes, $10.0 million of management
incentive, $120.0 million of the AGI Notes, $30.0 million outstanding under the
AGI Credit Facility, $2.2 million in mortgages and other indebtedness, and the
$.5 million Ehlert Note. See "Capitalization." The AGI Credit Facility will
allow (subject to certain limits and covenant restrictions) the transfer of
funds from AGI to the Company through the payment of dividends. See "Description
of Other Indebtedness--AGI Credit Facility." The AGI Indenture also
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contains restrictions on the payment of dividends by AGI. See "Description of
Other Indebtedness--AGI Notes."
The Company intends to fund its consolidated cash needs through cash flow
from operations and borrowings under the AGI Credit Facility. A substantial
portion of the Company's available cash will be required to be applied to
service indebtedness, which is expected to include approximately $31.8 million
in annual net interest expense and $1.5 million of quarterly principal
amortization on the term loan under the AGI Credit Facility. During calendar
year 1997, the Company also expects to spend approximately $7.0 million for
capital expenditures. The Company does not plan to open any new Camping World
retail supercenters in 1997. The Company plans to invest up to $5.0 million in
its ATL and AINS subsidiaries in 1997 to satisfy regulatory capital requirements
relating to anticipated growth of these subsidiaries. Additionally, during 1997
the Company anticipates making $1.6 million in payments under the terms of
management's deferred phantom stock plan, up to $1.0 million to certain senior
Camping World executives under management incentive agreements entered into in
connection with the Camping World acquisition, $1.0 million in principal
repayment on the Ehlert Note and $200,000 to the principal shareholders of
Ehlert under non-competition agreements entered into in connection with the
Ehlert acquisition. As a result of these expenditures, investments, and
payments, the Company may periodically have low levels of working capital or be
required to finance working capital deficits.
For 1996, the Company's cash flows from operating activities was $16.4
million, primarily from $8.3 million of depreciation and amortization and $6.9
from the provision for estimated losses on disposal of NAFE. During 1996, the
Company used net cash of $2.8 million in investing activities, including $4.7
million of loans provided to qualified borrowers by the Company's thrift and
loan subsidiary which was partially offset by $3.1 million repaid on notes
payable to an affiliate which was not a subsidiary. For 1996, net cash used in
financing activities was $13.1 million which consisted of net repayments on
long-term debt of $17.1 million which were partially offset by $4.0 million of
customer deposits in AGI's thrift and loan subsidiary. For the three months
ended March 31, 1997 the Company had cash flow from operations of $6.7 million.
During this period the Company had nearly $22 million in investing activity uses
of cash flow primarily related to the acquisition of Ehlert. This use was funded
from cash provided by financing activities totaling $22.7 for the period.
As of March 31, 1997 the Company has a deficit working capital of $13.2
million. This deficit is largely attributable to the $17.7 million of customer
deposits in the thrift and loan reflected as current liabilities. Thrift and
loan customer receivables of $12.4 are reflected as long term assets. Upon
completion of the Acquisitions, the Private Offering and AGI Credit Facility, as
indicated above, the Company had available $24.5 million of available borrowing
under the revolving credit facility. Management believes this availability
combined with cash flow from operations is more than adequate to meet
foreseeable deficits in working capital.
The Indenture contains financial and operating covenants and significant
restrictions on the ability of the Company to complete acquisitions, pay
dividends, incur indebtedness, make investments and take certain other corporate
actions. The AGI Indenture and the AGI Credit Facility also contain financial
and operating covenants and significant restrictions on the ability of the
Company and its subsidiaries to complete acquisitions, pay dividends, incur
indebtedness, make investments and take certain other corporate actions. See
"Description of Other Indebtedness" and "Description of the Notes."
The Company's ability to make scheduled payments of principal of, or to pay
interest on, or to refinance its indebtedness (including the Notes), depends to
some extent on the successful integration of the Camping World operations and
its future performance, which, in part, 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 from operations,
together with available borrowings under the AGI Credit Facility and other
sources of liquidity, will be adequate to meet the Company's anticipated
requirements for working capital, capital
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expenditures, investment activities, payments to certain employees under phantom
stock and consulting agreements, and scheduled payments of principal and
interest on its indebtedness. However, the principal payment of the Notes and
the AGI Notes may require that such indebtedness be refinanced prior to their
respective maturities. There can be no assurance that the Company's business
will generate sufficient cash flow from operations or that future financings
will be available in an amount sufficient to enable the Company to service its
indebtedness, including the Notes and the AGI Notes or to make necessary capital
expenditures, or that any refinancing would be available on commercially
reasonable terms, if at all. See "Risk Factors--Leverage and Limited Ability of
the Company to Obtain Additional Financing."
FACTORS AFFECTING FUTURE PERFORMANCE
Although increases in operating costs could adversely affect the Company's
operations, management does not believe that inflation has had a material effect
on operating profit during the past several years. However, fuel shortages and
substantial increases in propane and gasoline costs could have a significant
impact on the Company's travel-related membership services and publications
revenues. Historically such events have caused declines in advertisements but
have not significantly affected club membership enrollment. The Company is
unable to predict at what point fluctuating fuel prices may begin to adversely
impact revenues or cash flow. The Company believes it will partially offset any
cost increases with price increases to its members and certain cost reducing
measures.
SEASONALITY
After giving effect to the Acquisitions, the Company expects that cash flow
from operations will be highest in the third and fourth quarters. Camping
World's cash flow has historically been the greatest in the Company's third
quarter due to the purchasing patterns of its customers. AGI's cash flow has
historically been the highest in the fourth quarter due to the annual membership
renewals for the Coast to Coast clubs which occur in that quarter.
BUSINESS
The Company is a member-based direct marketing organization primarily
engaged in selling club memberships to selected recreational affinity groups
principally comprised of recreational vehicle owners, campers, outdoor
vacationers and, to a lesser extent, golfers. The Company's club members form a
receptive audience to which it sells products and services, merchandise and
publications targeted to the recreational interests of such members. The
Company's three principal lines of business are (i) club memberships and related
products, services and club magazines, (ii) specialty retail merchandise
distributed primarily through retail supercenters and mail order catalogs, and
(iii) subscription magazines and other publications including directories.
The Company conducts its operations through: AGI; Camping World; and Ehlert.
On April 2, 1997, AGI acquired the stock of Camping World, a specialty retailer
offering merchandise and services through retail supercenters and mail order
catalogs primarily to members of its buying club. On March 6, 1997, AGI acquired
the stock of Ehlert, a specialty sports and recreation magazine publisher. Pro
forma for the Acquisitions, the Company would have had revenues of $324.0
million and EBITDA of $58.2 million for fiscal 1996. See "Offering Memorandum
Summary--Summary Pro Forma Combined Financial Data."
Including the Camping World acquisition, the Company has over 1.7 million
paying members enrolled in its recreational affinity clubs, including
approximately 465,000 Camping World President's Club members, and will have over
3.9 million names in its proprietary database targeted to the recreational
activities of the Company's club members, including approximately 1.0 million
new names from Camping World. Including the Ehlert acquisition, the circulation
of the Company's publications exceeds 4.7 million.
Management believes that the acquisition of Camping World will further its
business strategy and enhance its competitive prospects by providing the
following benefits: (i) opportunities to cross sell club
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memberships between AGI's Good Sam Club and Camping World's President's Club
through both Camping World's supercenters and catalog operations as well as
AGI's direct mail operations; (ii) access to Camping World's retail and mail
order catalog distribution channels to increase the penetration of AGI's
products and services, such as its emergency road service program and the
recently introduced extended vehicle warranty program, and access to Camping
World's RV merchandise which will be marketed to AGI's Good Sam Club members;
and (iii) opportunities to reduce membership, products and services solicitation
costs resulting from the Company's ability to: (a) market through Camping
World's retail and catalog distribution channels, (b) capitalize on the overlap
of the Good Sam Club and the President's Club memberships, and (c) consolidate
the administrative support for certain products and services. The Company
believes that these opportunities will enable it to eliminate workforce
redundancies and to reduce printing, paper, fulfillment and mailing costs.
Management believes the acquisition of Ehlert will allow the Company to increase
advertising revenues for certain of AGI's magazines due to higher combined
circulation of publications of recreational activity publications and will
result in cost savings associated with headcount reductions, reorganization of
certain marketing activities and through the consolidation of publishing
operations.
BUSINESS STRATEGY
The Company's business strategy is to increase (i) the enrollment of its
clubs through internal growth and acquisitions; (ii) the sales of its products
and services by marketing to club members through the most effective
distribution channels and by developing and enhancing its product and service
offerings; and (iii) the circulation of its publications by introducing new
magazines and acquiring publications which are complementary to the Company's
recreational market niches. The Company also seeks to realize operational
efficiencies through the integration of acquired businesses such as occurred as
a result of the Golf Card club and Woodall Publishing in 1990 and 1994,
respectively.
ENHANCE CLUB MEMBERSHIP ENROLLMENT
The Company seeks to increase the number of its club members by maximizing
renewals, establishing an optimal mix of channels for soliciting new members and
re-acquiring inactive members. Management believes that the participation levels
and renewal rates of club members reflect the benefits derived from membership.
In order to maintain high participation rates in its clubs, the Company
continuously evaluates member satisfaction and actively responds to changing
member preferences through the enhancement or introduction of new membership
benefits including products and services. The Company also seeks to optimize its
use of alternative channels for acquiring club members. Management believes that
Camping World's supercenters and catalog operations will provide low cost and
highly effective channels for the acquisition of new club members. Camping World
has effectively used these channels to increase its President's Club membership
by approximately 75% during the five years ended September 30, 1996. Camping
World's supercenters and catalog operations can also be used to market
memberships to inactive club members. As a result of the Camping World
acquisition, the Company will add approximately 1.0 million new names to its
existing database. Additionally, Camping World recently upgraded its point-of-
sale system to sell President's Club memberships and renewals at the check-out
register and to record names of prospective club members.
INCREASE SALES OF PRODUCTS AND SERVICES
The Company seeks to increase the sale of its products and services due to
their profitability and the favorable impact such programs have on club
membership growth and retention. Management believes that a substantial
opportunity exists to market its products and services through the national
network of Camping World supercenters and mail order catalogs. A significant
percentage of Good Sam Club members currently subscribe to one or more of its
products and services, such as the emergency road service program and the
recently introduced extended vehicle warranty program. Management believes it
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can successfully market such products and services to Camping World President's
Club members who have interests and demographic characteristics similar to those
of Good Sam Club members and for whom there is limited penetration of such
products and services. Management also believes that the Good Sam Club members
who are not currently President's Club members represent a focused group of
customers to which it can sell Camping World's RV accessory merchandise. The
Company regularly studies the feasibility of introducing new products and
services. For example, in 1995, AGI introduced its extended vehicle warranty
program which had approximately 1,600 policies in force as of December 31, 1996.
IMPROVE OPERATING PERFORMANCE
The Company seeks to achieve operating efficiencies by selectively acquiring
and developing recreational affinity groups which enable the Company to increase
membership enrollment and to realize cost savings. The Company also seeks to
enhance its importance with third party providers of products and services by
maintaining high membership enrollment levels in such programs, thereby
increasing the fees it receives from such vendors. Where appropriate, the
Company may consider directly providing certain products and services which had
been provided by third parties.
Through the Acquisitions, the Company expects to realize $6.2 million in
annual cost savings and operating efficiencies. These anticipated cost
reductions consist of $3.8 million in annual salary and related benefits savings
associated with headcount reductions at AGI and Ehlert and $2.4 million in
annual reductions of operating costs associated with more efficient membership
services, products and services and publishing operations (including reduced
printing and paper costs).
Headcount reductions resulting in estimated annual savings of $2.8 million
were effected at AGI in December 1996 in anticipation of the Camping World
acquisition. Additional annual savings of $1.0 million from headcount reductions
are expected as a result of the Ehlert acquisition. Specific actions to reduce
consolidated operating costs will include: (i) reducing mailing, postage, paper
and fulfillment expenses due in part to the membership overlap between the Good
Sam Club and President's Club; (ii) using lower cost channels for soliciting
club members and selling products and services; and (iii) eliminating
duplicative publication and membership service operations.
ACQUIRE AND DEVELOP AFFINITY GROUPS
The Company believes the experience it has accumulated in managing its
existing recreational affinity groups is applicable to the management of other
recreational interest organizations. In 1990, AGI acquired the Golf Card club
and has successfully grown membership by approximately 47% since its
acquisition. As a result, the Company conducts ongoing evaluations for
developing or acquiring affinity groups for which it can build membership
enrollment and to which it can market products and services. The Company expects
to concentrate its efforts over the near term on integrating the operations of
the Camping World President's Club with AGI's Good Sam Club.
EXPAND NICHE RECREATIONAL PUBLICATIONS
The Company seeks to expand its presence as a dominant publisher in select
recreational niches through the introduction of new magazine formats and the
acquisition of other publications in its market or in complementary recreational
market niches. Publications in complementary niches may also provide the Company
with the opportunity to launch new membership clubs, to market its products and
services to members of the new clubs and to develop other products and services
which meet the special needs of such members. The Company believes overall
circulation of its magazines is an important factor in determining the amount of
revenues it can obtain from advertisers. In addition, since paper and printing
costs are a significant part of operating expenses, management also believes
that the Company will achieve improved economies of scale when purchasing these
items following the Acquisitions.
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RV MARKET AND THE DEMAND FOR MEMBERSHIPS,
PRODUCTS AND SERVICES
The use of RVs and the demand for club memberships and related products and
services may be influenced by a number of factors including general economic
conditions, the availability and price of propane and gasoline, and the total
number of RVs. The Company believes that both the installed base of RVs and the
type of RV owned (full service vehicles excluding van conversions) are the most
important factors affecting the demand for its membership clubs, merchandise and
products and services. Based on the most recent survey (the "Survey"), which was
conducted by the Survey Research Center of the University of Michigan in 1994,
the number of households owning RVs increased from 7.3 million in 1984 to 8.2
million in 1993. The Survey also indicates that the percentage of households
owning RVs during this period was unchanged at approximately 10%.
According to the Survey, the average RV owner was 48 years old. RV ownership
also rose with age reaching its highest percentage level among those 55 to 74
years old. According to the 1994 U. S. Census, households in this age group are
projected to increase from 23.8 million to 28.9 million in 2005. RV ownership
also is concentrated in the western United States in which area the population
growth rate is expected to be greater than the national average through 2005.
The Survey also indicates that RV ownership is associated with higher than
average annual household income which among RV owners was approximately $39,000
per annum as compared to the national average of $31,000 per annum according to
the 1994 U.S. Census.
The median age and annual household income of AGI club members were 65 years
and $49,000 in 1995 based on member survey data. The Company believes that the
demographic profile of its typical club member, coupled with a demographic trend
towards an aging population will have a favorable impact on RV ownership and the
demand for club memberships and related merchandise, products and services.
AGI
MEMBERSHIP CLUBS
AGI operates the Good Sam Club and Coast to Coast clubs for RV owners,
campers and outdoor vacationers and the Golf Card Club for golf enthusiasts. The
membership clubs form a receptive audience to which AGI markets its products and
services. The following table sets forth the number of members at December 31,
1996, annual membership dues and average annual renewal rates during the period
1992 to 1996 for each club:
<TABLE>
<CAPTION>
AVERAGE RENEWAL
NUMBER OF MEMBERS ANNUAL FEE(1) RATE(2)
------------------- ------------- ---------------------
<S> <C> <C> <C>
Good Sam Club..................................... 911,430 $ 10 - $25 70%
Coast to Coast clubs.............................. 257,236 $ 43 - $60 80%
Golf Card club.................................... 136,162 $ 76 - $95 68%
</TABLE>
- ------------------------
(1) Subject to special discounts and promotions.
(2) Excludes members having lifetime memberships.
GOOD SAM CLUB
The Good Sam Club, founded in 1966, is a membership organization for owners
of recreation vehicles. The Good Sam Club is the largest for-profit RV club in
North America with over 910,000 member families and over 2,100 local chapters as
of December 31, 1996. The average annual renewal rate for Good Sam Club members
was approximately 70% during the period 1992 to 1996. AGI has focused on selling
higher margin multi-year memberships which, among other advantages, reduces the
cost of membership
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renewals. At December 31, 1996, the average length of time for participation in
the Good Sam Club was approximately 7 years with most club members purchasing
annual memberships.
Membership fees range from $10 to $59 subject to the term and type (new vs.
renewal). The benefits of club memberships include: discounts for overnight
stays at 1,700 participating RV parks and campgrounds; discounts on the purchase
of supplies and accessories for recreational vehicles at approximately 900 RV
service centers; a free annual subscription to HIGHWAYS, the club's regular news
magazine; discounts on other publications; access to group tours and travel
services; trip routing and mail-forwarding; and access to products and services
developed for club members. Based on typical usage patterns, AGI estimates that
Good Sam Club members realize estimated annual savings from these discounts of
$156. The Good Sam Club establishes quality standards for RV parks and
campgrounds participating in its discount program. Campgrounds and parks
participating in the Good Sam program benefit from increased occupancy and sales
of camping related products. AGI believes it has established considerable
penetration of those for-profit RV parks and campgrounds which meet its quality
standards for network affiliation.
COAST TO COAST
Coast to Coast clubs operate the largest reciprocal use network of private
RV resorts in North America. AGI offers a series of membership benefits
depending on pricing and program type under the Coast to Coast name. Members of
Coast to Coast clubs belong to a private RV resort owned and operated by parties
unrelated to the Company. Club members may use any of the participating resorts
in the Coast to Coast network subject to availability. At December 31, 1996,
there were approximately 257,000 member families in Coast to Coast clubs, and
461 private RV resorts nationwide participated in the Coast to Coast reciprocal
use programs, representing approximately 82% of such resorts in the US. These
private resorts are designed primarily for RV owners, but typically provide
camping or lodging facilities, comprised of RVs, cabins and condominiums. For an
initial membership fee plus annual maintenance fees, both paid by the customer
to the resort, the private resorts provide an RV site with water, sanitary and
electrical hook-ups and recreational amenities, such as swimming, tennis or
fishing, or proximity to theme parks or other recreational activities. AGI has
established quality criteria for resorts to join and remain in the Coast to
Coast networks.
For the standard annual renewal dues from $60 for a single year membership
to $255 for a multiple-year membership, Coast to Coast club members receive the
following benefits: discounts for overnight stays at participating resorts,
hotels and campgrounds; an annual subscription to Coast to Coast Magazine; the
Coast to Coast Directory providing information on the participating resorts;
discounts on other AGI publications; access to discount travel services; trip
routing; and access to products and services developed for club members. Coast
to Coast Resort Club members also have the right to use, subject to
availability, the lodging facilities at 461 participating resorts at a
discounted rate.
AGI believes that resorts participating in the Coast to Coast networks view
access to reciprocating member resorts as an incentive for their customers to
join their resort. Because a majority of members of Coast to Coast clubs own
RVs, access to participating resorts throughout North America can be an
important complement to local resort membership. During 1996, Coast to Coast
members utilized over 1.4 million nightly stays under the reciprocal use
program. Based on typical use patterns, AGI estimates that Coast to Coast
members realize estimated annual savings from these discounts of over $200 from
discounted overnight stay accommodations at participating resorts. The average
annual renewal rate for members of the Coast to Coast clubs after the initial
one year membership (which is generally paid by the member resort not the club
member) was approximately 80% during the period 1992 to 1996.
GOLF CARD CLUB
The Golf Card club, founded in 1974, had approximately 136,000 members at
December 31, 1996. The major attraction for membership is the financial savings
which members receive when playing at one of
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over 3,100 participating golf courses located throughout the U.S. and Canada.
The annual membership fee varies with the length and type (single or double) of
membership. Based on AGI conducted surveys, members realize savings on green
fees ranging from $150 to $250 annually which significantly exceed the cost of
membership. Members of the Golf Card club receive the following benefits: the
right to play two rounds of golf each year at each participating golf course
either without green fees or with reduced fees; discounts on vacation packages
at over 300 participating "Stay and Play" resorts and at over 2,000 hotels in
North America; an annual subscription to The Golf Traveler, published six times
per year; and access to products and services developed for club members. The
average annual renewal rate for Golf Card club members was approximately 68%
during the period from 1992 to 1996. The Company believes that the participating
golf courses providing playing privileges to club members represents the largest
number of golf courses participating in a discount program in North America.
None of the participating golf courses is owned or operated by the Company.
Both municipal and privately-owned golf courses participate in the Golf Card
program. The program is attractive to participating courses because club members
must rent a golf cart when exercising the playing privileges and the members
playing time may be limited to off-peak hours. Members may purchase other
merchandise or services when exercising their playing privileges. In this
manner, the Golf Card members provide incremental revenue to the golf course.
MEMBERSHIP PRODUCTS AND SERVICES
AGI's 1.3 million club members form a receptive audience to which it sells
products and services targeted to the recreational interests of its club
members. AGI promotes products and services which either address special needs
arising in the activities of the club members or appeal generally to persons
with the demographic characteristics of club members. The two most established
products are the emergency road service program and the vehicle insurance
program, which were introduced in 1984 and in 1978, respectively. Most of AGI's
products and services are provided by third parties who pay AGI a marketing fee,
except for ERS where AGI pays a third party to administer the program.
EMERGENCY ROAD SERVICE
AGI developed the ERS program for Good Sam Club members to address the
special towing requirements of RV owners in the event of mechanical breakdown
and to enhance the availability of such services. AGI also markets the ERS
program to members of the Coast to Coast clubs. At December 31, 1996, 209,177
and 9,988 members of the Good Sam Club and Coast to Coast clubs, respectively,
participated in the ERS program, representing penetration rates for each club of
23.0% and 3.7%, respectively. During the period 1992 to 1996, the average annual
renewal rate of members enrolled in the ERS program was approximately 73%.
The ERS program is marketed nationally through direct mail and advertising
in AGI's RV magazines and annual campground directories. Under the ERS program,
a subscriber pays an annual fee ranging from $79.95 to $99.95 for which the
member receives roadside repair and towing at no additional cost to the
subscriber. AGI's emergency road service provider administers the program,
provides dispatching services for roadside service and satisfies applicable
regulatory requirements pursuant to a contract which expires December 31, 1997.
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VEHICLE INSURANCE PROGRAM
AGI initiated a vehicle insurance program to facilitate the availability of
cost-effective vehicle insurance suitable to the demographic characteristics and
vehicle usage patterns of its club members. At December 31, 1996, the VIP
program had 215,052 members which represented a 20.5% and 3.9% penetration,
respectively, of the Good Sam Club and Coast to Coast clubs. During the period
1992 to 1996, the average annual renewal rate of members participating in the
VIP program was more than 90%. AGI's marketing fee is based on the amount of
premiums written, the number of policies in force and the profitability of the
program. The insurance provider, National General Insurance Company ("NGIC"), a
subsidiary of General Motors Corporation is rated A+ by A.M. Best's Rating
Service and assumes all claim risks. In 1996, NGIC received premiums under the
VIP programs totaling $208.7 million which generated marketing fees to AGI of
$17.1 million. Marketing fees paid by NGIC to the Company represented 7.1%,
11.2% and 12.2% of the Company's revenues in 1994, 1995 and 1996, respectively.
The Company believes that its revenues would not be materially adversely
affected by the loss of the NGIC marketing fees because management believes that
an alternative insurance provider could be obtained and would pay comparable
fees.
OTHER PRODUCTS AND SERVICES
Other products and services marketed to club members include credit cards,
vehicle financing, supplemental health and life insurance, financial services
and extended vehicle warranties. Most of these services are provided to club
members by third parties who pay AGI a marketing fee. AGI also sells
subscriptions to its various publications, including TRAILER LIFE, MOTORHOME and
the annual CAMPGROUNDS & RV SERVICES DIRECTORY.
ATL was acquired by AGI in October 1995 and AINS was acquired in June, 1995.
These businesses will facilitate the vertical integration of financial services
provided to club members. Through ATL and AINS, AGI offers its club members
various depository products (such as thrift certificates and passbook accounts)
and intends to offer loan products (such as consumer, installment, small
business and home equity loans) and property and casualty insurance in the state
in which it is licensed. At December 31, 1996, ATL had total assets and
stockholders equity of $17.7 million and $2.2 million, respectively and AINS had
total assets and stockholders equity of $3.4 million and $2.1 million,
respectively.
In addition, AGI is evaluating other products and services that club members
may find attractive. When introducing new products and services, AGI
concentrates on products and services provided by third parties which it can
market without significant capital investment by AGI and for which it receives a
marketing fee from the service provider based on sales volume. AGI seeks to
utilize the purchasing power of its club members to obtain products and services
at attractive prices. During 1995, AGI introduced its extended vehicle warranty
program, which had approximately 1,600 policies in force as of December 31,
1996.
PUBLICATIONS
AGI produces and distributes a variety of publications for select markets in
the recreation and leisure industry, including general circulation periodicals,
club magazines, directories, and RV industry trade magazines. Revenues are
recognized from the sale of advertising, subscriptions and direct sales of some
of the publications. AGI believes that the focused audience of each publication
is an important factor in
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attracting advertisers. The following chart sets forth the circulation and
frequency of the Company's publications:
<TABLE>
<CAPTION>
NUMBER OF
1996 ISSUES PUBLISHED
PUBLICATION CIRCULATION EACH YEAR
- --------------------------------------------------------- --------------- ---------------------
<S> <C> <C>
Trailer Life............................................. 274,174(1) 12
MotorHome................................................ 140,123(1) 12
Rider.................................................... 106,906(1) 12
American Rider........................................... 56,514(1) 6
Roads to Adventure....................................... 370,000(3) 1(2)
Trailer Life Campground/RV Park & Services Directory..... 320,000(1) 1
Trailer Life's RV Buyers Guide........................... 40,746(1) 1
Woodall Campground Directory............................. 284,000(3) 1
Woodall's Regional News Tabloids......................... 185,000(4) 12
Woodall's Specials....................................... 165,000(4) 1
Woodall's RV Buyer's Guide............................... 33,000(1) 1
Woodall Plan-it Pack-it Go............................... 62,261(3) 1
Touring Rider............................................ 25,600(1)(5) 1
RV Business.............................................. 12,603(6) 12
Campground Management.................................... 10,000(7) 12
Highways................................................. 912,214(8) 11
Coast to Coast Magazine.................................. 271,562(8) 8
Golf Traveler............................................ 103,000(8)(9) 6
</TABLE>
- ------------------------
(1) Paid circulation.
(2) Introduced in 1996 and currently scheduled for quarterly publication.
(3) Includes sales and free distribution.
(4) Distributed to RV outlets, including campgrounds and dealerships.
(5) Debuted in 1995.
(6) Free to qualifying RV manufacturers, distributors, suppliers and dealers.
(7) Trade publication distributed primarily to campground owners.
(8) Circulation is limited to club members and the price is included in the
annual membership fee.
(9) Only one magazine is issued when two members are from the same household.
GENERAL CIRCULATION MAGAZINES
TRAILER LIFE, initially published in 1941, is the leading consumer magazine
for the RV industry with a paid circulation averaging 274,000 copies per issue
in 1996. TRAILER LIFE features articles on subjects including product tests,
travel and tourist attractions.
MOTORHOME is a monthly periodical for owners and prospective buyers of motor
homes which has been published since 1968 with a paid circulation averaging
140,000 copies per issue in 1996. MOTORHOME features articles on subjects
including product tests, travel and tourist attractions.
RIDER is a monthly magazine for motorcycle touring enthusiasts and has been
published since 1974. Each issue focuses on the motorcycles, personalities,
technical subjects, travel notes and other features of interest to this
recreational affinity group.
AMERICAN RIDER, introduced in November 1993 and in 1995 was increased from
four to six issues per year, is targeted to owners and operators of
Harley-Davidson motorcycles.
ROADS TO ADVENTURE, introduced in 1996, is targeted to younger families
pursuing camping and other outdoor recreation activities and is currently
published quarterly.
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ANNUAL DIRECTORIES
TRAILER LIFE CAMPGROUND/RV PARK & SERVICES DIRECTORY, initially published in
1972, is an annually updated directory which provides information on and ratings
for 12,250 public and private campgrounds, 2,200 RV service centers, and over
1,000 tourist attractions in North America. In 1996, 320,000 directories were
distributed. The publication features Good Sam Parks that offer discounts on
overnight camping fees for AGI's club members. This directory is sold by direct
mail to Good Sam Club members, at RV dealerships and in bookstores.
WOODALL CAMPGROUND DIRECTORY, initially published in 1948, are annual
consumer directories offered in both national and regional editions. In 1996,
approximately 284,000 directories were distributed. The Woodall directories are
primarily distributed through book stores.
CLUB OR TRADE MAGAZINES AND BOOKS
Each of AGI's membership clubs has its own publication, which provides
information on club activities and events, feature stories and other articles.
AGI publishes HIGHWAYS for the Good Sam Club, COAST TO COAST MAGAZINE for Coast
to Coast clubs, and THE GOLF TRAVELER for the Golf Card club. AGI also publishes
RV BUSINESS, the leading trade magazine for the RV industry, and CAMPGROUND
MANAGEMENT, the leading trade magazine for the campground industry. AGI also
periodically publishes books targeted for its club membership which address the
RV lifestyle.
MARKETING
AGI is a direct marketer of club memberships and related products and
services. Direct response promotions include direct mail, target marketing
inserts, advertisements, promotional events and telemarketing. Direct response
marketing efforts account for approximately 84% of new enrollments with the
remaining 16% derived from miscellaneous other sources. AGI uses a variety of
commercially available mailing lists of RV owners in its direct mail efforts.
The most useful lists are compiled from vehicle registrations provided by the
motor vehicle departments in over 30 states, direct response lists from RV
industry participants, and in-house lists.
AGI solicits advertisements for its publications through its internal sales
force and by paying commissions to advertising agencies and independent
contractors which place advertisements. Many advertisers are repeat customers
with whom AGI has long-standing relationships.
OPERATIONS
AGI's member service operations are located in Denver, Colorado. The primary
focus of member services is to handle information requests from club members
through AGI's toll-free telephone number. Member service representatives market
products and services to existing and potential club members in response to
telephone inquiries. On average, the member service department processes
approximately 5,000 telephone inquiries daily. AGI expects to increase sales
through better management of its member service operations coupled with greater
efficiency in its telemarketing efforts. Fulfillment operations involve the
processing of orders and checks principally received by mail. Certain
fulfillment operations are performed by third parties. AGI's publication
operations develop the layout for publications and outsource printing to third
parties.
INFORMATION SUPPORT SERVICES
AGI utilizes integrated computer systems to support its membership club and
publishing operations. Comprehensive information on each member, including a
profile of the purchasing activities of members, is available to customer
service representatives when responding to member requests and when sales
representatives market AGI's products and services. AGI employs publishing
software for publication
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makeup and content and for advertising to support its publications operations.
An area wide network facilitates communication within and between AGI's offices.
AGI also utilizes information technology, including list segmentation and merge
and purge programs, to select prospects for direct mail solicitations and other
direct marketing efforts.
CAMPING WORLD
GENERAL
Camping World is a national specialty retailer of merchandise and services
for RV owners. For its fiscal year ended September 30, 1996, Camping World
generated total revenues of $169.8 million and EBITDA of $12.7 million. The 26
Camping World retail supercenters which are located in 17 states, accounted for
approximately 66% of fiscal 1996 revenues while approximately 21% were derived
from catalog sales and approximately 13% were derived from fees or
non-merchandise revenues. Approximately 86% of Camping World's revenues were
derived from sales to the 465,000 members of its President's Club buying group.
The Company believes that Camping World's leading position in the RV
accessory industry results from a high level of name recognition, an effective
dual channel distribution strategy and a commitment to offer a broad selection
of specialized RV products and services at competitive prices combined with
technical assistance and on-site installation. Camping World's supercenters
offer over 8,000 SKUs, approximately 80% of which are not regularly available in
general merchandise stores. In addition, general merchandise stores do not
provide installation or repair services for RV products, which are available at
Camping World's supercenters. Products sold by Camping World include
specialty-sized refrigerators, housewares and other appliances, bedding and
furniture, generators and hydraulic leveling systems, awnings, folding boats,
chairs, bicycles, and sanitation products. Camping World also markets emergency
road service and vehicle insurance products similar to the products offered by
AGI. Camping World supercenters are strategically located in areas where many RV
owners live or in proximity to destinations frequented by RV users. Camping
World's supercenters are designed to provide one-stop shopping by combining
broad product selection, technical assistance and on-site installation services.
Camping World's mail order operations generate significant revenues and
enhance retail sales by serving as the primary advertising vehicle for the
supercenters and by increasing Camping World's name recognition among RV owners
nationwide. The Company believes that Camping World has the leading share of the
mail order catalog segment for specialty RV products. Camping World's mail order
catalog sales complement its retail sales by targeting customers with limited
access to its retail supercenters and by facilitating purchases of higher
turnover items by regular supercenter customers. Camping World established its
President's Club in 1986 as a means of building customer loyalty and revenues.
President's Club members pay a membership fee, which varies with the length of
membership, and receive a 10% discount on merchandise purchased from Camping
World as well as special mailings including newsletters and flyers offering
selected products and services at reduced prices. At December 31, 1996, the
President's Club had approximately 465,000 members of which approximately
250,000 were also Good Sam Club members. The average annual renewal rate for the
President's Club for the five year period ended September 30, 1996 was 60.7%.
The majority of club memberships are for one year. Camping World recently
upgraded its point-of-sale system, which management believes will increase
sales, generate new club members and increase club renewal rates through
improved customer data collection.
SUPERCENTERS
OPERATIONS
Camping World's supercenters generally range in size from approximately
18,000 to 36,000 square feet. Approximately 40% of each supercenter is devoted
to a retail sales floor, a customer service area, and a technical information
counter; 40% comprises the installation facility which contains 4 to 16 drive-
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through installation bays; and 20% is allocated to office and warehouse space.
Large parking areas provide sufficient space and facilitate maneuvering of RVs.
By combining broad product selection, technical assistance and installation and
repair services, Camping World's supercenters provide one-stop shopping for RV
owners. Camping World maintains toll-free telephone numbers for customers to
schedule installation and repair appointments. All supercenters are open seven
days a week.
SUPERCENTER SITE SELECTION
Camping World intends to continue the controlled, limited expansion of its
supercenter store network. Camping World's expansion strategy is based on a
comprehensive process which analyzes the sales trends and travel patterns of
existing and potential customers as well as the sales patterns of RV vehicles.
Camping World researches the travel routes used by RV owners and the location of
camping areas in order to ensure the convenient location of its supercenters.
Sales and shipment of new RVs together with analysis of demographic data derived
from its customer database and mail order shipments and RV ownership lists from
other sources are used to identify high concentrations of RV owners. Once an
area has been identified, Camping World surveys its customers to select specific
locations for a new supercenter. Camping World credits this detailed analytical
approach with the fact that it has closed only one store since inception.
Camping World does not plan to open a new supercenter in 1997.
The aggregate cost to construct and open an 18,000 square foot supercenter
(the anticipated typical size of new supercenters) is estimated to be
$2,750,000. It typically takes six months to complete construction of a store.
Camping World has generally funded construction with internally generated funds
and has subsequently entered into sale-leaseback transactions to obtain
long-term financing.
MAIL ORDER OPERATIONS
Camping World initiated its mail order operations in 1967. Camping World
currently has a proprietary mailing list of approximately 1.7 million RV owners,
all of whom have made a purchase or requested a catalog from Camping World
within the prior 60 months. Camping World maintains a database of these names,
which includes information such as order frequency, size of order, date of most
recent order and type of merchandise purchased. Camping World analyzes its
database to determine those customers most likely to order from Camping World's
catalogs. As a result, Camping World is able to target catalog mailings more
effectively than direct marketers of catalogs offering general merchandise. From
fiscal 1992 to fiscal 1996, Camping World's catalog mailing response rate has
increased from 4.1% to 4.6% as a result of more effective target marketing.
Camping World continually expands its proprietary mailing list through in-store
subscriptions and requests for catalogs in response to advertisements in
regional publications directed to RV owners. In addition, Camping World rents
mailing lists of RV owners from third parties including AGI.
During fiscal 1996, Camping World distributed 9.1 million catalogs, of which
7.6 million were mailed in 12 separate mailings, and the remaining 1.4 million
catalogs were distributed in supercenters, at campgrounds, by request and as
package inserts. In fiscal 1996, Camping World processed over 420,000 catalog
orders at an average net order size of $84, excluding postage and handling
charges. The average net order size has increased over 15% since fiscal 1992.
Camping World distributes seven major high quality, full color catalogs each
year: master, spring, fall, holiday, two sale editions and a prospecting
catalog. Camping World also distributes specialty catalogs directed to targeted
customers in order to develop market niches.
Camping World's mail order operations, located at its headquarters in
Bowling Green, Kentucky, offer toll-free customer service seven days a week 24
hours a day. Camping World has established a sales training program for its
customer service personnel and also provides experienced technical advisors to
answer specific questions by telephone. Orders are usually processed and shipped
within 24 hours of receipt.
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MARKETING
Camping World's principal marketing strategy is to capitalize on its broad
name recognition among RV owners. Camping World solicits customers through mail
order catalogs, direct mail retail flyers, advertisements in national and
regional industry publications, vendor coop advertising programs, promotional
events, President's Club direct mailings and personal solicitations and
referrals.
Camping World's President's Club program, which was established in 1986, has
grown to approximately 465,000 members. President's Club memberships may
initially be obtained for one, two or three years at a cost of $20, $35 or $50,
respectively. The average life (including renewals) of club membership is three
years and approximately 94% of club members are enrolled for one year.
President's Club members receive a 10% discount on the purchase of all of
Camping World's merchandise and installation fees and receive special mailings,
including newsletters and flyers offering selected products and services at
special prices. In fiscal 1996, President's Club members accounted for
approximately 86.0% of Camping World's merchandise sales and service revenues.
The average order size was $124 for President's Club members as compared to $23
for non-club members.
PURCHASING
Camping World sources over 8,000 products from approximately 800 vendors.
Camping World attends regional, national and international trade shows to
determine the products it will offer. The purchasing activities of Camping World
are focused on RV parts and accessories, electronics, housewares, hardware,
automotive, crafts, clothing, home furnishings, gifts, camping and sporting
goods. Camping World has developed an automated plan-o-gram system to provide
merchandising plans to each supercenter and a minimum/maximum inventory system
for its operations to improve fulfillment rates on key items. Camping World
believes that the volume of merchandise it purchases and its ability to buy
direct from manufacturers together with the utilization of its transportation
fleet enables Camping World to obtain merchandise at costs which compare
favorably to local RV dealers and retailers. Camping World does not enter into
material long-term contracts or commitments with its vendors. Camping World's
largest vendor, a supplier of awnings, refrigerators and air conditioners,
accounted for approximately 12% to 13% of Camping World's total purchases during
the last two fiscal years.
MANAGEMENT INFORMATION SYSTEMS
Camping World's management information systems and electronic data
processing systems consist of an extensive range of retail, mail order,
financial and merchandising systems, including purchasing, inventory
distribution and control, sales reporting, accounts payable and merchandise
management. Camping World's management information system includes point-of-sale
registers which are equipped with bar code readers in each supercenter. These
registers are polled nightly by a central computer. With this point-of-sale
information and the information from Camping World's on-line distribution
centers, Camping World compiles comprehensive data, including detailed sales
volume and inventory information by product, merchandise transfers and receipts,
special orders, supply orders and returns of product purchases to vendors. In
conjunction with its nightly polling, Camping World's central computer sends
price changes to registers at the point of sale. The registers capture
President's Club member numbers and associated sales and references to specific
promotional campaigns. Management monitors the performance of each supercenter
and mail order operation to evaluate inventory levels, determine markdowns and
analyze gross profit margins by product. Camping World has installed a new
computer system and plans to integrate all of its computerized functions over
the next three years. Recently, Camping World upgraded its point-of-sale system
to sell President's Club memberships and renewals at the check-out register and
to capture names of prospective club members.
Camping World's catalog operations also utilize a computerized management
system allowing on-line desktop access to information which previously required
manual retrieval. Screen prompts which provide
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product, promotional, and revenue potential have allowed Camping World to
maintain high service levels during seasonal sales peaks. The installation of an
automatic call distribution switch with scheduling software has facilitated more
effective management of customer inquiries and reduced set-up time for call
processing.
EHLERT
Ehlert is a specialty publisher of sports and recreation magazines focusing
on four niches: snowmobiling, personal watercraft, archery and ATV's. For the
year ended December 31, 1996, Ehlert generated revenues of $14.2 million and
EBITDA of $2.2 million. For twelve months ended December 31, 1996, the paid
circulation for Ehlert's publications was approximately 290,000 and controlled
circulation for industry and consumer publications was approximately 1.1
million.
The Company estimates that in 1996, the snowmobile, personal watercraft and
archery groups had advertising revenue shares of approximately 62.3%, 39.6% and
27.5%, respectively, in their applicable sports and recreation magazine segment.
Ehlert's market share leadership position in its magazine segments, its close
contact with manufacturers, distributors, dealers and industry associations, and
its reputation as an advocate for responsible sporting practices has enabled
Ehlert to increase its advertising revenue by approximately 111% over the five
years ended December 31, 1996.
Ehlert produces several differentiated publications for its snowmobile,
personal watercraft and archery magazine segments and plans to do so for its
recently launched ATV magazine segment. Ehlert's strategy is to target
specialized sporting and recreational niches through multiple publications. This
strategy has resulted in further segmentation within its market and has
positioned several of Ehlert's magazines as leaders in their respective
segments. Advertisers have demonstrated a willingness to support Ehlert's
multiple and controlled publication strategy and special merchandising programs
as evidenced by the growth rates achieved in advertising revenues.
The eleven magazines published by Ehlert and their industry groups are as
follows:
<TABLE>
<CAPTION>
NUMBER OF
ISSUES
1996 PUBLISHED
PUBLICATION CIRCULATION EACH YEAR
- --------------------------------------------------------------- --------------- ---------------
<S> <C> <C>
Snowmobile Group:
Snowmobile................................................... 579,208(1)(3) 4
SnowGoer..................................................... 76,797(1) 5
Snow Week.................................................... 22,975(1) 18
Snowmobile Business.......................................... 6,000(2) 6
Personal Watercraft Group:
PWC Magazine................................................. 302,786(1)(3) 3
Watercraft World............................................. 32,076(1) 9
Watercraft Business.......................................... 6,000(2) 6
Archery Group:
Bowhunting World............................................. 119,358(1)(3) 8
3-D & Target Archery......................................... 12,223(1) 7
Archery Business............................................. 11,000(2) 7
ATV Group:
ATV Magazine................................................. 191,693(1)(3) 3
</TABLE>
- ------------------------
(1) Paid circulation.
(2) Controlled circulation to trade.
(3) Controlled circulation to consumer.
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SNOWMOBILE GROUP
SNOWMOBILE magazine delivers broad-based editorial and snowmobile-related
information to its audience of active snowmobile enthusiasts, including reviews
of new machines, clothing and accessories, and articles on responsible riding
practices, snowmobiling vacation destinations and special events, and serves as
the front-end medium for all snowmobile-related product promotions.
SNOWGOER is designed for the sport's highly active participants and provides
detailed equipment and product critiques and maintenance tips.
SNOW WEEK is the central source of information for the competition and
high-performance snowmobiling market segment. The publication provides timely,
year-round stories on racing, performance enhancing products, technical
assistance, new product introductions, and industry general information.
SNOWMOBILE BUSINESS presents a mix of news, opinion, trends, and sales tips
designed to improve the financial performance of snowmobile dealers.
PERSONAL WATERCRAFT GROUP
PWC MAGAZINE is the complete guide for the personal watercraft owner and
provides reviews of personal watercraft, gear and accessories as well as
information on maintenance procedures, safety tips and travel destinations. PWC
Magazine was first published in January 1995.
WATERCRAFT WORLD is targeted to avid personal watercraft enthusiasts and
provides detailed critiques of watercraft, in-depth gear and accessory
evaluations, technical tips and racing information.
WATERCRAFT BUSINESS serves industry professionals and focuses on new
products, sales techniques, recent developments and industry news.
ARCHERY GROUP
BOWHUNTING WORLD is the archery equipment authority which provides
information on new equipment reviews and maintenance techniques, and features
articles which discuss ethical hunting, hunting rights, and pertinent
legislative issues.
3-D & TARGET ARCHERY is geared to recreational and competitive archery
participants and provides tournament information, reviews, technical tips, and
human interest features associated with this recreational activity.
ARCHERY BUSINESS is the leading trade publication for archery dealers and
presents a mix of industry news and trends, product reviews and sales tips
designed to improve financial performance of archery product dealers.
ATV GROUP
ATV MAGAZINE'S first issue was published in October 1995. The publication is
designed to reach large numbers of active ATV owners with comprehensive product
information during periods when equipment is purchased.
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REGULATION
The Company's operations (including the operations of Camping World and
Ehlert) are subject to varying degrees of federal, state and local regulation.
Specifically, the Company's outbound telemarketing, direct mail, emergency road
service program, insurance and thrift and loan activities are currently subject
to regulation and may be subjected to increased scrutiny in the future. The
Company does not believe that such federal, state and local regulations
currently have a material impact on its operations. However, new regulatory
efforts impacting the Company's operations may be proposed from time to time in
the future at the federal, state and local level. There can be no assurance that
such regulatory efforts will not have a material adverse effect on the Company's
ability to operate its businesses or its results of operations.
COMPETITION
In general the Company's membership clubs, retail and catalog operations and
publications compete with numerous organizations in the recreation industry for
disposable income spent on leisure activities. By offering significant
membership benefits at a reasonable cost and actively marketing to club members,
the Company believes that it has been able to maintain a loyal following for its
membership organizations as evidenced by such clubs' high renewal rates. The
products and services marketed by the Company compete with similar products and
services offered by other providers. However, management believes that it is
able to use the large volume of purchases by its club members to secure
attractive pricing for the products and services marketed by the Company.
EMPLOYEES
As of December 31, 1996, AGI had 428 full-time and 19 part-time employees.
As of December 31, 1996, Camping World had 777 full-time and 176 part-time or
seasonal employees. As of December 31, 1996, Ehlert had 57 full-time and 2
part-time employees. The Company believes the relations with its employees are
good. None of the Company's employees is covered by a collective bargaining
agreement.
TRADEMARKS AND COPYRIGHTS
The Company owns a variety of registered trademarks, logos and service marks
for the names of its clubs, magazines and other publications. The Company also
owns the copyrights to certain articles in its publications. The Company
believes that its trademarks have significant value and are important to its
marketing efforts.
PROPERTIES
In 1995, AGI moved its marketing, accounting and editorial functions from
Camarillo, California to a 74,100 square foot office in Ventura, California
leased through July, 2005 from an affiliate of AGI. The remainder of AGI's
continuing operations are conducted from 3,000 square feet of leased office
space in Tallahassee, Florida, 672 square feet of leased offices in Seattle,
Washington, 4,076 square feet of leased space in Elkhart, Indiana, 20,000 square
feet of leased office space in Lake Forest, Illinois and 2,000 square feet of
leased office space in Greenville, Michigan, and 60,000 square feet of owned
office space in Denver, Colorado (for its customer service, warehousing
fulfillment, and information system functions). AGI also leases data processing
and other office equipment. The previously occupied 49,500 square feet of office
space in Camarillo, California is under a lease expiring in 1998.
Camping World owns its corporate headquarters, comprised of approximately
26,000 square feet, in Bowling Green, Kentucky. The administrative offices and
mail order operations are located in the corporate headquarters. Camping World
leases the East Coast Distribution Center in Bowling Green, Kentucky, consisting
of approximately 104,000 square feet and 19 of Camping World's supercenters
pursuant to leases with terms generally ranging from 14 to 40 years and expire
in 2010 or later, including renewal terms, except as noted in the table below.
Camping World's leases generally provide for fixed monthly rentals with annual
escalation clauses. Camping World owns the remaining seven supercenters and owns
the approximately 81,500 square foot West Coast Distribution Center, including a
1,800 square foot retail showroom, in Bakersfield, California.
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<PAGE>
The table below sets forth certain information concerning Camping World's
supercenters:
<TABLE>
<CAPTION>
SQUARE OWNED/ LEASE
FEET ACRES LEASED EXPIRATION
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
Location:
Mesa, AZ............................................................... 27,500 3.140 Leased 2010
La Mirada, CA.......................................................... 30,647 4.450 Owned --
El Cajon, CA........................................................... 33,892 3.068 Leased 1997(1)
Fairfield, CA.......................................................... 43,434 3.780 Leased 2020
Rocklin, CA............................................................ 29,085 4.647 Leased 2037
San Bernardino, CA..................................................... 18,126 1.665 Leased 2012
San Martin, CA......................................................... 29,486 5.000 Leased 2023
Valencia, CA........................................................... 58,800 9.310 Owned --
Denver, CO............................................................. 27,085 4.132 Leased 2037
Ft. Myers, FL.......................................................... 22,886 4.217 Leased 2012
Kissimmee, FL.......................................................... 56,850 6.043 Owned --
Tampa, FL.............................................................. 40,334 3.711 Leased 2026
Bolingbrook, IL........................................................ 25,126 5.299 Leased 2036
Bowling Green, KY...................................................... 38,368 2.895 Owned --
Belleville, MI......................................................... 44,197 8.790 Owned --
Rogers, MN............................................................. 24,700 6.303 Leased 2025
Bridgeport, NJ......................................................... 24,581 6.920 Leased 2031
Las Vegas, NV.......................................................... 25,850 4.400 Leased 2025
Brunswick, OH.......................................................... 17,900 4.087 Leased 2038
Wilsonville, OR........................................................ 32,850 4.653 Leased 2016
Myrtle Beach, SC....................................................... 38,935 5.690 Owned --
Nashville, TN.......................................................... 30,000 3.238 Owned --
Denton, TX............................................................. 22,984 6.887 Leased 2037
Mission, TX............................................................ 23,094 3.430 Leased 2015
Salt Lake City, UT..................................................... 27,675 8.031 Leased 2026
Fife, WA............................................................... 35,659 5.840 Leased 2032
</TABLE>
- ------------------------
(1) Camping World is relocating its El Cajon supercenter to a 26,000 square foot
facility located in San Marcos, CA leased until March 31, 2012.
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<PAGE>
Ehlert leases its executive offices, comprised of 12,186 square feet, in
Minnetonka, Minnesota and a research facility of approximately 8,000 square feet
on 60 acres in Wisconsin.
LEGAL PROCEEDINGS
From time to time, AGI is involved in litigation arising in the normal
course of business operations. None of such current litigation is expected,
individually or in the aggregate, to have a material adverse effect on AGI.
From time to time, Camping World is involved in litigation arising in the
normal course of business operations. Camping World feels that its insurance
coverage is sufficient for its protection for liability. None of such litigation
is expected, individually or in the aggregate, to have a material adverse effect
on Camping World.
On February 7, 1997, Affinity Group Plans, Inc. (an entity not affiliated
with the Company) and National Alliance Insurance Company filed a complaint in
the United States District Court for the Eastern District of Missouri against
Camping World, a subsidiary of Camping World, and two of the directors of
Camping World (who were directors of Affinity Group Plans, Inc.) seeking damages
in excess of $125 million (and punitive damages in a like amount). The claims,
alleging breaches of contract, misrepresentations, misappropriation of
information and breaches of fiduciary duty, relate to a July 1992 agreement
among Camping World, Affinity Group Plans, Inc. and certain other parties to
establish an insurance marketing arrangement pursuant to which certain RV
vehicle insurance products are proposed to be marketed to Camping World
customers. During preliminary negotiations between AGI and Camping World, the
parties considered the sale by Camping World to AGI of certain assets of Camping
World, excluding the assets and liabilities relating to the July 1992 agreement.
In their complaint, the plaintiffs claim the transaction with AGI would deprive
them of the benefits of the July 1992 agreement, the term of which expires in
2002. The Company and the owners of Camping World have structured the
acquisition of Camping World by AGI as a stock purchase, which will result in
the insurance marketing arrangements and related assets in dispute to remain as
the assets and liabilities of Camping World. The Company has advised the
plaintiffs in this litigation that it recognizes the contractual obligations of
Camping World relating to such marketing arrangements and that it intends to
comply (and to cause Camping World to comply) with the terms of such insurance
marketing arrangements.
69
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- ------------------------------------------------------------------------
<S> <C> <C>
Stephen Adams............... 59 Chairman of the Board of the Company and AGI
Joe McAdams................. 53 President, Chief Executive Officer of the Company and AGI and Director
Wayne Boysen................ 66 Chairman of ATL and AINS and Director
David Frith-Smith........... 51 Director
Mark J. Boggess............. 41 Vice President and Chief Financial Officer of the Company and Senior
Vice President and Chief Financial Officer of AGI
Michael Schneider........... 43 Chief Operating Officer of AGI
David Block................. 48 Senior Vice President of AGI
Mark Dowis.................. 39 Senior Vice President of AGI
Roger Ryman................. 59 President of the Coast to Coast Clubs
Keith Urry.................. 60 President of the Golf Card Club
Thomas A. Donnelly.......... 40 President and Chief Executive Officer of Camping World and Director
John Ehlert................. 51 Director
David B. Garvin............. 53 Director
</TABLE>
Stephen Adams has been Chairman of the Company since its inception and of
AGI since its acquisition in December, 1988. Since the 1970's, Mr. Adams has
served as Chairman of privately-owned banking, bottling, publishing, outdoor
advertising, television and radio companies in which he holds a controlling
ownership interest. Mr. Adams is also Chairman and the controlling shareholder
of Adams Outdoor Advertising, Inc., the managing general partner of Adams
Outdoor Advertising Limited Partnership.
Joe McAdams has been President and Chief Executive Officer of the Company
since its inception and of AGI since July, 1991. Prior thereto and since
December of 1988, Mr. McAdams was President of Adams Publishing Corporation, a
newspaper and magazine publishing company controlled by Mr. Adams. From October,
1987 through November, 1988, Mr. McAdams was President and Publisher of Southern
California Publishing Co. Prior to October, 1987 and since 1961, Mr. McAdams has
held various management positions with publishing and direct marketing
companies, including Senior Vice President and Chief Operating Officer of ADVO
Systems, Inc. from August, 1981 to April, 1983.
Wayne Boysen was Senior Vice President of AGI since June, 1991 until his
retirement on January 1, 1996 and has supervised the staff of the risk
management divisions of businesses owned by Stephen Adams, including the
Company, since July, 1988. In addition, since their acquisition by AGI in 1995,
Mr. Boysen has served as Chairman of ATL and AINS. From 1966 through July, 1988,
Mr. Boysen owned or managed insurance agencies and provided consulting services
to property and casualty insurance agencies. Mr. Boysen has been a director of
the Company since its inception.
David Frith-Smith has served as managing partner of Biller, Frith-Smith &
Archibald, Certified Public Accountants, since 1988. Mr. Frith-Smith was a
principal in Maidy and Lederman, Certified Public
70
<PAGE>
Accountants, from 1980 to 1984, and with Maidy Biller Frith-Smith & Brenner,
Certified Public Accountants, from 1984 to 1988. Mr. Frith-Smith has been a
director of the Company since its inception. Mr. Frith-Smith is a director of
Adams Outdoor Advertising, Inc., the managing general partner of Adams Outdoor
Advertising Limited Partnership which is controlled by Stephen Adams, and
various private and non-profit corporations.
Mark J. Boggess has been Vice President and Chief Financial Officer of the
Company since its inception and Senior Vice President and Chief Financial
Officer of AGI since June, 1993. From June, 1992 through May, 1993, Mr. Boggess
was Vice President and Chief Financial Officer of Hypro Corporation, a privately
owned manufacturer of fluid transfer pumps. From June, 1989 through June, 1992,
Mr. Boggess was Treasurer of Adams Communications Corporation, a holding company
controlled by Stephen Adams which owned television and radio station operations
throughout the United States. From April, 1988 through May, 1989, Mr. Boggess
was Vice President and Chief Financial Officer of Econocom U.S.A., Inc., a
privately owned computer leasing company.
Michael Schneider has been Chief Operating Officer of AGI since 1996. Prior
thereto, Mr. Schneider served as Senior Vice President and General Counsel of
AGI since January 1993 and was responsible for administrative areas, development
of new corporate ventures, portions of the RV publication business and the
advertising and sales departments. Prior to January, 1993 and since 1977, Mr.
Schneider has held a variety of senior management positions in AGI's publication
business.
David Block has been Senior Vice President AGI since January, 1993 and is in
charge of member services, fulfillment, management information systems and
administration of AGI. Prior thereto and since 1988, Mr. Block held various
senior management positions with the Company or its predecessor in the areas of
management information systems and administration.
Mark Dowis has been Senior Vice President of AGI since January 1, 1995 and
is responsible for strategic and business planning, marketing, new business
development and venture initiatives for AGI. Prior to 1995 and since 1992, Mr.
Dowis was General Manager, Business Markets Division of the American Automobile
Association ("AAA") and prior to that post, he was the Managing Director of
Marketing and Research of the AAA. From 1989 to 1992, Mr. Dowis was an Associate
Administrator with the U.S. Department of Transportation in Washington, D.C.
Roger Ryman has been President of the Company's subsidiary which operates
the Coast to Coast clubs, since January, 1993 and was Executive Vice President
of such subsidiary since January, 1989. From September, 1986 through December,
1988, Mr. Ryman served as Vice President and Director of Resort Services for
Coast to Coast.
Keith W. Urry has been President of the Company's subsidiary which operates
the Golf Card club since January, 1991 and prior thereto was Executive Vice
President of such subsidiary since 1982. Mr. Urry is also on the Board of
Directors of the National Golf Foundation, an industry information organization.
Thomas A. Donnelly has served as President of Camping World since 1986 and
as its Chief Executive Officer since 1988. Mr. Donnelly joined Camping World in
1971 and served in various management positions until 1984, at which time he was
promoted to Senior Vice President, Operations. Mr. Donnelly and Mr. Garvin are
first cousins.
John Ehlert is the founder of Ehlert and has served as its President and
Chief Executive Officer since 1976 until its acquisition by AGI. Mr. Ehlert
serves on the board of directors of various trade, private and charitable
organizations.
David B. Garvin founded Camping World in 1966 and served as President of
Camping World from 1966 to 1986 and as its Chairman of the Board of Directors
since 1986. Mr. Garvin is also a director of Trans Financial Bancorp, Inc. Mr.
Garvin and Mr. Donnelly are first cousins.
Directors are elected for a term of one year or until their successors have
been duly elected.
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<PAGE>
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning the
compensation paid by the Company to the Company's Chief Executive Officer and
each of the four other highest compensated current executive officers
(determined as of the end of the Company's year ended December 31, 1996) for the
years ended December 31, 1994, 1995 and 1996. All of the compensation was paid
by AGI or its subsidiaries during these periods since the Company was only
recently formed.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
NAME AND ------------------------ OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) COMPENSATION(2)
- -------------------------------------------- --------- ---------- ------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Stephen Adams............................... 1996 $ 699,992 $ 1,199,999 $ 53,953
Chairman of the Board 1995 699,992 1,200,000 25,555
1994 700,000 1,139,992 4,158
Joe McAdams, President...................... 1996 99,996 400,000 $ 1,226,933(3) 6,334
Chief Executive Officer 1995 99,996 390,000 240,000(3) 6,038
1994 99,996 370,000 5,860
Michael Schneider........................... 1996 182,145 138,350 7,482
Chief Operating Officer 1995 165,072 107,157 7,287
1994 156,829 148,070 7,289
Mark Boggess................................ 1996 173,326 115,000 7,482
Chief Financial Officer 1995 165,072 55,250 7,411
1994 157,187 75,000 3,544
David Block................................. 1996 173,326 8,112 7,860
Senior Vice President 1995 165,072 31,885 7,613
1994 157,212 35,000 6,930
</TABLE>
- ------------------------
(1) Personal benefits are the lesser of (i) 10% of total annual salary and bonus
(ii) $50,000, except as described in Note (3) below.
(2) Represents company contributions to 401(k) and split dollar life insurance
economic benefit.
(3) Under the terms of his phantom stock agreement, Mr. McAdams received
$1,226,933 in 1996 and $240,000 in 1995.
The Company does not have any outstanding stock options or restricted stock
grants. AGI has phantom stock agreements for certain of its officers. See
"--Agreements with Executive Officers."
AGREEMENTS WITH EXECUTIVE OFFICERS
The following is a summary of the material terms of the employment agreement
and the phantom stock agreements with executive officers of the Company:
Mr. Adams and AGI are parties to an employment agreement providing for his
employment as the Chairman of the Company through September 1, 1997. The base
salary for Mr. Adams is $700,000 and his incentive compensation is 3% of
operating profits (as defined in the agreement).
In January, 1992, AGI introduced a phantom stock incentive program for key
employees. Since that time, certain employees have been granted awards at
various interest levels and over varying vesting periods. The value of the
phantom stock interest is based on the increase in the value of AGI over the
base value at the award date. In accordance with the formula set forth in the
agreements, which formula
72
<PAGE>
approximates a multiple of operating profits and is intended to approximate the
fair market value of AGI, earned incentives are paid in three annual
installments following the earlier of (a) termination of employment, (b) sale of
AGI, or (c) five years after the grant of the phantom stock interest. The
phantom stock agreements also set forth the terms of employment for the
executive.
The following table sets forth the current awards outstanding under the
program as of December 31, 1996. As of December 31, 1996, the aggregated accrued
liability under AGI's phantom stock incentive program was approximately $4.0
million.
<TABLE>
<CAPTION>
FULL VESTED
OFFICER/DIRECTOR INTEREST AMOUNT
- --------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Joe McAdams (1)............................................................ 2.00% 1.00%
Mike Schneider (2)......................................................... 1.23% 1.23%
Mark Boggess............................................................... 0.33% 0.33%
David Block (3)............................................................ 0.10% 0.08%
Mark Dowis................................................................. 0.33% 0.05%
Roger Ryman................................................................ 0.10% 0.08%
All Other Employees........................................................ 0.10% 0.00%
Reserved for future issuance (4)........................................... 5.00% 0.00%
</TABLE>
- ------------------------
(1) In October, 1995, AGI amended and extended the terms of Mr. McAdams' phantom
stock agreement. Under the amended agreement, Mr. McAdams is entitled to
$3.6 million payable in three equal installments beginning January, 1996. In
addition, Mr. McAdams was awarded a 2.0% phantom stock interest in October
1995 which vests in equal installments on the first two anniversaries of the
award.
(2) Mr. Schneider and four other executive officers were each awarded a 0.10%
phantom stock interest in January 1992. Pursuant to the terms of those
phantom stock agreements, each of those employees is entitled to receive the
awarded phantom stock interest in three equal installments beginning January
1997.
(3) In addition, Mr. Block entered into a phantom stock agreement with a
subsidiary of AGI. Under the terms of such agreement, Mr. Block was granted
a 5% phantom interest in such subsidiary vesting 1% annually beginning
December 1996. The value of such phantom interest is based on the increase
in the value of such subsidiary and is based on formulas that are intended
to approximate the fair market value of the subsidiary.
(4) In connection with the Company's acquisition of Camping World, AGI reserved
an aggregate of 2.5% in phantom stock interests to be granted to executives
of Camping World and an aggregate of 2.5% in phantom stock interests to be
awarded to executives of AGI. The phantom stock interest are not expected to
be awarded until the end of the 1997.
The executive's base salary and annual bonus are determined from time to
time by the Board of Directors of AGI. In the event the executive's employment
is terminated without cause, the phantom stock agreements provide for severance
benefits of up to one year's base salary plus the accrued bonus for the year in
which such termination occurs.
In connection with the Company's acquisition of Camping World, the Company
entered into a consulting and non-competition agreement and a management
incentive agreement with Thomas A. Donnelly, a director of the Company and the
President and Chief Executive Officer of Camping World. Pursuant to the
consulting and non-competition agreement and at closing of the Camping World
acquisition, the Company paid $3.4 million to Mr. Donnelly. Under the management
incentive agreement which the Company entered into with Mr. Donnelly at the time
of the acquisition of Camping World, the Company has agreed, subject to Camping
World achieving certain operating goals, to pay up to $6.6 million to Mr.
Donnelly over the five years following the Camping World acquisition.
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<PAGE>
COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION
AGI's Board of Directors determines the compensation of the executive
officers. The executive officers of the Company that serve on AGI's Board of
Directors are Stephen Adams and Joe McAdams. In addition, until his retirement
on January 1, 1996, Wayne Boysen was an executive officer of AGI.
Stephen Adams, the Chairman and a director of the Company, has an employment
agreement with AGI through September 1, 1997 under which Mr. Adams receives a
base salary of $700,000 plus incentive compensation of 3% of operating profits
(as defined). In addition, AGI purchased in 1995 $3.0 million of subordinated
notes of Adams Outdoor Advertising Limited Partnership ("AOALP") from Holding.
Mr. Adams is the principal owner of Holding and AOALP. The investment and
accrued interest were repaid in full on March 12, 1996. Interest on the notes
was $54,000 in 1995 and $113,000 in 1996.
Joe McAdams, a the President and Chief Executive Officer and a director of
the Company, has phantom stock agreements with AGI pursuant to which Mr. McAdams
receives $3.6 million in three annual installments which began in January 1996
and holds a 2.0% phantom stock interest which will be fully vested in October
1997.
Wayne Boysen, a director of the Company and former executive officer of the
Company, has phantom stock agreements with AGI pursuant to which Mr. Boysen will
receive $400,000 in three equal annual installments which began in January,
1996.
In connection with the Company's acquisition of Camping World, the Company
entered into consulting and non-competition agreements with David B. Garvin, a
director of the Company and formerly the Chairman of Camping World, and Thomas
A. Donnelly, a director of the Company and the President and Chief Executive
Officer of Camping World. Pursuant to the consulting and non-competition
agreements, the Company paid, at closing of the Camping World acquisition, $9.5
million to Mr. Garvin and $3.4 million to Mr. Donnelly. In addition, pursuant to
the management incentive agreement which the Company entered into with Mr.
Donnelly at the time of the acquisition of Camping World, the Company agreed,
subject to Camping World achieving certain operating goal, to pay up to $6.6
million to Mr. Donnelly over the five years following the Camping World
acquisition.
Messrs. Garvin and Donnelly are partners in partnerships which lease to
Camping World seven facilities under long-term leases. For Camping World's
fiscal year ended September 30, 1996, payments under these leases were
approximately $2.1 million. The leases expire during the period April 2000 and
September 2011, subject to the right of Camping World to exercise renewal
options. The Company believes that such leases contain lease terms as favorable
as that would be obtained form independent third parties.
John Ehlert, a director of the Company, is a partner in a partnership which
leases to Ehlert its research facility under a long-term lease. For the year
ended December 31, 1996, the rental payments for such facility were $42,000. The
lease expires in October 1999, subject to the right of Ehlert to exercise
renewal options. The Company believes that such lease contains lease terms as
favorable a lease terms that would be obtained from independent third parties.
BONUS PLAN
AGI annually adopts bonus programs for employees, including executive
officers other than Mr. Adams. Bonus payments are made based on achievement of
specified operating results.
401(K) SAVINGS AND PROFIT PLAN
AGI sponsors a deferred savings and profit sharing plan (the "401(k) Plan")
qualified under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986,
as amended (the "Code"). All employees over age 21 who have completed one year
of service are eligible to participate in the 401(k) Plan. Eligible employees
may contribute to the 401(k) Plan up to 10% of their salary subject to an annual
74
<PAGE>
maximum established under the Code and the Company matches these employee
contributions at the rate of 75% up to the first 6% of the employee's salary.
Employees may also make additional voluntary contributions.
OTHER BENEFIT PLANS
The Company employees receive certain medical and dental benefits during
their employment. A predecessor to the Company also provided eligible employees
with medical, dental and life insurance coverage after retirement. The estimated
future costs associated with such coverage to retirees is reserved as a
liability in the Company's consolidated financial statements. Current employees
are not provided with future medical and dental benefits upon retirement.
DIRECTOR COMPENSATION
The Company pays directors who are not also employees (Messrs. Boysen,
Ehlert, Frith-Smith and Garvin) director fees of $1,500 per month.
75
<PAGE>
CERTAIN TRANSACTIONS
Effective June 1995, AGI entered into a lease agreement for its corporate
facilities in Ventura, California with AGI Real Estate Holdings, Inc. The owners
of AGI Real Estate Holdings, Inc. are minority shareholders of Holding, the
Company's parent company, and are also related to Stephen Adams, the Company's
Chairman. The lease extends for an initial term of 20 years. Upon execution of
the lease, the Company paid $1,650,000 as initial rent and pays monthly base
rent, commencing at $369,000 annually and increasing to $492,000, through year
ten of the lease. On the tenth anniversary of the lease, and extending through
the term of the initial lease, either party may compel the other party to enter
into a twenty year extension. The rental rate will be set based on the fair
value of the leased premises at the time of the extension. The Company believes
that such lease contain lease terms as favorable as lease terms that would be
obtained from independent third parties.
In 1995, AGI purchased $3.0 million of subordinated notes of Adams Outdoor
Advertising Limited Partnership ("AOALP") from Holding. Stephen Adams, the
Company's Chairman, is the principal owner of Holding and AOALP. The investment
and related accrued interest are included in note receivable from affiliate in
the accompanying balance sheet. On March 12, 1996 the notes were paid in full.
Included in income in the accompanying statement of operations for 1996 and 1995
is $54,000 and $113,000, respectively, of interest income related to these
notes.
Certain facilities used by AGI were leased until April, 1994 from
partnerships in which Stephen Adams was a majority partner. Aggregate rental
payments under the terms of the leases were approximately $101,000, and $305,000
during 1994, and 1993, respectively.
For a description of the employment, consulting, non-competition, management
incentive and phantom stock agreements with the Company and persons serving as
an executive officer or director of the Company, see "Management--Agreements
with Executive Officers" and "Management--Compensation Committee Interlock and
Insider Participation."
For a description of leases which subsidiaries of the Company have with
partnerships in which a director of the Company has a partnership interest, see
"Management--Compensation Committee Interlock and Insider Participation."
76
<PAGE>
PRINCIPAL SHAREHOLDERS AND
SECURITY OWNERSHIP OF MANAGEMENT
The Company is a wholly-owned subsidiary of Holding, a privately-owned
corporation. The following table sets forth, as of December 31, 1996 certain
information with respect to the beneficial ownership of the Common Stock of
Holding by each shareholder who is known to the Company to beneficially own more
than 5% of the outstanding shares, each executive officer and director of the
Company, and all executive officers and directors of the Company.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
NAME AND ADDRESS COMMON STOCK PERCENT OF COMMON
OF BENEFICIAL OWNER OWNED(1) STOCK
- ---------------------------------------------------------------------------------- -------------- -----------------
<S> <C> <C>
Stephen Adams..................................................................... 1,404.7(2) 95.7%
2575 Vista Del Mar Drive
Ventura, CA 93001
Joe McAdams....................................................................... 3.0 (3)
Wayne Boysen...................................................................... -- --
David Frith-Smith................................................................. -- --
Mark J. Boggess................................................................... 0.2 (3)
Michael Schneider................................................................. -- --
David Block....................................................................... -- --
Mark Dowis........................................................................ -- --
Keith Urry........................................................................ -- --
Thomas A. Donnelly................................................................ -- --
John Ehlert....................................................................... -- --
David B. Garvin................................................................... -- --
All executive officers and directors as a group (12 persons)...................... 1,407.9 95.9%
</TABLE>
- ------------------------
(1) The beneficial owners have sole voting and investment power with respect to
the shares listed in the table.
(2) Does not include 50 shares owned by members of Mr. Adams' family who do not
reside with him. Mr. Adams disclaims beneficial ownership of these shares.
(3) Less than 1.0%.
77
<PAGE>
DESCRIPTION OF OTHER INDEBTEDNESS
AGI CREDIT FACILITY
The AGI Credit Facility is a senior secured credit facility consisting of a
revolving line of credit of $45.0 million and a term loan of $30.0 million. The
interest rate on borrowings under the AGI Credit Facility is at variable rates
based on the ratio of total cash flow to outstanding indebtedness (as defined)
and AGI will pay a commitment fee of 0.5% per annum on the unused amount of its
revolving credit line.
If the Acquisitions, the Private Offering and the AGI Credit Facility were
consummated as of March 31, 1997, AGI would have had $30.0 million outstanding
under the AGI Credit Facility and $45.0 million of undrawn commitments under the
revolving line of credit. Of such undrawn commitments, $24.5 million could have
been borrowed under the limitations on indebtedness in the AGI Indenture. The
term loan will be amortized in equal quarterly installments of $1.5 million. The
AGI Credit Facility expires March 31, 2002. Substantially all of AGI's assets
and the assets of the subsidiaries of AGI which are designated as restricted
subsidiaries are pledged as collateral under the terms of the AGI Credit
Facility. The Company has guaranteed the obligations of AGI under the AGI Credit
Facility and pledged the stock of AGI to secure its guaranty.
The AGI Credit Facility contains certain restrictive covenants on AGI and
its subsidiaries. Under the restrictions on indebtedness, AGI and its restricted
subsidiaries may not incur additional indebtedness (as defined) except for the
refunding or refinancing of existing indebtedness, up to $4.5 million of
capitalized leases or purchase money security interests and up to $7.0 million
of other indebtedness. Under the restrictions on liens, AGI and its restricted
subsidiaries may not create any additional liens except for liens on fixed or
capital assets for the cost to acquire such assets not to exceed $4.5 million in
the aggregate and certain other permitted liens which are incurred in the
ordinary course of business. Under the restrictions on contingent liabilities,
neither AGI or any restricted subsidiary is permitted to guarantee the
indebtedness or obligations of any other person, except for existing guarantees
by the restricted subsidiaries of and any refunding or refinancing of such
indebtedness, including the AGI Notes. Under the restrictions on fundamental
changes, AGI and its restricted subsidiaries may not (i) merge or consolidate
with another person, (ii) liquidate, wind up or dissolve itself, (iii) sell,
lease or otherwise dispose of any material part of its property, and (iv)
acquire any business, except for the sale of NAFE, transactions between AGI and
its restricted subsidiaries or among its restricted subsidiaries, and business
acquisitions of up to $20 million in any calendar year. Under the restrictions
on investments, AGI and its restricted subsidiaries may not make investments
except for permitted investments (consisting of obligations of or guaranteed by
the United States or an agency thereof, the highest rated commercial paper, and
deposits in banks with capital and surplus of more than $250 million),
investments in restricted subsidiaries, operating deposit accounts with banks,
employee advances in the ordinary course of business not to exceed $1.0 million,
existing investments, investments in unrestricted subsidiaries of up to $15
million. Under the restrictions on dividends and similar payments, AGI is
permitted to pay dividends to the Company so long as there is no default under
the AGI Credit Facility (i) in an amount sufficient to pay the interest due on
the Notes, (ii) in an amount sufficient to pay the amounts due under the
management incentive agreements with the Camping World executives, (iii) in the
amount payable under the tax sharing agreement between the Company, AGI and its
subsidiaries, (iv) in an amount sufficient to pay amounts due under the Ehlert
Note, and (v) 50% of excess cash flow (as defined). The AGI Credit Facility also
contains various financial covenants which AGI must satisfy or else AGI will be
in default and unable to make dividends or other distributions to the Company,
including dividends to make interest payments due under the Notes. The financial
covenants consist of (i) the maintenance of a minimum consolidated interest
coverage (as defined) ratio and a minimum consolidated fixed charges (as
defined) ratio, (ii) the achievement of a minimum annual amount of consolidated
operating cash flow (as defined), (iii) the maintenance of a consolidated total
leverage (as defined) ratio below certain maximum levels, and (iv) a limitation
on annual capital expenditures.
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AGI NOTES
In October 1993, AGI issued a total of $120 million of senior subordinated
notes. The AGI Notes bear interest at the rate of 11 1/2%, and mature on October
15, 2003. No sinking fund payments are required. The AGI Notes are unsecured
obligations of AGI and are subordinated in right of payment to the senior
indebtedness (as defined) of AGI, including the AGI Credit Facility, but will
rank senior or PARI PASSU with all other existing indebtedness and future
indebtedness of AGI. The AGI Notes are guaranteed by all of the subsidiaries of
AGI other than ATL and its parent corporation. The AGI Indenture governing the
AGI Notes contains certain restrictive covenants including, but not limited to,
mergers, change in the nature of the business, acquisitions, additional
indebtedness, sale of assets, investments, payment of dividends, and minimum
coverage ratios pertaining to interest expense, fixed charges, levels of
consolidated cash flow and cash flow leverage ratio. The AGI Indenture limits
indebtedness that can be outstanding under the AGI Credit Facility to 150% of
AGI's consolidated cash flow (as defined) for the immediately preceding four
fiscal quarters. The AGI Notes may be redeemed by AGI beginning October 15, 1998
at a redemption price of 104.313% which decreases annually until it reaches 100%
from and after October 15, 2001.
After giving pro forma effect to the application of the net proceeds from
the Private Offering, AGI would have had the ability to make a distribution to
the Company in the amount of $120.8 million as of March 31, 1997 under the terms
of the AGI Indenture.
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DESCRIPTION OF THE NOTES
The Original Notes were issued, and the New Notes will be issued under an
indenture to be dated as of April 2, 1997 (the "Indenture") between the Company
and United States Trust Company of New York, as trustee (the "Trustee"). The
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"TIA"), as in effect from time to time. The Notes are subject to all such terms,
and holders of the Notes are referred to the Indenture and the TIA for a
statement of them.
The following is a summary of the material terms and provisions of the
Notes. This summary does not purport to be a complete description of the Notes
and is subject to the detailed provisions of, and qualified in its entirety by
reference to, the Notes and the Indenture (including the definitions contained
therein.) Definitions relating to certain capitalized terms are set forth under
"--Certain Definitions" and throughout this description. Capitalized terms that
are used but not otherwise defined herein have the meanings assigned to them in
the Indenture and such definitions are incorporated herein by reference. The
Indenture has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The form of the New Notes and the Original Notes are
identical in all material respects except that the New Notes will have been
registered under the Securities Act and, therefore, will not bear legends
restricting their transfer and are not provided any registration rights. The New
Notes will not represent new indebtedness of the Company, will be entitled to
the benefits of the same Indenture which governs the Original Notes and will
rank pari passu with the Original Notes. Any provisions of the Indenture which
require actions by or approval of a specified percentage of Original Notes shall
require the approval of the holders of such percentage of principal amount of
Original Notes and New Notes, in the aggregate.
GENERAL
The Notes will be issued only in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. Principal of, premium,
if any, and interest on the Notes will be payable, and the Notes will be
transferable, at the corporate trust office or agency of the Trustee in the City
of New York maintained for such purposes at 114 West 47th Street, New York, New
York 10036. In addition, interest may be paid by wire transfer or check mailed
to the person entitled thereto as shown on the register for the Notes. No
service charge will be made for any registration of transfer or exchange of the
Notes, except for any tax or other governmental charge that may be imposed in
connection therewith. Any Notes that remain outstanding after the completion of
the Exchange Offer, together with the Exchange Notes issued in connection with
the Exchange Offer, will be treated as a single class of securities under the
Indenture. See "Exchange Offer; Registration Rights."
MATURITY, INTEREST AND PRINCIPAL
The Notes are general unsecured obligations of the Company, limited to
$130,000,000 in aggregate principal amount, and will mature on April 1, 2007.
Interest on the Notes will accrue at the rate of 11% PER ANNUM and will be
payable semi-annually on each October 1 and April 1, commencing October 1, 1997,
to the holders of record of Notes at the close of business on September 15 and
March 15 immediately preceding such interest payment date. Interest on the Notes
will accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the original date of issuance (the "Issue Date").
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months. Interest on overdue principal and (to the extent permitted by
law) on overdue installments of interest will accrue at a rate increasing to a
maximum of 13% PER ANNUM.
The Notes are not entitled to the benefit of any mandatory sinking fund.
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RANKING
The Notes are general unsecured obligations of the Company and, except as
otherwise provided herein, rank pari passu in right of payment with all existing
and future unsubordinated indebtedness of the Company. The Notes will rank
senior in right of payment to all existing and future subordinated indebtedness
of the Company. However, the Notes are effectively subordinated to the claims of
secured creditors of the Company to the extent of the value of the assets
securing such secured Indebtedness. The Notes are effectively subordinated to
all existing and future claims of creditors of the subsidiaries of the Company,
including AGI. As of April 30, 1997, the Company had $445.3 million of
consolidated indebtedness (including $21.0 million of trade payables and $18.8
of deposit liabilities of its thrift and loan subsidiary) outstanding. This
indebtedness includes $303.6 million of indebtedness (including $21.0 million of
trade payables and $18.8 million of deposit liabilities of its thrift and loan
subsidiary) of the Company's subsidiaries. See "Risk Factors--Structural
Subordination."
REDEMPTION
OPTIONAL REDEMPTION. The Notes are redeemable, in whole or in part, at the
option of the Company, at any time on or after April 1 , 2002, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest to the redemption date, if redeemed during the
12-month period beginning on April 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
2002.............................................................................. 105.500%
2003.............................................................................. 103.667%
2004.............................................................................. 101.833%
2005 and thereafter............................................................... 100.000%
</TABLE>
In addition to the optional redemption of the Notes in accordance with the
provisions of the preceding paragraph, on or prior to April 1, 2000, the Company
may use the net proceeds of one or more Public Equity Offerings to redeem up to
30% of the originally issued aggregate principal amount of Notes at a redemption
price of 110% of the aggregate principal amount thereof, plus accrued and unpaid
interest to the redemption date; PROVIDED, HOWEVER, that at least $75 million
aggregate principal amount of Notes remains outstanding immediately after giving
effect to any such redemption (it being expressly agreed that for purposes of
determining whether this condition is satisfied, Notes owned by the Company or
any of its Affiliates shall be deemed not to be outstanding).
SELECTION AND NOTICE. In the event that less than all of the Notes are to
be redeemed at any time, selection of Notes for redemption will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which the Notes are listed or, if the Notes are not listed
on a national securities exchange, on a PRO RATA basis, by lot or by such method
as the Trustee shall deem fair and appropriate, provided, however, that no Note
of $1,000 or less shall be redeemed in part. Notice of redemption shall be
mailed by first-class mail at least 30 but not more than 60 days before the
redemption date to each holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in a principal amount equal to the unredeemed
portion thereof will be issued in the name of the holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
will cease to accrue on Notes or portions thereof called for redemption.
CHANGE OF CONTROL
In the event of a Change of Control (see "--Certain Definitions"), the
Company shall notify the holders of Notes and the Trustee in writing of such
occurrence (the date of such occurrence being the "Change of Control Date") and
shall make an offer to purchase (the "Change of Control Offer"), on a
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business day (the "Change of Control Payment Date") not later than 60 days
following the Change of Control Date, all Notes then outstanding at a purchase
price equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the Change of Control Payment Date.
Notice of a Change of Control Offer shall be mailed by the Company to the
holders of Notes not less than 30 days nor more than 45 days before the Change
of Control Payment Date. The Change of Control Offer is required to remain open
for at least 20 business days and until the close of business on the business
day next preceding the Change of Control Payment Date. No assurance can be given
that the Company will have sufficient funds to repurchase the Notes upon a
Change of Control or that the performance of the Change of Control Offer would
not constitute an event of default in respect of the Company's other
indebtedness.
The Change of Control provisions do not apply in the event of certain
transactions with certain permitted holders including Stephen Adams and his
Affiliates. In addition, these provisions are not intended to afford the Holders
of the Notes protection in the event of a highly leveraged transaction,
reorganization, restructuring, merger or other similar transaction involving the
Company that may adversely affect the Holders of the Notes, but does not
constitute a Change of Control. However, the Indenture contains limitations on
the ability of the Company to incur additional indebtedness and to engage in
certain mergers, consolidations and sales of assets, whether or not a Change of
Control is involved. See "--Limitation on Additional Indebtedness,"
"--Disposition of Proceeds of Assets Sales" and "--Consolidation, Merger,
Conveyance, Transfer or Lease."
A Change of Control would also constitute a default under the Senior Credit
Facility. If any such default occurred and was not remedied within any
applicable grace period, the lenders thereunder would be entitled to declare all
amounts outstanding thereunder to be immediately due and payable, and the
ability of the Holders to receive the Change of Control purchase price for the
Notes could be impaired. There can be no assurance that sufficient funds will be
available at the time of any Change of Control to satisfy the obligations of the
Company under any Change of Control Offer which it might make or to repay the
Notes or other Indebtedness which may become payable at that time.
Clause (i) of the definition of "Change of Control" includes a sale, lease,
exchange or other transfer of "all or substantially all" of the assets of the
Company to a Person or Group of Persons. There is little case law interpreting
the phrase "all or substantially all" in the context of an Indenture. Because
there is no precise established definition of this phrase, there may be
uncertainty as to whether a Change of Control has occurred as a result of any
particular sale, lease, exchange or other transfer of assets of the Company. Any
such uncertainty may adversely affect the enforceability of the Change of
Control provisions of the Indenture.
None of the provisions relating to a redemption upon a Change of Control are
waiveable by the Board of Directors of the Company or the Trustee. See
"--Amendments and Waivers."
The Company will comply with any tender offer rules under the Securities
Exchange Act of 1934, as amended, which may then be applicable, including but
not limited to Rule 14e-1, in connection with any Change of Control Offer
required to be made by the Company to repurchase the Notes as a result of a
Change of Control.
The AGI Indenture contains similar provisions in the event of a Change of
Control and uses the same definition for Change of Control as the Indenture.
Since the Notes are effectively subordinated to the claims of creditors of the
Company's subsidiaries, including AGI, any AGI Notes which are tendered for
redemption upon a Change of Control would have to be repaid in full before any
payments could be made on the Notes which are tendered for redemption upon a
Change of Control.
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PROVISION OF FINANCIAL INFORMATION
Pursuant to the Indenture, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Notes are outstanding, the Company will distribute or cause to be
distributed to holders of the Notes copies of the financial information that
would have been contained in such annual reports and quarterly reports that the
Company would have been required to file with the Commission pursuant to Section
13 or 15(d) of the Exchange Act. Such financial information shall include annual
reports containing consolidated financial statements and notes thereto, together
with an opinion thereon expressed by an independent public accounting firm,
management's discussion and analysis of financial condition and results of
operations as well as quarterly reports containing unaudited condensed
consolidated financial statements for the first three quarters of each fiscal
year.
CERTAIN COVENANTS
Set forth below is a description of the material covenants contained in the
Indenture.
LIMITATION ON ADDITIONAL INDEBTEDNESS. The Indenture provides that the
Company shall not, and shall not permit any of its Subsidiaries to, incur (as
defined), any Indebtedness (including Acquired Indebtedness) other than
Permitted Indebtedness, provided, however, that the Company and its Subsidiaries
may incur Indebtedness (including Acquired Indebtedness) and interest, premium,
fees and other obligations associated therewith if, immediately after giving pro
forma effect to the incurrence thereof, the Fixed Charge Coverage Ratio of
Company would be greater than or equal to 2.0:1 if such proposed incurrence is
on or prior to April 1, 2000 and 2.25:1 thereafter.
LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. The Indenture provides that
the Company shall not make and shall not permit any of its Subsidiaries to make
any Investments, except: (i) Permitted Investments and (ii) Investments
permitted to be made under the "Limitation on Restricted Payments" covenant
described below.
LIMITATION ON RESTRICTED PAYMENTS. The Indenture provides that the Company
shall not make, and shall not permit any of its Subsidiaries to, directly or
indirectly, make, any Restricted Payment, unless:
(a) no Default or Event of Default shall have occurred and be continuing
at the time of or after giving effect to such Restricted Payment;
(b) at the time of and immediately after giving pro forma effect to such
Restricted Payment, the Company could incur at least $1 of Indebtedness
(other than Permitted Indebtedness) pursuant to the "Limitation on
Additional Indebtedness" covenant above; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after April 2 , 1997
through and including the date of such Restricted Payment (the "Base
Period") does not exceed the sum of (1) 50% of the Company's Consolidated
Net Income (or in the event such Consolidated Net Income shall be a deficit,
minus 100% of such deficit) during the Base Period, and (2) 100% of the
aggregate Net Proceeds and the Fair Market Value of marketable securities
and property received by the Company from (x) the issue or sale, during the
Base Period of Capital Stock (other than Disqualified Stock) of the Company
or any Indebtedness or other securities of the Company convertible into or
exercisable or exchangeable for Capital Stock (other than Disqualified
Stock) of the Company which has been so converted, exercised or exchanged,
as the case may be, and (y) dividends or other distributions received by the
Company from any Unrestricted Subsidiary. For purposes of determining under
this clause (c) the amount expended for Restricted Payments, cash
distributed shall be valued at the face amount thereof and property other
than cash shall be valued at its Fair Market Value.
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The provisions of this covenant will not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at such date
of declaration such payment would comply with the provisions of the Indenture,
it being understood that the obligation to pay such declared dividend shall
constitute Permitted Indebtedness; (ii) the retirement of any shares of Capital
Stock or subordinated Indebtedness of the Company in exchange for, by conversion
into, or out of the Net Proceeds of the substantially concurrent sale (other
than to a Subsidiary of the Company) of other shares of Capital Stock of the
Company (other than Disqualified Stock); (iii) the redemption or retirement of
subordinated Indebtedness of the Company in exchange for, by conversion into, or
out of the Net Proceeds of the substantially concurrent incurrence of
subordinated Indebtedness of the Company (other than any such subordinated
Indebtedness owing to a Subsidiary of the Company) that is contractually
subordinated in right of payment to the Notes and that is permitted to be
incurred in accordance with the covenant described under "Limitation on
Additional Indebtedness" above; (iv) Prior Accrued Bonus Payments; PROVIDED,
HOWEVER, that (x) the aggregate amount of all such payments made after the Issue
Date does not exceed $4,000,000 and (y) no Default or Event of Default shall
have occurred and be continuing at the time of or after giving effect to such
payments; (v) Permitted Tax Distributions; or (vi) the making of any Permitted
Investment.
In determining the amount of Restricted Payments permissible under
subparagraph (c) above, amounts expended pursuant to clauses (i) and (ii) above
shall be included as Restricted Payments.
LIMITATION ON LIENS. The Indenture provides that the Company will not, and
will not cause or permit any of its Subsidiaries to, directly or indirectly,
create, incur, assume or permit or suffer to exist any Liens of any kind against
or upon any property or assets of the Company or any of its Subsidiaries
(whether owned on the Issue Date or acquired after the Issue Date) or any
proceeds therefrom, or assign or otherwise convey any right to receive income or
profits therefrom unless (a) in the case of Liens securing Indebtedness that is
expressly subordinate or junior in right of payment to the Notes, the Notes are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens at least to the same extent as the Notes are senior in
priority to such Indebtedness and (b) in all other cases, the Notes are equally
and ratably secured. Notwithstanding the foregoing, the following liens may be
created, incurred or assumed:
(a) Liens existing as of the Issue Date to the extent and in the manner
such Liens are in effect on the Issue Date;
(b) Permitted Liens;
(c) Liens on the assets or property of a Subsidiary of the Company
existing at the time such Subsidiary became a Subsidiary of the Company and
not incurred as a result of (or in connection with or in anticipation of)
such Subsidiary's becoming a Subsidiary of the Company; PROVIDED, HOWEVER,
that such Liens do not extend to or cover any property or assets of the
Company or any of its Subsidiaries (other than the property or assets of the
Subsidiary so acquired);
(d) Liens securing (x) Permitted Senior Indebtedness and (y) Refinancing
Indebtedness incurred to refinance the AGI Notes;
(e) any Lien securing Capitalized Lease Obligations, PROVIDED, HOWEVER,
that such Capitalized Lease Obligations are incurred in compliance with the
"Limitations on Additional Indebtedness" covenant and PROVIDED, HOWEVER,
that such Liens do not extend to or cover any property or assets of the
Company or any of its Subsidiaries (other than the property or assets
subject to such Capitalized Lease Obligations);
(f) Liens pursuant to leases and subleases of real property which do not
interfere with the ordinary conduct of the business of the Company or any of
its Subsidiaries and which are made on customary and usual terms applicable
to similar properties;
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(g) Liens securing Indebtedness which is incurred to refinance or
replace Indebtedness which has been secured by a Lien permitted under the
Indenture and is permitted to be refinanced or replaced under the Indenture;
PROVIDED, HOWEVER, that (i) such Liens do not extend to or cover any
property or assets of the Company or any of its Subsidiaries not securing
the Indebtedness so refinanced or replaced and (ii) such Liens are no less
favorable to the Holders and are not more favorable to the lienholders with
respect to such Liens than the Liens in respect of the Indebtedness being
refinanced;
(h) Liens to secure all or a part of the purchase price of assets or
property acquired in the ordinary course of business after the Issue Date;
PROVIDED, HOWEVER, that (a) any such Lien is created solely for the purpose
of securing Indebtedness representing, or incurred to finance, the cost of
the item of property subject thereto, (b) the principal amount of
Indebtedness secured by such Lien does not exceed the lesser of the cost or
Fair Market Value of the asset or property so acquired, (c) such Lien does
not extend to or cover any other property other than such acquired item of
property and shall attach to such property within 90 days of the acquisition
thereof and (d) the incurrence of the Indebtedness secured by such Lien is
permitted by paragraph (a) of the "Limitation on Additional Indebtedness"
covenant described above;
(i) Liens securing reimbursement obligations under letters of credit but
only in or upon the goods the purchase of which was financed by such letters
of credit; and
(j) other Liens securing obligations in a principal amount in the
aggregate at any one time of not more than $10,000,000.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. The Indenture provides that the Company shall not, and shall not
permit any Subsidiary of the Company to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective or enter into any
agreement with any Person that would cause or create any consensual encumbrance
or restriction of any kind on the ability of any Subsidiary of the Company to
(a) pay dividends, in cash or otherwise, or make any other distributions on its
Capital Stock or any other interest or participation in, or measured by, its
profits owned by the Company or a Subsidiary of the Company, (b) make any loans
or advances to, or pay any Indebtedness owed to, the Company or any Subsidiary
of the Company or (c) transfer any of its properties or assets to the Company or
to any Subsidiary of the Company, except, in each case, for such encumbrances or
restrictions existing under or contemplated by or by reason of (i) the Notes or
the Indenture, (ii) any restrictions existing under or contemplated by
agreements in effect on the Issue Date, including, without limitation,
restrictions under the AGI Indenture and the Senior Credit Facility as in effect
on the Issue Date, (iii) any restrictions contained in agreements entered into
after the Issue Date which do not restrict the ability of any Subsidiary of the
Company to pay dividends or make distributions in amounts sufficient to pay
interest under the Notes, principal and interest on the Ehlert Note and
obligations under the management incentive compensation agreements with certain
Camping World executives so long as no default is continuing by the Company or
any Subsidiary under any such agreement entered into after the Issue Date, (iv)
any restrictions, with respect to a Subsidiary of the Company that is not a
Subsidiary of the Company on the Issue Date, in existence at the time such
Person becomes a Subsidiary of the Company (but not created in contemplation of
such Person becoming a Subsidiary), (v) any restrictions existing under any
agreement that refinances or replaces an agreement containing a restriction
permitted by clause (i), (ii), (iii) or (iv) above, PROVIDED, HOWEVER, that the
terms and conditions of any such restrictions are not materially less favorable
in the aggregate to the holders of the Notes than those under or pursuant to the
agreement being replaced or the agreement evidencing the Indebtedness refinanced
or replaced and (vi) restrictions imposed by applicable law or regulation or by
regulatory authorities having jurisdiction over such Subsidiary.
LIMITATION ON SALE-LEASEBACK TRANSACTIONS. The Indenture provides that the
Company shall not, and shall not permit any of its Subsidiaries to, enter into
any Sale-Leaseback Transaction. Notwithstanding the
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foregoing, the Company and its Subsidiaries may enter into Sale-Leaseback
Transactions if (i) after giving pro forma effect to any such Sale-Leaseback
Transaction, the Company shall be in compliance with the "Limitation on
Additional Indebtedness" covenant described above, (ii) the sale price in such
Sale-Leaseback Transaction is at least equal to the Fair Market Value of such
property, and (iii) the Company or such Subsidiary shall apply the Net Cash
Proceeds of the sale as provided under "Disposition of Proceeds of Asset Sales"
below, to the extent required by such provision.
DISPOSITION OF PROCEEDS OF ASSET SALES. The Indenture provides that the
Company shall not, and shall not permit any of its Subsidiaries to, make any
Asset Sale unless (a) such Asset Sale is for Fair Market Value, (b) the net
proceeds therefrom consist of at least 85% cash or Cash Equivalents (with
Indebtedness of the Company or its Subsidiaries assumed by the purchaser being
counted as cash for such purposes if the Company and its Subsidiaries are
permanently released from all liability therefor) (provided, however, that this
clause (b) shall not be applicable to any Asset Sale that (i) the consideration
with respect to which does not exceed $5,000,000 or (ii) pertains to assets
which did not contribute more than five percent of Consolidated Cash Flow for
the four full fiscal quarters immediately preceding the date of the Asset Sale)
and (c) the Company shall commit to apply or to cause its Subsidiaries to apply
the Net Cash Proceeds of such Asset Sale within 180 days of receipt thereof, and
shall apply such Net Cash Proceeds within 270 days of receipt thereof, as
follows:
(i) first, to satisfy all mandatory repayment obligations, if any, under
any Permitted Indebtedness, if any, arising by reason of such Asset Sale,
including a permanent reduction in the related commitment;
(ii) second, out of any Net Cash Proceeds remaining after application of
Net Cash Proceeds pursuant to the preceding paragraph (i) (the "Available
Amount"), the Company shall make an offer to purchase (the "Asset Sale
Offer") from all Holders of Notes, up to a maximum principal amount
(expressed as a multiple of $1,000) of Notes equal to the Available Amount
at a purchase price of 100% of the principal amount thereof plus accrued and
unpaid interest thereon, if any, to the date of purchase; PROVIDED, HOWEVER,
that the Company will not be required to apply pursuant to this paragraph
(ii) Net Cash Proceeds received from any Asset Sale if, and only to the
extent that, such Net Cash Proceeds are committed in writing to be applied
to acquire or construct property or assets in lines of business related to
the Company's or its Subsidiaries' businesses within 180 days after the
consummation of such Asset Sale and are so applied within 270 days after the
consummation of such Asset Sale (and, after such application, the amount so
applied shall no longer constitute a part of the Available Amount), and
PROVIDED, HOWEVER, further, that the Company may defer the Asset Sale Offer
until there is an aggregate unutilized Available Amount equal to or in
excess of $5,000,000 (at which time the entire unutilized Available Amount
and not just the amount in excess of $5,000,000 shall be applied as required
pursuant to this paragraph). The Asset Sale Offer shall remain open for a
period of 20 business days or such longer period as may be required by law.
To the extent the Asset Sale Offer is not fully subscribed to by the holders
of the Notes, the Company may retain such unutilized portion of the Net Cash
Proceeds. To the extent that the aggregate amount of Notes tendered pursuant
to an Asset Sale Offer is less than the Available Amount, the Company may
use such deficiency for general corporate purposes.
The Company will comply with any tender offer rules under the Securities
Exchange Act of 1934, as amended, which may then be applicable, including but
not limited to Rule 14e-1, in connection with any offer required to be made by
the Company to repurchase the Notes as a result of an Asset Sale.
LIMITATION ON PREFERRED STOCK ISSUANCES BY SUBSIDIARIES. The Indenture
prohibits the Company from causing or permitting the issuance by any Subsidiary
of any Capital Stock other than common stock or causing or permitting any
Subsidiary to at any time have outstanding any shares of Capital Stock other
than common stock, except issuances of Capital Stock to the Company or a
Wholly-Owned Subsidiary of the
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Company, PROVIDED, HOWEVER, that the Company or such Wholly-Owned Subsidiary of
the Company, as the case may be, is at all times the sole beneficial and record
owner of such Capital Stock.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Indenture provides that the
Company shall not, and the Company shall not permit, cause, or suffer any
Subsidiary of the Company to, conduct any business or enter into any transaction
or series of transactions with or for the benefit of any Affiliate of the
Company or any of its Subsidiaries or any holder of 5% or more of any class of
Capital Stock of the Company (each an "Affiliate Transaction"), except in good
faith and on terms that are, in the aggregate, no less favorable to the Company
or such Subsidiary, as the case may be, than those that could have been obtained
in a comparable transaction on an arm's-length basis from a Person not an
Affiliate of the Company or such Subsidiary. All Affiliate Transactions (and
each series of related Affiliate Transactions which are similar or part of a
common plan) involving aggregate payments or other market value in excess of
$1,000,000 shall be approved by a majority of the Board of Directors of the
Company, such approval to be evidenced by a Board Resolution stating that such
Board of Directors has, in good faith, determined that such transaction complies
with the foregoing provisions. If the Company or any Subsidiary enters into an
Affiliate Transaction (or a series of related Affiliate Transactions related to
a common plan) that involves an aggregate value of more than $5,000,000, the
Company or such Subsidiary shall, prior to the consummation thereof, obtain a
favorable opinion as to the fairness of such transaction or series of related
transactions to the Company or the relevant Subsidiary, as the case may be, from
a financial point of view, from an Independent Financial Advisor and file the
same with the Trustee. Notwithstanding the foregoing, the restrictions set forth
in this covenant shall not apply to (A) contractual obligations in existence on
the date of the Indenture and extensions and replacements thereof to the extent
such extension or replacement, as the case may be, does not materially amend or
change any substantive term or provision of such contract, (B) Restricted
Payments permitted under the LIMITATION ON RESTRICTED PAYMENTS covenant
described above, (C) customary directors' fees, consulting fees, indemnification
and similar arrangements, and employee salaries and bonuses and (D) transactions
between the Company and any of its Wholly-Owned Subsidiaries or among
Wholly-Owned Subsidiaries of the Company.
COMPANY OWNERSHIP OF AGI CAPITAL STOCK. The Company will at all times be
the beneficial and record owner of all of the outstanding Capital Stock of AGI,
subject only to the pledge thereof to secure Permitted Senior Indebtedness.
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
The Indenture provides that, the Company shall not consolidate with or merge
with or into or sell, assign, convey, lease or transfer all or substantially all
of its properties and assets as an entirety to any Person or group of affiliated
Persons in a single transaction or through a series of transactions, unless
after giving effect thereto: (a) the Company shall be the continuing Person or
the resulting, surviving or transferee Person (the "surviving entity") shall be
a corporation organized and existing under the laws of the United States or any
State thereof or the District of Columbia; (b) the surviving entity shall
expressly assume, by a supplemental indenture executed and delivered to the
Trustee, in form and substance reasonably satisfactory to the Trustee, all of
the obligations of the Company under the Notes and the Indenture; (c)
immediately before and immediately after giving effect to such transaction or
series of transactions (including, without limitation, any Indebtedness incurred
or anticipated to be incurred in connection with or in respect of such
transaction or series of transactions), no Default or Event of Default shall
have occurred and be continuing; (d) the Company or the surviving entity, as the
case may be, shall immediately before and immediately after giving effect to
such transaction or series of transactions (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of the transaction or series of transactions) have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction or series of transactions; (e) immediately
after giving effect to such transaction or series of transactions, the Company
or the surviving entity, as the case may be, could incur $1.00 of Indebtedness
(other than
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Permitted Indebtedness) pursuant to the "Limitation on Additional Indebtedness"
covenant above; (f) the Company or the surviving entity shall have delivered to
the Trustee an Officer's Certificate stating that such consolidation, merger,
conveyance, transfer or lease and, if a supplemental indenture is required in
connection with such transaction or series of transactions, such supplemental
indenture complies with this covenant and that all conditions precedent in the
Indenture relating to the transaction or series of transactions have been
satisfied; and (g) the Company would not thereupon become obligated with respect
to any Indebtedness, nor any of its property become subject to any Lien, unless
the Company could incur such Indebtedness or create such Lien under the
Indenture. Notwithstanding the foregoing, either the Company or AGI may
consolidate with or merge with or into or sell, assign, convey, loan or transfer
all or substantially all of its properties and assets as an entirety to the
other in a single transaction or series of transactions, if after giving effect
thereto, either the Company or AGI shall be the surviving entity and in the
event that AGI is the surviving entity, AGI shall expressly assume, by a
supplemental indenture executed and delivered to the Trustee, in form and
substance reasonably satisfactory to the Trustee, all of the obligations of the
Company under the Notes and the Indenture.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture:
(i) default in the payment of any interest on the Notes when it
becomes due and payable and continuance of such default for a period of
30 days; or
(ii) default in the payment of the principal of or premium, if any,
on the Notes when due (including by reason of a default in payment upon
an offer to purchase pursuant to the "Change of Control" or "Disposition
of Proceeds of Asset Sales" covenants described above); or
(iii) default in the performance, or breach, of any covenant in the
Indenture (other than defaults specified in clause (i) or (ii) above) and
continuance of such default or breach for a period of 30 days after
written notice thereof has been given to the Company by the Trustee or to
the Company and the Trustee by the holders of at least 25% in aggregate
principal amount of the outstanding Notes; or
(iv) failure by the Company or any of its Material Subsidiaries to
perform any term, covenant, condition or provision of one or more classes
or issues of other Indebtedness in an aggregate principal amount of
$5,000,000 or more, which failure results in an acceleration of the
maturity thereof and such Indebtedness shall not have been repaid or such
acceleration rescinded within 30 days of such acceleration of maturity;
or
(v) one or more judgments, orders or decrees for the payment of
money in excess of $5,000,000, either individually or in an aggregate
amount, shall be entered against the Company, any of its Material
Subsidiaries or any of their respective properties and shall not be
discharged, and there shall have been a period of 60 days during which a
stay of enforcement of such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect; or
(vi) certain events of bankruptcy or insolvency with respect to the
Company or any Material Subsidiary shall have occurred.
If an Event of Default occurs and is continuing, then the holders of at
least 25% in principal amount of the outstanding Notes may, by written notice,
and the Trustee upon the request of the holders of not less than 25% in
principal amount of the outstanding Notes shall, declare the principal of,
premium, if any, and accrued interest on all the Notes to be due and payable
immediately. Upon any such declaration such principal, premium, if any, and
accrued interest shall become due and payable immediately. If an Event of
Default specified in (vi) occurs with respect to the Company and is continuing,
then the principal of, premium, if any, and accrued interest on all the Notes
shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any holder.
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After a declaration of acceleration, the holders of a majority in aggregate
principal amount of outstanding Notes may, by notice to the Trustee, rescind
such declaration of acceleration if all existing Events of Default have been
cured or waived, other than nonpayment of principal of, premium, if any, and
accrued interest on the Notes that has become due solely as a result of such
acceleration, and if the rescission of acceleration would not conflict with any
judgment or decree. The holders of a majority in principal amount of the
outstanding Notes also have the right to waive past defaults under the Indenture
except a default in the payment of the principal of, premium, if any, or
interest on any Note or in respect of a covenant or a provision which cannot be
modified or amended without the consent of all holders.
No holder of any of the Notes has any right to institute any proceeding with
respect to the Indenture or any remedy thereunder unless the holders of at least
25% in principal amount of the outstanding Notes have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as
Trustee, the Trustee has failed to institute such proceeding within 15 days
after receipt of such notice and the Trustee has not within such 15-day period
received directions inconsistent with such written request from holders of a
majority in principal amount of the outstanding Notes. Such limitations do not
apply, however, to a suit instituted by a holder of a Note for the enforcement
of the payment of the principal of or premium, if any, or accrued interest on
such Note on or after the due date expressed in such Note.
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent Person would
exercise under the circumstances in the conduct of such Person's own affairs.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
is not under any obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the holders unless such holders
shall have offered the Trustee reasonable security or indemnity. Subject to
certain provisions concerning the rights of the Trustee, the holders of a
majority in principal amount of the outstanding Notes have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Trustee or exercising any trust or power conferred on the Trustee.
DEFEASANCE
The Company may at any time terminate all of its obligations with respect to
the Notes ("defeasance"), except for certain obligations, including those
regarding any trust established for a defeasance and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain agencies in respect of the Notes. The Company may
at any time terminate its obligations under certain covenants set forth in the
Indenture, some of which are described under "Certain Covenants" above, and any
omission to comply with such obligations shall not constitute a Default or an
Event of Default with respect to the Notes issued under the Indenture ("covenant
defeasance"). In order to exercise either defeasance or covenant defeasance, the
Company must irrevocably deposit in trust with the Trustee, for the benefit of
the holders of the Notes, money or U.S. government obligations, or a combination
thereof, in such amounts as will be sufficient to pay the principal of, premium,
if any, and interest on the Notes to redemption or maturity and comply with
certain other conditions, including the delivery of an opinion as to certain tax
matters.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of Notes)
as to all outstanding Notes when either (a) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes which have
been replaced or paid and Notes for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust) have been delivered to the
Trustee for cancellation or (b) (i) all such Notes not theretofore delivered to
the
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Trustee for cancellation have become due and payable and the Company has
irrevocably deposited or caused to be deposited with the Trustee as trust funds
in the trust for the purpose an amount of money sufficient to pay and discharge
the entire indebtedness on the Notes not theretofore delivered to the Trustee
for cancellation, for principal, premium, if any, and accrued interest to the
date of such deposit; (ii) the Company has paid all sums payable by it under the
Indenture; and (iii) the Company has delivered irrevocable instructions to the
Trustee to apply the deposited money toward the payment of the Notes at maturity
or redemption, as the case may be. In addition, the Company must deliver an
Officers' Certificate and an Opinion of Counsel stating that all conditions
precedent to satisfaction and discharge have been complied with.
AMENDMENTS AND WAIVERS
From time to time the Company, when authorized by resolution of its Board of
Directors, and the Trustee may, without the consent of the holders of the Notes,
amend, waive or supplement the Indenture or the Notes for certain specified
purposes, including, among other things, curing ambiguities, defects or
inconsistencies, maintaining the qualification of the Indenture under the Trust
Indenture Act or making any change that does not adversely affect the rights of
any holder. Other amendments and modifications of the Indenture or the Notes may
be made by the Company and the Trustee with the consent of the holders of not
less than a majority of the aggregate principal amount of the outstanding Notes;
PROVIDED, HOWEVER, that no such modification or amendment may, without the
consent of the holder of each outstanding Note affected thereby, (i) reduce the
principal amount outstanding, extend the fixed maturity, or alter the redemption
provisions of the Notes, (ii) change the currency in which any Notes or any
premium or accrued interest thereon is payable, (iii) reduce the percentage in
principal amount outstanding of Notes necessary for consent to an amendment,
supplement or waiver or consent to take any action under the Indenture or the
Notes, (iv) impair the right to institute suit for the enforcement of any
payment on or with respect to the Notes, (v) waive a default in payment with
respect to the Notes, (vi) reduce the rate or extend the time for payment of
interest on the Notes, (vii) change the Company's obligation to purchase Notes
upon the occurrence of a Change of Control (or change the definition thereof) or
an Asset Sale in accordance with the Indenture or waive any default in the
performance thereof or (viii) affect the ranking of the Notes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms used in the Indenture.
Reference is made to the Indenture for the full definition of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Subsidiary of the Company or assumed in connection with an
Asset Acquisition of such Person, including, without limitation, Indebtedness
incurred in connection with, or in anticipation of, such Person's becoming a
Subsidiary of the Company or such acquisition.
"Affiliate" of any specified Person means any other Person which, directly
or indirectly, controls, is controlled by or is under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Acquisition" means (i) any capital contribution (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise) or purchase or
acquisition of Capital Stock by the Company or any of its Subsidiaries to or in
any other Person, in either case as a result of which such Person shall become a
Subsidiary of the Company or any of its
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Subsidiaries or shall be merged with or into the Company or any of its
Subsidiaries or (ii) any acquisition by the Company or any of its Subsidiaries
of the assets of any Person which constitute substantially all of an operating
unit or business of such Person.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
(including by means of sale-leaseback) or other disposition by the Company or a
Subsidiary to any Person (including any Unrestricted Subsidiary) other than the
Company or a Subsidiary of the Company that is not an Unrestricted Subsidiary,
in one transaction or a series of related transactions, of (i) any Capital Stock
of any Subsidiary of the Company or (ii) any other property or asset of the
Company or any Subsidiary of the Company, in each case other than (x) in the
ordinary course of business, (y) isolated transactions in which the
consideration received does not exceed $100,000 individually and (z) NAFE or the
assets thereof. For the purposes of this definition, the term "Asset Sale" shall
not include sales of receivables not a part of a sale of the business from which
they arose or any disposition of all or substantially all of the properties and
assets of the Company that is governed under and complies with the
"Consolidation, Merger, Conveyance, Transfer or Lease" covenant described above.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors of the Company and to be in full force and effect on the date of
such certification and delivered to the Trustee.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents (however designated
and whether voting or non-voting) of such Person's capital stock, whether
outstanding on the Issue Date or issued after the Issue Date, and any and all
rights, warrants or options exchangeable for or convertible into such capital
stock.
"Capitalized Lease Obligation" means any obligation to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) any
property (whether real, personal or mixed) that is required to be classified and
accounted for as a capital lease obligation under GAAP, and, for the purpose of
the Indenture, the amount of such obligation at any date shall be the
capitalized amount thereof at such date, determined in accordance with GAAP.
"Cash Equivalents" means, at any time, (i) any evidence of Indebtedness with
a maturity of 180 days or less issued or directly and fully guaranteed or
insured by the United States of America or any agency or instrumentality thereof
(PROVIDED, HOWEVER, that the full faith and credit of the United States of
America is pledged in support thereof); (ii) certificates of deposit or
acceptances with a maturity of 180 days or less of any financial institution
that is a member of the Federal Reserve System having combined capital and
surplus and undivided profits of not less than $250,000,000; (iii) commercial
paper with a maturity of 180 days or less issued by a corporation (except any
Affiliate of the Company) organized under the laws of any state of the United
States or the District of Columbia and rated at least A-1 by Standard & Poor's
Corporation or at least P-1 by Moody's Investors Service, Inc.; (iv) repurchase
agreements and reverse repurchase agreements relating to marketable obligations,
directly or indirectly, issued or unconditionally guaranteed by the United
States of America or issued by any agency thereof and backed by the full faith
and credit of the United States, in each case maturing within one year from the
date of acquisition; PROVIDED, HOWEVER, that the terms of such agreements comply
with the guidelines set forth in the Federal Financial Agreements of Depository
Institutions with Securities Dealers and Others, as adopted by the Comptroller
of the Currency; (v) instruments backed by letters of credit of institutions
satisfying the requirements of clause (ii) above; (vi) mutual funds or similar
securities, not less than 80 percent of the assets of which are invested in
securities of the type referred to in clauses (i) through (v) above, including
without limitation the UST Master Government Fund; and (vii) in the case of any
Subsidiary which is regulated by an insurance regulating authority, instruments
permitted to be invested in by such regulatory authority at the time such
investment was made.
"Change of Control" means (i) the direct or indirect sale, lease, exchange
or other transfer of all or substantially all of the assets of the Company to
any Person or entity or group of Persons or entities acting
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in concert as a partnership or other group (a "Group of Persons") other than a
Permitted Holder, (ii) the merger or consolidation of the Company with or into
another corporation with the effect that a person or group of persons, other
than Permitted Holders are or become the beneficial owner (within the meaning of
Rule 13d-3 under the Exchange Act) of securities of the surviving corporation of
such merger or the corporation resulting from such consolidation representing
50% or more of the combined voting power of the then outstanding securities of
the surviving corporation ordinarily (and apart from rights arising under
special circumstances) having the right to vote in the election of directors,
(iii) the replacement of a majority of the Board of Directors of the Company,
over a two-year period, from the directors who constituted such Board of
Directors at the beginning of such period, and (x) such replacement shall not
have been approved by a vote of at least a majority of the Board of Directors
then still in office who either were members of the Board of Directors at the
beginning of such period or whose election as a member of the Board of Directors
was previously so approved or (y) such replacement shall not have been approved
by a Permitted Holder, PROVIDED, HOWEVER, that a Permitted Holder is the
beneficial holder (within the meaning of Rule 13(d)-3 under the Exchange Act) of
more than 50 percent of the combined voting power of the then outstanding
securities of the Company or (iv) any instance when a Person or Group of Persons
(other than Permitted Holders) shall, as a result of a tender or exchange offer,
open market purchases, privately negotiated purchases or otherwise, have become
the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act)
of securities of the Company representing 49% or more of the combined voting
power of the then outstanding securities of the Company ordinarily (and apart
from rights accruing under special circumstances) having the right to vote in
the election of directors.
"Consolidated Cash Flow" means, with respect to any Person for any period,
without duplication, the Consolidated Net Income of such Person for such period
increased (to the extent deducted in determining Consolidated Net Income during
such period) by the sum of: (i) all United States Federal, state and foreign
income taxes of such Person paid or accrued according to GAAP for such period
(other than income taxes attributable to extraordinary gains and losses); (ii)
all interest expense of such Person paid or accrued in accordance with GAAP (net
of any interest income and exclusive of deferred financing fees) for such period
(including amortization of original issue discount and the interest portion of
deferred payment obligations); (iii) depreciation; (iv) amortization including,
without limitation, amortization of capitalized debt issuance costs; and (v) any
other non-cash charges to the extent deducted from Consolidated Net Income
(including non-cash expenses recognized in accordance with Financial Accounting
Standards Bulletin Number 106 and excluding any non-cash charge to the extent
that it requires an accrual of or a reserve for cash disbursements for any
future period).
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; PROVIDED,
HOWEVER, that (a) the Net Income of any Person (the "Other Person") in which the
Person in question or one of its Subsidiaries has a joint interest with a third
party (which interest does not allow the net income of such Other Person to be
consolidated into the net income of the Person in question in accordance with
GAAP) shall be included only to the extent of the amount of dividends or
distributions paid to the Person in question or the Subsidiary, (b) the Net
Income of any Subsidiary other than AGI of the Person in question that is
subject to any contractual restriction or limitation on the payment of dividends
or the making of other distributions shall be excluded to the extent of such
restriction or limitation, (c)(i) the Net Income (or loss) of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition and (ii) any net gain (but not loss) resulting from an Asset
Sale by the Person in question or any of its Subsidiaries other than in the
ordinary course of business shall be excluded, (d) extraordinary gains and
losses, and the related income tax effect according to GAAP, shall be excluded,
(e) charges with respect to Indebtedness (and related warrant interests) retired
with the proceeds of the Notes shall be excluded, (f) charges for amortization
of goodwill in excess of amortization on a straight-line, 40 year basis shall be
excluded, (g) Consolidated Net Income shall be calculated without deducting
therefrom any accruals made for phantom stock arrangements between the Company
or any Subsidiary with key employees, (h) Net Income (loss) pertaining to
discontinued
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operations (including NAFE), shall be excluded, and (i) all gains, losses,
charges or write-offs with respect to an election to be taxed as an "S
corporation" under Subchapter S of the Internal Revenue Code shall be excluded.
"Consolidated Net Worth" means, with respect to any Person at any date of
determination, the consolidated stockholders' equity represented by the shares
of such Person's Capital Stock (other than Disqualified Stock) outstanding at
such date, as determined on a consolidated basis in accordance with GAAP.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which, 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 is exchangeable for Indebtedness, or is redeemable
at the option of the holder thereof, in whole or in part, in each case on or
prior to the maturity date of the Notes.
"Fair Market Value" or "fair value" means, with respect to any asset or
property, the price which could be negotiated in an arm's-length free market
transaction, for cash, between a willing seller and a willing buyer, neither of
whom is under undue pressure or compulsion to complete the transaction. Fair
Market Value or fair value shall be determined by a majority of the Board of
Directors acting in good faith and shall be evidenced by a Board Resolution
delivered to the Trustee. No such determination need be supported by an
appraisal or other expert opinion and such determination by the Board of
Directors shall be conclusive.
"Fixed Charge Coverage Ratio" means, with respect to any Person, the ratio
of (i) Consolidated Cash Flow of such Person for the four full fiscal quarters
for which financial statements are available that immediately precede the date
of the transaction or other circumstances giving rise to the need to calculate
the Fixed Charge Coverage Ratio (the "Transaction Date") to (ii) all cash and
non-cash interest expense (including capitalized interest) of such Person and
its Subsidiaries determined in accordance with GAAP (net of any interest income
of such Person and its subsidiaries and exclusive of deferred financing fees of
such Person and its Subsidiaries and excluding interest in respect of the
management incentive payments to certain Camping World executives entered into
at the time of the Camping World acquisition) and the aggregate amount of cash
dividends or other distributions declared or paid on Capital Stock (other than
Common Stock) of such Person and its Subsidiaries, in each case for such four
full fiscal quarter period. For purposes of this definition, if the Transaction
Date occurs prior to the date on which the Company's consolidated financial
statements for the four full fiscal quarters subsequent to the Issue Date are
first available, then "Consolidated Cash Flow" and the items referred to in the
preceding clause (ii) shall be calculated, in the case of the Company, after
giving effect on a pro forma basis as if the Notes outstanding on the
Transaction Date were issued on the first day of such four full fiscal quarter
period. In addition to and without limitation of the foregoing two sentences,
for purposes of this definition, "Consolidated Cash Flow" and the items referred
to in the preceding clause (ii) shall be calculated after giving effect on a pro
forma basis for the period of such calculation to (i) the incurrence or
retirement, as the case may be, of any Indebtedness of such Person or any of its
Subsidiaries at any time during the period (the "Reference Period") (A)
commencing on the first day of the four full fiscal quarter period for which
financial statements are available that precedes the Transaction Date and (B)
ending on and including the Transaction Date, including, without limitation, the
incurrence of the Indebtedness giving rise to the need to make such calculation,
as if such incurrence occurred on the first day of the Reference Period;
PROVIDED, HOWEVER, that if such Person or any of its Subsidiaries directly or
indirectly guarantees Indebtedness of a third Person, the above clause shall
give effect to the incurrence of such guaranteed Indebtedness as if such Person
or Subsidiary had directly incurred such guaranteed Indebtedness and (ii) any
Asset Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such
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calculation as a result of the Company or any of its Subsidiaries (including any
Person who becomes a Subsidiary as a result of the Asset Acquisition) incurring
Acquired Indebtedness) occurring during the Reference Period and any retirement
of Indebtedness in connection with such Asset Sales, as if such Asset Sale or
Asset Acquisition and/or retirement occurred on the first day of the Reference
Period; PROVIDED, HOWEVER, that pro forma Consolidated Cash Flow shall be
calculated taking into account the results of operations attributable to the
assets which are the subject of the Asset Sale or Asset Acquisition during the
Reference Period, but in the case of Asset Acquisitions, only to the extent
derived from historical financial statements with respect to such operations;
PROVIDED, HOWEVER, further, that pro forma Consolidated Cash Flow attributable
to any Asset Acquisition shall be included only to the extent that Consolidated
Cash Flow of such Person is otherwise includible in the referent Person's
Consolidated Cash Flow. Furthermore, in calculating the denominator (but not the
numerator) of this "Fixed Charge Coverage Ratio," (1) subject to clause (3)
below, interest on Indebtedness determined on a fluctuating basis as of the
Transaction Date and which will continue to be so determined thereafter shall be
deemed to accrue at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; (2) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate
based upon a factor of a prime or similar rate shall be deemed to have been in
effect; and (3) notwithstanding clause (1) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered by
agreements relating to Interest Rate Protection Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements.
"GAAP" means generally accepted accounting principles in effect on the Issue
Date as 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 may be approved by a significant
segment of the accounting profession of the United States.
"incur" means, with respect to any Indebtedness (including Acquired
Indebtedness) or other obligation of any Person, to create, issue, incur (by
conversion, exchange or otherwise), assume or guaranty or otherwise become,
directly or indirectly, liable for or with respect to the payment of such
Indebtedness or other obligation.
"Indebtedness" means, with respect to any Person, without duplication, (i)
any liability, contingent or otherwise, of such Person (A) for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of such
Person or only to a portion thereof), (B) evidenced by a note, debenture or
similar instrument, letter of credit or draft accepted (including a purchase
money obligation) representing extensions of credit whether or not representing
obligations for borrowed money or (C) for the payment of money relating to a
Capitalized Lease Obligation or other obligation relating to the deferred
purchase price of any property or services (other than property or services
purchased on ordinary trade terms therefor) which purchase price is payable over
a period in excess of six months or is evidenced by a note, invoice or similar
written instrument with a maturity in excess of six months; (ii) any liability
of others of the kind described in the preceding clause (i) which the Person has
guaranteed or which is otherwise its legal liability; (iii) any obligation
secured by a lien to which the property or assets of such Person are subject,
whether or not the obligations secured thereby shall have been assumed by or
shall otherwise be such Person's legal liability; and (iv) any and all
deferrals, renewals, extensions, replacements, refinancings, and refundings of,
or amendments, modifications or supplements to, any liability of the kind
described in any of the preceding clauses (i), (ii) or (iii). Notwithstanding
the foregoing, Indebtedness shall not include (i) obligations of any Subsidiary
of the Company engaged in the insurance business with respect to insurance
policies or similar contracts written by such Subsidiary in the ordinary course
of its insurance business and (ii) obligations of the Company or any Subsidiary
with respect to non-competition agreements, consulting agreements with certain
executives of Camping World or the Company with respect to
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management incentive agreements with certain Camping World executives in
connection with the acquisition of the stock of Camping World by AGI.
Notwithstanding any other provision of the foregoing definition, guaranties of
Indebtedness otherwise included in a determination of such amount shall not be
deemed "Indebtedness" of the Company or any Subsidiaries for purposes of this
definition.
"Independent Financial Advisor" means an accounting, appraisal or investment
banking firm of nationally recognized standing that is, in the good faith
judgment of the Board of Directors of the Company, qualified to perform the task
such firm has been engaged and disinterested and independent with respect to the
Company and its Affiliates.
"Interest Rate Protection Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"Investments" means any capital contribution, advance or loans to (including
any guarantees of loans to), or investments or purchases of Capital Stock in,
any Person.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means any mortgage, lien (statutory or other), pledge, security
interest, encumbrance, hypothecation, assignment for security or other security
agreement of any kind or nature whatsoever. For purposes of the Indenture, a
Person shall be deemed to own subject to a Lien any property which it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such Person.
"Material Subsidiary" means a Subsidiary of the Company which would
constitute a "significant subsidiary" of the Company within the meaning of
Regulation S-X, under the Securities Act of 1933, as amended, of the Securities
and Exchange Commission.
"NAFE" means the National Association of Female Executives, Inc., a
subsidiary of AGI.
"Net Cash Proceeds" means, with respect to any Asset Sale the proceeds
thereof in the form of cash or Cash Equivalents, including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents net of (i) brokerage commissions and other reasonable fees and
expenses (including, without limitation, fees and expenses of counsel,
accountants and investment bankers) related to such Asset Sale; (ii) provisions
for all taxes payable as a result of such Asset Sale; (iii) payments made to
retire Indebtedness secured by the assets subject to such Asset Sale; and (iv)
appropriate amounts to be provided by the Company or any of its Subsidiaries, as
the case may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by the Company or any of its
Subsidiaries, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Net Proceeds" means (a) in the case of any sale of Capital Stock (other
than Disqualified Stock) by the Company, the aggregate net proceeds received by
the Company, after payment of expenses, commissions and the like incurred in
connection therewith, whether such proceeds are in cash or in property (valued
at the Fair Market Value thereof, as determined in good faith by a majority of
the Board of Directors of the Company, at the time of receipt), (b) in the case
of any exchange, exercise, conversion or surrender of outstanding securities of
any kind of the Company for or into shares of Capital Stock of the Company which
is not Disqualified Stock, the net book value of such outstanding securities on
the date of
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such exchange, exercise, conversion or surrender (plus any additional amount
required to be paid by the holder to the Company upon such exchange, exercise,
conversion or surrender, less any and all payments made to the holders, e.g., on
account of fractional shares, and less all expenses incurred by the Company in
connection therewith) and (c) in the case of the issuance of any Indebtedness by
the Company, the aggregate net cash proceeds received by the Company, after
payment of expenses, commissions and the like incurred therewith.
"Permitted Holder" means Stephen Adams, his spouse and lineal descendants
and trusts for the exclusive benefit of any of the foregoing persons and any
Affiliate of Stephen Adams.
"Permitted Indebtedness" means:
(a) Indebtedness under the Notes and the Indenture;
(b) Permitted Senior Indebtedness;
(c) Indebtedness and guarantees (plus interest, premium, fees and
other obligations associated therewith) not otherwise referred to in this
covenant outstanding on the Issue Date;
(d) Indebtedness in respect of Interest Rate Protection Obligations
incurred in the ordinary course of business to the extent that the
national principal amount of such Indebtedness does not exceed, at the
time of the making of such Interest Rate Protection Obligations, the
principal amount of Indebtedness to which such Interest Rate Protection
Obligations relate;
(e) Indebtedness of a Wholly-Owned Subsidiary issued to and held by
the Company or a Wholly-Owned Subsidiary in respect of the intercompany
advances or transactions;
(f) Indebtedness incurred in connection with or arising out of
Capitalized Lease Obligations not to exceed $7,500,000 at any one time
outstanding;
(g) Refinancing Indebtedness; and
(h) Other Indebtedness of the Company or any Subsidiary that does not
exceed $10,000,000 in the aggregate at any one time outstanding.
"Permitted Investments" means, for any Person, Investments made on or after
the date of the Indenture consisting of:
(i) Investments by the Company in any Wholly-Owned Subsidiary and
Investments or loans in or to the Company or a Subsidiary by any
Subsidiary;
(ii) Investments represented by accounts receivable created or
acquired in the ordinary course of business;
(iii) advances to employees in the ordinary course of business not to
exceed an aggregate of $2,000,000 outstanding at any one time;
(iv) Investments under or pursuant to Interest Rate Protection
Obligations;
(v) Investments by any Subsidiary of the Company engaged in the
insurance business that are made in the ordinary course of its insurance
business and is permitted by applicable insurance laws and regulations;
(vi) Cash Equivalents;
(vii) Investments in the Notes;
(viii) Investments existing on the Issue Date; and
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(ix) Investments made after the Issue Date in Affinity Thrift and
Loan or Affinity Group Thrift Holding Corp. that do not exceed $5,000,000
in the aggregate outstanding at any one time; and
(x) Investments made after the Issue Date that do not exceed
$10,000,000 in the aggregate outstanding at any one time.
"Permitted Liens" means, with respect to any Person, any lien arising by
reason of (a) any attachment, judgment, decree or order of any court, so long as
such lien is being contested in good faith and is either adequately bonded or
execution thereon has been stayed pending appeal or review, and any appropriate
legal proceedings which may have been duly initiated for the review of such
attachment, judgment, decree or order shall not have been finally terminated or
the period within which such proceedings may be initiated shall not have
expired; (b) taxes, assessments or governmental charges not yet delinquent or
which are being contested in good faith; (c) security for payment of workers'
compensation or other insurance; (d) security for the performance of tenders,
bids, leases and contracts (other than contracts for the payment of money); (e)
deposits to secure public or statutory obligations or in lieu of surety or
appeal bonds or to secure permitted contracts for the purchase or sale of any
currency entered into in the ordinary course of business; (f) operation of law
in favor of carriers, warehousemen, landlords, mechanics, materialmen, laborers,
employees or suppliers, incurred in the ordinary course of business for sums
which are not yet delinquent or are being contested in good faith by
negotiations or by appropriate proceedings which suspend the collection thereof;
(g) any interest or title of a lessor under any lease; (h) security for surety
or appeal bonds; and (i) easements, rights-of-way, zoning and similar covenants
and restrictions and other similar encumbrances or title defects which, in the
aggregate, are not substantial in amount and which do not in any case materially
interfere with the ordinary conduct of the business of the Company or any of its
Subsidiaries.
"Permitted Senior Indebtedness" means any Indebtedness (plus interest,
premium, fees and other obligations associated therewith) and refinancing,
refunding, replacement, renewal or extension thereof, under (a) the Senior
Credit Facility and (b) any other Indebtedness outstanding (plus interest,
premium, fees and other obligations associated therewith) and any refinancing,
refunding, replacement, renewal or extension thereof; PROVIDED, HOWEVER, that at
the time of incurrence of Indebtedness under this clause (b) the sum of the
aggregate principal amount of outstanding Indebtedness incurred under clauses
(a) and (b) of this definition does not exceed 150% of the Consolidated Cash
Flow of the Company for the immediately preceding four fiscal quarters;
PROVIDED, FURTHER, that at the time of any refinancing, refunding, replacement,
renewal, extension or amendment of the Senior Credit Facility that increases the
aggregate revolving credit and/or term loan commitments thereunder to an amount
in excess of $75,000,000, the sum of such commitments under such refinanced,
refunded, renewed, extended or amended Senior Credit Facility (regardless of the
amount actually borrowed thereunder) plus the aggregate principal amount of
outstanding Indebtedness incurred under clause (b) of this definition does not
exceed 150% of the Consolidated Cash Flow of the Company for the immediately
preceding four fiscal quarters; PROVIDED, HOWEVER, that if the Indebtedness
which is the subject of a determination under this provision is Acquired
Indebtedness, or Indebtedness incurred with a simultaneous Asset Acquisition,
then such ratio shall be determined by giving effect to (on a pro forma basis,
as if the transaction had occurred at the beginning of the four-quarter period)
both the incurrence or the assumption of such Acquired Indebtedness or such
other Indebtedness by the Company and the inclusion in the Company's
Consolidated Cash Flow or the Consolidated Cash Flow of the acquired Person,
business, property or assets; PROVIDED, HOWEVER, that in the case of any
Indebtedness (regardless of whether or not such Indebtedness is incurred
pursuant to clause (a) or (b) of this definition), the provider of such
Indebtedness may rely on a representation from the senior financial officer of
the Company to the effect that the incurrence of such Indebtedness does not
violate the provisions of this Indenture and the incurrence of Indebtedness
subject to such representation shall thereupon be deemed to be Permitted Senior
Indebtedness owed to such provider, but nothing in this proviso shall preclude
the existence of any Default or Event of Default in the event such Indebtedness
is incurred in violation of this Indenture.
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"Permitted Tax Distributions" means, for so long as the Company is an "S
corporation" or a substantially similar pass-through entity for federal income
tax purposes, distributions to AGI Holding Corp. (or any successor entity or
other entity that owns, directly or indirectly, all of the outstanding common
stock of the Company) based on reasonable estimates of the amount of federal,
state and local income taxes that the Company would be required to pay with
respect to a fiscal year calculated as if, for the applicable fiscal year, the
Company were treated as a "C corporation" domiciled in the State of California
rather than as an "S corporation".
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Prior Accrued Bonus Payments" means payments of amounts accrued prior to
the Issue Date pursuant to Article II of the phantom stock agreements (the
"Phantom Compensation") entered into, in writing, between the Company or any of
its Subsidiaries and its officers prior to December 31, 1996 or substitutions to
or replacements of such Article of such agreements.
"Public Equity Offering" means an underwritten registered public offering of
Capital Stock (other than Disqualified Stock) of the Company or AGI Holding
Corp. (or any successor) pursuant to a registration statement that has been
declared effective by the Commission.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances,
renews, replaces or extends any Indebtedness of the Company or any Subsidiary
outstanding at the Issue Date or other Indebtedness permitted to be incurred by
the Company or the Subsidiaries pursuant to the terms of the Indenture, whether
involving the same or any other lender or creditor or group of lenders or
creditors, but only to the extent that (i) the Refinancing Indebtedness is
subordinated to the Notes to at least the same extent as the Indebtedness being
refunded, refinanced or extended, if at all, (ii) the Refinancing Indebtedness
is scheduled to mature either (a) no earlier than the Indebtedness being
refunded, refinanced or extended, or (b) after the maturity date of the Notes,
(iii) if the Refinancing Indebtedness matures, in whole or part, before the
maturity date of the Notes, the Refinancing Indebtedness has a weighted average
life to maturity at the time such Refinancing Indebtedness is incurred that is
equal to or greater than the weighted average to maturity of the Indebtedness
being refunded, refinanced or extended, and (iv) the Refinancing Indebtedness is
in an aggregate principal amount that is less than or equal to the aggregate
principal or accreted amount (in the case of any Indebtedness issued with
original issue discount) then outstanding (plus any applicable prepayment
premiums or penalties and accrued interest thereon) under the Indebtedness being
refunded, refinanced or extended.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution on Capital Stock of the
Company or any Subsidiary of the Company or any payment made to the direct or
indirect holders (in their capacities as such) of Capital Stock of the Company
or any Subsidiary of the Company (other than (x) dividends or distributions
payable solely in Capital Stock (other than Disqualified Stock) or in options,
warrants or other rights to purchase Capital Stock (other than Disqualified
Stock), and (y) in the case of Subsidiaries of the Company, dividends or
distributions payable to the Company or to a Subsidiary of the Company), (ii)
the purchase, redemption or other acquisition or retirement for value of any
Capital Stock of the Company or any of its Subsidiaries, (iii) the making of any
principal payment on, or the purchase, defeasance, repurchase, redemption or
other acquisition or retirement for value, prior to any scheduled maturity,
scheduled repayment or scheduled sinking fund payment, of, any Indebtedness
which is subordinated in right of payment to the Notes (other than Indebtedness
acquired in anticipation of satisfying a sinking fund obligation, principal
installment or final maturity, in each case due within one year of the date of
acquisition), (iv) payments of Phantom Compensation other than Prior Accrued
Bonus Payments, (v) the making of any Investment in any Person other than a
Permitted Investment. If a Restricted Payment is made in other than cash, the
value of any such payment shall be determined by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution to be
filed with the Trustee.
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"Sale-Leaseback Transaction" means any arrangement with any Person providing
for the leasing by the Company or any Subsidiary of the Company of any real or
tangible personal property, which property (i) has been or is to be sold or
transferred by the Company or such Subsidiary to such Person in contemplation of
such leasing and (ii) would constitute an Asset Sale if such property had been
sold in an outright sale thereof.
"Senior Credit Facility" means the credit facility evidenced by the Credit
Agreement dated April 2, 1997 among AGI, the guarantor parties thereto, the
several lenders from time to time party thereto, and Fleet National Bank, as
agent together with the documents related thereto (including, without
limitation, any guarantee agreements and security documents), in each case as
such agreements from time to time may be amended, amended and restated,
supplemented or otherwise modified, from time to time, including any agreement
extending the maturity of, refinancing, replacing, consolidating, or otherwise
restructuring (including adding Subsidiaries of the Company as additional
guarantors thereunder) all or any portion of the Indebtedness under such
agreement or any successor or replacement agreement and whether by the same or
any other agent, lender or group of lenders and whether or not increasing the
amount of Indebtedness that may be incurred thereunder.
"Subsidiary" means, with respect to any Person, (i) any corporation of which
the outstanding Capital Stock having at least a majority of the votes entitled
to be cast in the election of directors shall at the time be owned, directly or
indirectly, by such Person, by a Subsidiary of such Person or by such Person and
a Subsidiary of such Person, or (ii) any other Person (other than a corporation)
of which at least a majority of voting interest is at the time, directly or
indirectly, owned by such Person, by a Subsidiary of such Person or by such
Person and a Subsidiary of such Person. Unless specifically provided to the
contrary herein, Unrestricted Subsidiaries shall not be included in the
definition of Subsidiaries for any purpose of the Indenture (other than for the
purposes of the definition of "Unrestricted Subsidiary" herein).
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be or continue to be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and, (ii) any
Subsidiary of an Unrestricted Subsidiary; PROVIDED, HOWEVER, that Affinity
Thrift and Loan and Affinity Group Thrift Holding Corp. shall initially
constitute Unrestricted Subsidiaries. The Board of Directors may (i) designate
any entity which is not a Subsidiary to be an Unrestricted Subsidiary and (ii)
may designate any Subsidiary (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns or holds any Lien on any property of, the Company or
any other Subsidiary that is not a Subsidiary of the Subsidiary to be so
designated; PROVIDED, HOWEVER, that (x) either (A) the Subsidiary to be so
designated has total assets of $10,000 or less or (B) if such Subsidiary has
assets greater than $10,000, such designation would be permitted under the
"Limitation on Investments, Loans and Advances" covenant described above and (y)
immediately before and after giving effect to the designation of such Subsidiary
as an Unrestricted Subsidiary the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the "Limitation on
Additional Indebtedness" covenant described above. The Board of Directors may
designate any Unrestricted Subsidiary to be a Subsidiary; PROVIDED, HOWEVER,
that immediately after giving effect to such designation (x) the Company could
incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under
the "Limitation on Indebtedness" covenant described above and (y) no Event of
Default or Default shall have occurred and be continuing. Any such designation
by the Board of Directors shall be evidenced to the Trustee by promptly filing
with the Trustee a copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"Wholly-Owned Subsidiary" means any Subsidiary all of the outstanding
Capital Stock of which (other than directors' qualifying shares) is owned,
directly or indirectly, by the Company.
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BOOK-ENTRY; DELIVERY AND FORM
The Old Notes were initially issued in the form of a Global Note (the
"Original Global Note"). Except for New Notes issued to Non-global Purchases (as
defined below), the New Notes will initially be issued in the form of one or
more Global Notes (collectively, the "New Global Notes"). The Original Global
Note was deposited on the date of closing of the sale of the Original Notes, and
the New Global Notes will be deposited on the date of closing of the Exchange
Offer, with or on behalf of the Depositary and registered in the name of CEDE &
Co., as nominee of the Depositary (such nominee being referred to herein as the
"DTC Nominee").
Notes that are (i) originally issued to or transferred to "institutional
accredited investors" that are not "qualified institutional buyers," as defined
in Rule 144A under the Securities Act (the "Non-Global Purchasers") or (ii)
issued as described below under "--Certificated Securities" will be issued in
registered form, without interest coupons (the "Certificated Securities"). Upon
the transfer to a qualified institutional buyer of Certificated Securities
initially issued to a Non-Global Purchaser, such Certificated Securities will,
unless the Global Notes have previously been exchanged for Certificated
Securities, be exchanged for an interest in the Global Notes representing the
principal amount of Notes being transferred. "Global Notes" means the Original
Global Notes or the New Global Notes as the case may be.
DTC is (i) a limited purpose trust company organized under the banking laws
of the State of New York (and is a "banking organization" within the meaning of
such laws), (ii) a member of the Federal Reserve System, (iii) a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, as
amended, and (iv) a "Clearing Agency" registered pursuant to Section 17A of the
Exchange Act. DTC was created to hold securities for its participating
organizations (the "participants") and to facilitate the clearance and
settlement of securities transactions between participants through electronic
book-entry changes to the accounts of its participants. DTC's participants
include securities brokers and dealers, commercial banks, trust companies,
clearing corporations and certain other organizations. DTC is owned by a number
of its direct participants and by each of the New York Stock Exchange, Inc., the
American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to DTC's systems is also available to other entities such
as banks, brokers, dealers and trust companies that clear through or maintain a
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 DTC only through the DTC's director indirect participants.
Pursuant to procedures established by the Depositary (i) upon deposit of the
Global Notes, the Depositary will credit the accounts of participants in
connection with the Notes with portions of the principal amount of the Global
Notes and (ii) ownership of the Notes will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by the
Depositary (with respect to the interests of the Depositary's participants), the
Depositary's participants and the Depository's indirect participants.
So long as DTC's Nominee is the registered owner of the Global Notes, DTC or
DTC's Nominee, as the case may be, is considered the sole owner and holder under
the Indenture of the underlying Notes. Unless DTC notifies the Company that it
is unwilling or unable to continue serving as depositary for such Notes, DTC
ceases to be a clearing agency registered under the Exchange Act, the Company
determines to permit the Global Notes to be exchanged for certificated Notes or
an Event of Default has occurred and is continuing with respect to the Note,
owners of beneficial interests in the Global Notes will not be entitled to have
the Notes evidenced by the Global Note registered in their names, will not
receive or be entitled to receive physical delivery of certificated Notes in
definitive and fully registered form, and will not be considered to be the
owners or holders of any Notes under the Indenture or such Notes for any
purposes. Neither the Company nor the Trustee have any responsibility or
liability for any aspect of the records of DTC or for maintaining, supervising
or reviewing any records of DTC relating to the Notes.
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Payments in respect of the principal of, premium, if any, and interest on
the Global Notes are payable by the Trustee to DTC or DTC's nominee, as the case
may be, as the registered holder under the Indenture. Under the terms of the
Indenture, the Company and the Trustee may treat the persons in whose names
Notes are registered as the owners thereof for the purpose of receiving such
payments. Consequently, neither the Company nor the Trustee has any
responsibility or liability of the payment of such amounts to beneficial owners
of Notes (including principal, premium, if any, Liquidated Damages, if any, and
interest). The Company believes, however, that it is currently the policy of DTC
to immediately credit the accounts of the relevant participants with such
payments, in amounts proportionate to their respective holdings of beneficial
interests in the relevant security as shown on the records of DTC. Payments by
DTC's direct and indirect participants to the beneficial owners of Notes are
governed by standing instructions and customary practice and are the
responsibility of DTC's direct and indirect participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any Person having a beneficial interest in
the Global Notes may, upon request to the Trustee, exchange such beneficial
interest for Notes in the form of Certificated Securities. Upon any such
issuance, the 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). All such certificated Original Notes would be
subject to the legend requirements described herein under "Notice to Investors."
In addition, if (i) the Company notifies the Trustee in writing that DTC 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 Trustee in writing that it elects to cause the issuance of Notes in
the form of Certificated Securities under the Indenture, then, upon surrender by
DTC's Nominee of its Global Notes, Notes in such form will be issued to each
Person that DTC's Nominee and DTC identify as being the beneficial owner of the
related Notes.
Neither the Company nor the Trustee are liable for any delay by DTC or DTC's
Nominee, as the case may be, in identifying the beneficial owners of Notes and
the Company and the Trustee may conclusively rely on, and will be protected in
relying on, instructions from DTC or DTC's Nominee for all purposes.
Neither DTC nor DTC's Nominee will consent or vote in any manner with
respect to the Notes. Pursuant to its customary procedures, in the case of any
matter as to which the consent or vote of holders of the Notes is sought, DTC
will mail an Omnibus Proxy to the Company as soon as practicable after the
record date for the determination of holders eligible to consent or vote on the
matter to be acted upon. The Omnibus Party serves to assign DTC's Nominee's
right to consent or vote to the direct participants whose accounts it maintains
as of the record date.
Notices of redemption and repurchase with respect to Notes held by direct
participants in the DTC system will be forwarded to DTC's Nominee. In the case
of a partial redemption, DTC's practice is to determine, by lot, the amount of
the beneficial interest in the Notes to be redeemed of each of its direct
participants.
Beneficial owners who elect to participate in a tender offer or purchase of
their securities, must provide notice of such election, through its direct or
indirect participant in DTC's system, to the appropriate depositary, tender or
purchase agent, and effect delivery of their Notes by causing the direct
participant in DTC's system to transfer the indirect participants interest in
the Notes, as reflected in DTC's records, to such depositary, tender or purchase
agent. The requirement for physical delivery of certificates evidencing the
Notes in connection with aforementioned transactions will be deemed satisfied
when the beneficial ownership rights in the Global Notes are transferred by
direct participants on DTC's records.
The conveyance of all notices and other communications by DTC to its direct
participants, among DTC's direct and indirect participants and by DTC's direct
and indirect participants to owners of beneficial interests in the Notes is
governed by customary arrangements among them, subject to statutory or
regulatory requirements in effect with respect thereto from time to time.
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Although DTC has agreed to the foregoing procedures to facilitate transfers
of interest in the Global Notes among participants of DTC, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Company nor the Trustee
have any responsibility for the performance by DTC or its participants of their
respective obligations under the rules and procedures governing their
operations.
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CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The Company believes that the following summary fairly describes the
material United States federal income tax consequences expected to apply to the
exchange of Original Notes for New Notes and the ownership and disposition of
New Notes under currently applicable federal income tax law. The following
summary of the material anticipated federal income tax consequences of the
issuance of New Notes and the Exchange Offer is based upon the provisions of the
Internal Revenue Code of 1986, as amended, the final, temporary and proposed
regulations promulgated thereunder, and administrative rulings and judicial
decisions now in effect, all of which are subject to change (possibly with
retroactive effect) or different interpretations. The following summary is not
binding on the Internal Revenue Service ("IRS") and there can be no assurance
that the IRS will take a similar view with respect to the tax consequences
described below. No ruling has been or will be requested by the Company from the
IRS on any tax matters relating to the New Notes or the Exchange Offer. This
discussion is for general information only and does not purport to address all
of the possible federal income tax consequences or any state, local or foreign
tax consequences of the acquisition, ownership and disposition of the Original
Notes, the New Notes or the Exchange Offer. It is limited to investors who will
hold the Original Notes and the New Notes as capital assets and does not address
the federal income tax consequences that may be relevant to particular investors
in light of their unique circumstances or to certain types of investors (such as
dealers in securities, insurance companies, financial institutions, foreign
corporations, partnerships, trusts, nonresident individuals, and tax-exempt
entities) who may be subject to special treatment under federal income tax laws.
PERSONS CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF NEW 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.
INDEBTEDNESS
The Original Notes and the New Notes should be treated as indebtedness of
the Company. In the unlikely event the Original Notes or the New Notes were
treated as equity, the amount treated as a distribution on any such Original
Note or New Note would first be taxable to the holder as dividend income to the
extent of the Company's current and accumulated earnings and profits, and would
next be treated as a return of capital to the extent of the holder's tax basis
in the Original Notes or New Notes, with any remaining amount treated as a gain
from the sale of an Original Note or a New Note. In addition, in the event of
equity treatment, amounts received in retirement of an Original Note or a New
Note might in certain circumstances be treated as a dividend, and the Company
could not deduct amounts paid as interest on such Original Notes or New Notes.
The remainder of this discussion assumes that the Original Notes and the New
Notes will constitute indebtedness.
EXCHANGE OFFER
The exchange of the Original Notes for New Notes pursuant to the Exchange
Offer should not be treated as an "exchange" because the New Notes should not be
considered to differ materially in kind or extent from the Original Notes.
Rather, the New Notes received by a holder of the Original Notes should be
treated as a continuation of the Original Notes in the hands of such holder.
Accordingly, there should be no federal income tax consequences to holders
exchanging the Original Notes for the New Notes pursuant to the Exchange Offer.
The holding period of New Notes in the hands of a holder should include the
holding period of the Original Notes exchanged for such New Notes.
INTEREST
A holder of an Original Note or a New Note will be required to report stated
interest on the Original Note and the New Note as interest income in accordance
with the holder's method of accounting for tax
103
<PAGE>
purposes. Because the Original Notes were issued at par there is no original
issue discount pursuant to the de minimis exception to the "original issue
discount" rules.
TAX BASIS IN ORIGINAL NOTES AND NEW NOTES
A holder's tax basis in an Original Note will generally be the holder's
purchase price for the Original Note. If a holder of an Original Note exchanges
the Original Note for a New Note pursuant to the Exchange Offer, the tax basis
of the New Note immediately after such exchange should equal the holder's tax
basis in the Original Note immediately prior to the exchange.
DISPOSITION OF ORIGINAL NOTES OR NEW NOTES
The sale, exchange, redemption or other disposition of an Original Note or a
New Note, except in the case of an exchange pursuant to the Exchange Offer (see
the above discussion), generally will be a taxable event. A holder generally
will recognize gain or loss equal to the difference between (i) the amount of
cash plus the fair market value of any property received upon such sale,
exchange, redemption or other taxable disposition of the Original Note or the
New Note (except to the extent attributable to accrued interest) and (ii) the
holder's adjusted tax basis in such debt instrument. Such gain or loss will be
capital gain or loss, and will be long term if the Original Notes or the New
Notes have been held for more than one year at the time of the sale or other
disposition.
PURCHASERS OF ORIGINAL NOTES AT OTHER THAN ORIGINAL ISSUANCE PRICE
The foregoing does not discuss special rules which may affect the treatment
of purchasers that acquired Original Notes other than at par, including those
provisions of the Internal Revenue Code relating to the treatment of "market
discount," and "amortizable bond premium." Any such purchasers should consult
its tax advisors as to the consequences to it of the acquisition, ownership and
disposition of Original Notes.
BACKUP WITHHOLDING
Unless a holder provides its correct taxpayer identification number
(employer identification number or social security number) to the Company and
certifies that such number is correct, generally under the federal income tax
backup withholding rules, 31% of (1) the interest paid on the Original Notes and
the New Notes, and (2) the proceeds of sale of the Original Notes and the New
Notes, must be withheld and remitted to the United States Treasury. Therefore,
each holder should complete and sign the Substitute Form W-9 included with the
Letter of Transmittal so as to provide the information and certification
necessary to avoid backup withholding. However, certain holders (including,
among others, certain foreign individuals) are not subject to these backup
withholding and reporting requirements. For a foreign individual holder to
qualify as an exempt foreign recipient, that holder must submit a statement,
signed under penalties of perjury, attesting to that individual's exempt foreign
status. Backup withholding is not an additional federal income tax. Rather, the
federal income tax liability of a person subject to backup withholding will be
reduced by the amount of tax withheld. If backup withholding results in an
overpayment of taxes, a refund may be obtained from the IRS.
104
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New 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 New 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 New Notes received in exchange for Original Notes
where such Original Notes were acquired as a result of market-making activities
or other trading activities. The Company has agreed that, for a period of 165
days after the effective date of this Prospectus, it will make this Prospectus,
as amended or supplemented, available to any broker-dealer for use in connection
with any such resale.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own accounts
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 New Notes or a combination of such methods of
resale, at market prices at the time of resale, at prices related to such
prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New 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 New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 165 days after the effective date of this Prospectus, the
Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that request
such documents in the Letter of Transmittal. The Company has agreed, in
connection with the Exchange Offer, to indemnify the Initial Purchaser against
certain liabilities, including liabilities under the Securities Act.
By acceptance of the Exchange Offer, each broker-dealer that receives New
Notes pursuant to the Exchange Offer hereby agrees to notify the Company prior
to using the Prospectus in connection with the sale or transfer of New Notes,
and acknowledges and 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 supplemented prospectus to such broker-dealer.
LEGAL MATTERS
The legality of the New Notes being offered hereby have been passed upon for
the Company by Kaplan, Strangis and Kaplan, P.A., Minneapolis, Minnesota.
105
<PAGE>
EXPERTS
The consolidated financial statements of Affinity Group Holding, Inc. and
its subsidiaries as of December 31, 1996 and 1995 and for each of the three
years in the period ended December 31, 1996 and of Camping World, Inc. and its
subsidiaries as of September 30, 1996 and 1995 and for each of the three years
in the period ended September 30, 1996, included in this Prospectus, and the
related financial statement schedules, included elsewhere in the Registration
Statement, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein and elsewhere in the Registration
Statement, and are included in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
106
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
AFFINITY GROUP HOLDING, INC.
Consolidated Balance Sheet as of March 31, 1997 (unaudited)............... F-2
Consolidated Statements of Operations for the three months ended March 31,
1997 and
1996 (unaudited)........................................................ F-3
Consolidated Statements of Cash Flows for the three months ended March 31,
1997 and
1996 (unaudited)........................................................ F-4
Notes to Consolidated Financial Statements (unaudited).................... F-5
Independent Auditors' Report.............................................. F-7
Consolidated Balance Sheets as of December 31, 1996 and 1995.............. F-8
Consolidated Statements of Operations for the years ended December 31,
1996, 1995 and 1994..................................................... F-9
Consolidated Statements of Stockholder's Deficit for the years ended
December 31, 1996, 1995 and 1994........................................ F-10
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994..................................................... F-11
Notes to Consolidated Financial Statements................................ F-12
CAMPING WORLD, INC.
Consolidated Balance Sheet as of March 31, 1997 (unaudited)............... F-27
Consolidated Statements of Operations for the six months ended March 31,
1997 and 1996 (unaudited)............................................... F-28
Consolidated Statements of Cash Flows for the six months ended March 31,
1997 and 1996 (unaudited)............................................... F-29
Notes to Consolidated Financial Statements (unaudited).................... F-30
Independent Auditors' Report.............................................. F-31
Consolidated Balance Sheets as of September 30, 1996 and 1995............. F-32
Consolidated Statements of Earnings for the years ended September 30,
1996, 1995 and 1994..................................................... F-33
Consolidated Statements of Shareholders' Equity for the years ended
September 30, 1996, 1995 and 1994....................................... F-34
Consolidated Statements of Cash Flows for the years ended September 30,
1996, 1995 and 1994..................................................... F-35
Notes to Consolidated Financial Statements................................ F-36
</TABLE>
F-1
<PAGE>
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
1997
----------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................................... $ 11,712
Investments......................................................................................... 149
Accounts receivable (net of allowance for doubtful accounts)........................................ 15,073
Inventories......................................................................................... 1,657
Prepaid expenses and other assets................................................................... 6,605
Deferred tax asset-current.......................................................................... 2,342
----------
Total current assets.............................................................................. 37,538
PROPERTY AND EQUIPMENT................................................................................ 10,860
LOANS RECEIVABLE...................................................................................... 12,378
INTANGIBLE ASSETS..................................................................................... 133,139
DEFERRED TAX ASSET.................................................................................... 13,141
RESTRICTED INVESTMENTS................................................................................ 2,138
OTHER ASSETS.......................................................................................... 6,342
NET LONG-TERM ASSETS OF DISCONTINUED OPERATIONS....................................................... 1,006
----------
$ 216,542
----------
----------
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES:
Accounts payable.................................................................................... $ 6,919
Accrued interest.................................................................................... 6,429
Accrued liabilities................................................................................. 13,127
Customer deposits................................................................................... 17,740
Current portion of long-term debt................................................................... 5,291
Net current liabilities of discontinued operations.................................................. 1,275
----------
Total current liabilities......................................................................... 50,781
DEFERRED REVENUES..................................................................................... 73,285
LONG-TERM DEBT........................................................................................ 163,487
OTHER LONG-TERM LIABILITIES........................................................................... 7,827
COMMITMENTS AND CONTINGENCIES......................................................................... --
----------
295,380
----------
STOCKHOLDER'S DEFICIT:
Common stock, $.01 par value, 1,000 shares authorized,
100 shares issued and outstanding................................................................. 1
Additional paid-in capital.......................................................................... 12,021
Accumulated deficit................................................................................. (90,860)
----------
Total stockholder's deficit....................................................................... (78,838)
----------
$ 216,542
----------
----------
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
REVENUES:
Membership services....................................................................... $ 24,250 $ 23,399
Publications.............................................................................. 9,733 8,194
--------- ---------
33,983 31,593
COSTS APPLICABLE TO REVENUES:
Membership services....................................................................... 14,545 13,589
Publications.............................................................................. 7,705 7,548
--------- ---------
22,250 21,137
GROSS PROFIT................................................................................ 11,733 10,456
OPERATING EXPENSES:
General and administrative................................................................ 4,225 3,908
Depreciation and amortization............................................................. 2,093 2,057
--------- ---------
6,318 5,965
--------- ---------
INCOME FROM OPERATIONS...................................................................... 5,415 4,491
NON-OPERATING EXPENSE:
Interest expense, net..................................................................... (4,153) (4,176)
Other non-operating charges, net.......................................................... 8 --
--------- ---------
(4,145) (4,176)
--------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES....................................... 1,270 315
INCOME TAX EXPENSE.......................................................................... (674) (139)
--------- ---------
INCOME FROM CONTINUING OPERATIONS........................................................... 596 176
DISCONTINUED OPERATIONS:
Loss from discontinued operations, net of applicable deferred income tax benefit of $51 in
1996.................................................................................... -- (84)
--------- ---------
NET INCOME.................................................................................. $ 596 $ 92
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................................................. $ 596 $ 92
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred tax provision................................................................ 261 79
Depreciation and amortization......................................................... 2,093 2,127
Provision for losses on accounts receivable........................................... 36 9
Deferred compensation................................................................. 300 --
Loss on disposal of property and equipment............................................ 7 --
Changes in operating assets and liabilities (net of purchased business):
Accounts receivable................................................................. 1,241 4,459
Inventories......................................................................... 816 663
Prepaids and other assets........................................................... (2,236) 23
Accounts payable.................................................................... 1,148 (2,904)
Accrued and other liabilities....................................................... 1,516 (1,376)
Deferred revenues................................................................... 1,181 1,657
Net assets and liabilities of discontinued operations............................... (222) (299)
---------- ----------
Net cash provided by operating activities......................................... 6,737 4,530
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................................................... (562) (376)
Net changes in intangible assets........................................................ (1,711) (309)
Net changes in loans receivable......................................................... 756 545
Sale of investments..................................................................... 350 169
Purchase of Ehlert Publishing Group..................................................... (20,800) --
Note receivable from affiliate.......................................................... -- 3,113
---------- ----------
Net cash provided by (used in) investing activities............................... (21,967) 3,142
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in customer deposits......................................................... 2,761 617
Borrowings on long-term debt............................................................ 30,450 8,050
Principal payments of long-term debt.................................................... (10,547) (16,423)
---------- ----------
Net cash provided by (used in) financing activities............................... 22,664 (7,756)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...................................... 7,434 (84)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.......................................... 4,278 3,833
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................................ $ 11,712 $ 3,749
---------- ----------
---------- ----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest................................................................................ 690 893
Income taxes............................................................................ 16 0
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The financial statements included herein include the results of Affinity
Group Holding, Inc. ("AGHI"), it's wholly-owned subsidiary, Affinity Group, Inc.
("AGI"), and AGI's subsidiaries (collectively the "Company") without audit, in
accordance with generally accepted accounting principles, and pursuant to the
rules and regulations of the Securities and Exchange Commission. These interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes for the year ended December 31,
1996. In the opinion of management of the Company, these consolidated financial
statements contain all adjustments of a normal recurring nature necessary to
present fairly the financial position, results of operations and cash flows of
the Company for the interim periods presented.
The "Results of Operations" discussion below excludes the operations of the
National Association for Female Executives ("NAFE") since it has been classified
as a discontinued operation. See Note (3) below.
(2) ACQUISITIONS AND NEW BORROWINGS
On March 6, 1997, AGI acquired the stock of Ehlert Publishing companies
("Ehlert") for $22.3 million, of which $20.8 million was paid in cash at
closing. In addition, a $1.5 million note was issued by AGHI, to the seller, of
which $1.0 million was repaid in April 1997. The purchase price of Ehlert was
funded primarily through borrowings under AGI's senior credit facility and a
$6.5 million capital contribution to AGI from AGHI ($5.0 million of the capital
contribution was in cash).
On April 2, 1997 AGI acquired the common stock of Camping World, Inc.
("Camping World") for $108.0 million in cash, including $19.0 million for
non-competition and consulting agreements with certain Camping World executives.
The purchase price of Camping World was funded through capital contributions to
AGI from AGHI (consisting of the net proceeds from AGHI's April 2, 1997 issuance
of $130.0 million in 11% senior notes due 2007, net of expenses and repayment of
approximately $7.5 million of AGHI's debt) together with borrowings under AGI's
new $75 million senior credit facility.
The new senior secured credit facility consists of a revolving line of
credit of $45.0 million and a term loan of $30.0 million. The interest on
borrowings under the new senior credit facility is at variable rates based on
the ratio of total cash flow to outstanding indebtedness (as defined). AGI also
pays a commitment fee of 0.5% per annum on the unused amount of the revolving
credit line. Borrowings under the new senior credit facility were also used to
pay-off outstanding balances under the previous senior secured note and the
previous revolving line of credit.
(3) DISCONTINUED OPERATIONS
In October 1994, the Company acquired substantially all the assets and
assumed certain liabilities of NAFE. The total consideration for the
acquisition, including assumed liabilities and costs of acquisition, totaled
$10.8 million.
During the fourth quarter of 1996, the Company adopted a plan to dispose of
the assets related to NAFE. The Company intends to sell NAFE to an unidentified,
unrelated third party during 1997. In connection with the plan, the Company
recorded a loss of $5.9 million net of related income taxes of $1.1 million in
the fourth quarter of 1996 based on the anticipated proceeds upon sale. The
results of operations of NAFE have been classified as discontinued operations in
the accompanying financial statements.
F-5
<PAGE>
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(3) DISCONTINUED OPERATIONS (CONTINUED)
Information relating to the operations of NAFE for the three months ended
March 31, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
3/31/97 3/31/96
--------- ---------
<S> <C> <C>
Revenues................................................................... $ 1,088 $ 1,380
Costs applicable to revenues............................................... 1,660 1,230
--------- ---------
Gross profit (loss)........................................................ (572) 150
Operating expenses......................................................... 251 285
--------- ---------
Loss from operations....................................................... (823) (135)
Income tax benefit......................................................... 437 51
--------- ---------
Loss from discontinued operations.......................................... (386) (84)
Accrued for at December 31, 1996........................................... 386 --
--------- ---------
Net loss................................................................... $ -- $ (84)
--------- ---------
--------- ---------
</TABLE>
The assets and liabilities of NAFE included in the accompanying consolidated
balance sheet as of March 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
3/31/97
---------
<S> <C> <C>
Current assets:
Cash................................................................... $ --
Accounts receivable.................................................... 349
Inventories............................................................ 135
Prepaid expenses....................................................... 285
---------
Total current assets................................................. 769
Current liabilities:
Accounts payable....................................................... 263
Accrued liabilities.................................................... 1,781
---------
Total current liabilities............................................ 2,044
---------
Net current liabilities................................................ $ (1,275)
---------
---------
Long-term assets:
Property and equipment................................................. $ 55
Intangible assets...................................................... 3,000
Other assets........................................................... 25
---------
Total long-term assets............................................... 3,080
Long-term liabilities:
Deferred revenues...................................................... 2,074
---------
Net long-term assets................................................... $ 1,006
---------
---------
</TABLE>
F-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Affinity Group Holding, Inc. and subsidiaries
We have audited the accompanying consolidated balance sheets of Affinity
Group Holding, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholder's deficit, and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Affinity Group Holding, Inc.
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
March 7, 1997 (April 2, 1997 with respect to Note 19)
Denver, Colorado
F-7
<PAGE>
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................................... $ 4,278 $ 3,833
Investments............................................................................. 499 1,514
Accounts receivable, less allowance for doubtful accounts of $1,081 in 1996 and $926 in
1995.................................................................................. 14,812 15,054
Note receivable from affiliate.......................................................... -- 3,113
Inventories............................................................................. 2,473 3,873
Prepaid expenses and other assets....................................................... 6,052 5,376
Deferred tax asset-current.............................................................. 2,228 1,907
Net current assets of discontinued operations........................................... -- 457
---------- ----------
Total current assets.................................................................. 30,342 35,127
PROPERTY AND EQUIPMENT.................................................................... 10,550 10,769
LOANS RECEIVABLE.......................................................................... 13,134 8,474
INTANGIBLE ASSETS......................................................................... 109,065 115,009
DEFERRED TAX ASSET........................................................................ 13,516 16,503
RESTRICTED INVESTMENTS.................................................................... 2,137 2,015
OTHER ASSETS.............................................................................. 4,411 4,530
NET LONG-TERM ASSETS OF DISCONTINUED OPERATIONS........................................... 973 5,272
---------- ----------
$ 184,128 $ 197,699
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES:
Accounts payable........................................................................ $ 4,517 $ 4,426
Accrued interest........................................................................ 2,966 3,058
Accrued liabilities..................................................................... 14,516 16,269
Customer deposits....................................................................... 14,979 10,974
Current portion of long-term debt....................................................... 5,344 4,665
Net current liabilities of discontinued operations...................................... 1,464 --
---------- ----------
Total current liabilities............................................................. 43,786 39,392
DEFERRED REVENUES......................................................................... 70,113 68,702
LONG-TERM DEBT............................................................................ 142,031 159,831
OTHER LONG-TERM LIABILITIES............................................................... 7,632 7,737
COMMITMENTS AND CONTINGENCIES............................................................. -- --
---------- ----------
263,562 275,662
---------- ----------
STOCKHOLDER'S DEFICIT:
Common stock, $.01 par value, 1,000 shares authorized, 100 shares issued and
outstanding........................................................................... 1 1
Additional paid-in capital.............................................................. 12,021 12,021
Accumulated deficit..................................................................... (91,456) (89,985)
---------- ----------
Total stockholder's deficit........................................................... (79,434) (77,963)
---------- ----------
$ 184,128 $ 197,699
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Membership services........................................................ $ 98,901 $ 99,194 $ 91,185
Publications............................................................... 41,078 40,043 37,601
---------- ---------- ----------
139,979 139,237 128,786
COSTS APPLICABLE TO REVENUES:
Membership services........................................................ 57,003 54,203 51,795
Publications............................................................... 29,571 29,700 27,148
---------- ---------- ----------
86,574 83,903 78,943
GROSS PROFIT................................................................. 53,405 55,334 49,843
OPERATING EXPENSES:
General and administrative................................................. 16,326 18,376 13,615
Depreciation and amortization.............................................. 8,340 9,013 11,020
---------- ---------- ----------
24,666 27,389 24,635
---------- ---------- ----------
INCOME FROM OPERATIONS....................................................... 28,739 27,945 25,208
NON-OPERATING EXPENSE:
Interest expense, net...................................................... (16,518) (16,433) (16,716)
Other non-operating charges, net........................................... (996) (1,579) (811)
---------- ---------- ----------
(17,514) (18,012) (17,527)
---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND EXTRAORDINARY ITEM................................. 11,225 9,933 7,681
INCOME TAX (EXPENSE) BENEFIT................................................. (6,144) (5,047) 13,255
---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS............................................ 5,081 4,886 20,936
DISCONTINUED OPERATIONS:
Income (loss) from discontinued operations, net of applicable deferred
income tax benefit of $384 in 1996 and deferred income tax expense of
$264 in 1995 and $162 in 1994............................................ (686) 430 265
Estimated loss on disposal including provision for $862 in operating losses
during holding period, net of applicable deferred income tax benefit of
$1,060................................................................... (5,866) -- --
---------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM...................................... (1,471) 5,316 21,201
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, less applicable current income tax
benefit of $800.......................................................... -- -- (1,277)
---------- ---------- ----------
NET INCOME (LOSS)............................................................ $ (1,471) $ 5,316 $ 19,924
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE>
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- ------------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1994.............................. 100 $ 1 $ 16,499 $ (105,572) $ (89,072)
Investment in related subsidiary....................... (794) (794)
Dividends.............................................. (4,337) (4,337)
Net income............................................. 19,924 19,924
--
--- ----------- ------------ ----------
BALANCES AT DECEMBER 31, 1994............................ 100 1 15,705 (89,985) (74,279)
Dividends.............................................. (3,684) (5,316) (9,000)
Net income............................................. 5,316 5,316
--
--- ----------- ------------ ----------
BALANCES AT DECEMBER 31, 1995............................ 100 1 12,021 (89,985) (77,963)
Net loss............................................... (1,471) (1,471)
--
--- ----------- ------------ ----------
BALANCES AT DECEMBER 31, 1996............................ 100 $ 1 $ 12,021 $ (91,456) $ (79,434)
--
--
--- ----------- ------------ ----------
--- ----------- ------------ ----------
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE>
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................................... $ (1,471) $ 5,316 $ 19,924
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Deferred tax provision (benefit).................................................. 2,023 4,990 (13,124)
Depreciation and amortization..................................................... 8,340 9,013 11,020
Provision for losses on accounts receivable....................................... 278 548 373
Provision for estimated loss on disposal of NAFE.................................. 6,926 -- --
Deferred compensation............................................................. -- 1,000 1,300
(Gain) loss on disposal of property and equipment................................. 1 (48) 18
Loss on sale of business.......................................................... -- -- 793
Loss on lease abandonment......................................................... -- 1,228 --
Write-off of leasehold improvements............................................... -- 400 --
Extraordinary item--loss on early extinguishment of debt.......................... -- -- 1,277
Changes in operating assets and liabilities (net of purchased businesses):
Accounts receivable............................................................. (36) (4,810) 903
Inventories..................................................................... 1,400 (512) (762)
Prepaids and other assets....................................................... (557) (419) 1,501
Long term lease prepayment...................................................... -- (1,679) --
Accounts payable................................................................ 91 634 821
Accrued and other liabilities................................................... (1,307) (2,375) (612)
Deferred revenues............................................................... 1,411 1,254 (308)
Net assets and liabilities of discontinued operations........................... (706) (817) 677
--------- --------- ---------
Net cash provided by operating activities..................................... 16,393 13,723 23,801
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................................ (1,743) (4,713) (3,167)
Proceeds from sale of property and equipment........................................ 2 263 12
Payments received on notes receivable............................................... -- -- 44
Net changes in intangible assets.................................................... (437) 30 (1,236)
Net changes in investments.......................................................... 893 -- --
Net changes in loans receivable..................................................... (4,660) 893 --
Purchase of investments............................................................. -- (3,529) --
Purchase of Affinity Thrift and Loan, net of cash acquired.......................... -- 1,854 --
Purchase of Affinity Insurance Group, Inc........................................... -- (356) --
Note receivable from affiliate...................................................... 3,113 (3,113) --
Purchase of partnership, net of cash acquired....................................... -- -- (1,599)
Purchased assets of Woodall, net of cash acquired................................... -- -- (10,297)
Purchased assets of NAFE, net of cash acquired...................................... -- -- (6,050)
--------- --------- ---------
Net cash used in investing activities......................................... (2,832) (8,671) (22,293)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in customer deposits..................................................... 4,005 -- --
Dividends paid...................................................................... -- (9,000) (4,337)
Borrowings on long-term debt........................................................ 34,200 125,046 89,996
Principal payments on long-term debt................................................ (51,321) (117,820) (95,718)
Deferred financing costs............................................................ -- -- (824)
--------- --------- ---------
Net cash used in financing activities......................................... (13,116) (1,774) (10,883)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................. 445 3,278 (9,375)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR........................................ 3,833 555 9,930
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.............................................. $ 4,278 $ 3,833 $ 555
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE>
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of Affinity Group Holding, Inc. (AGHI), its wholly-owned
subsidiary, Affinity Group, Inc. (AGI), and AGI's subsidiaries (collectively the
Company). AGHI was formed in November 1996 and all of the stock of AGI was
contributed to AGHI from its parent, AGI Holding Corp. (formerly Affinity Group
Holding, Inc.) upon formation. Since all companies are under common control, and
since AGHI has no operations other than those related to AGI and AGI's
subsidiaries, the contribution was accounted for as if it was a pooling of
interests. Therefore, the accounts of AGI and AGI's subsidiaries are presented
in AGHI's financial statements. All significant intercompany transactions and
balances have been eliminated.
DESCRIPTION OF THE BUSINESS--The Company is a membership based direct
marketing company which sells club memberships, products, services, and
publications to selected affinity groups primarily in North America. The Company
markets club memberships and selected products and services to RV owners,
camping and golf enthusiasts. The Company also publishes magazines, directories
and books. In connection with the acquisitions of Affinity Thrift and Loan and
Affinity Insurance Group, Inc. (see Note 2), the Company has commenced offering
certain banking services and underwriting property and casualty insurance for
its members and others in the states in which it is licensed to do business.
USE OF ESTIMATES--The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles requires
the Company's management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying notes. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS--The Company considers all short-term, highly
liquid investments purchased with a maturity date of three months or less to be
cash equivalents.
INVENTORIES--Inventories are valued at the lower of cost (first-in,
first-out) or market. Inventories consist of books, paper, and travel and
leisure merchandise.
PROPERTY AND EQUIPMENT--Property and equipment are recorded at cost.
Depreciation of property and equipment is provided using the straight-line
method over the following estimated useful lives of the assets:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements............................................................. 3-31
Furniture and equipment................................................................ 3-12
Software............................................................................... 3
</TABLE>
Leasehold improvements, included in buildings and improvements, are
amortized over the lives of the respective leases.
LOANS RECEIVABLE--Loans Receivable were acquired as part of Affinity Thrift
and Loan (see Note 2). In accordance with purchase accounting rules, the loans
were recorded at their fair value, $9,367,000. The adjustment for fair value is
being amortized using the interest method over the weighted average term to
maturity of the affected loans, 16 years.
F-12
<PAGE>
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS--Intangible assets are amortized over the following lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Goodwill......................................................................................... 40
Membership and customer lists.................................................................... 3-10
Resort and golf course agreements................................................................ 4
Noncompete and deferred consulting agreements.................................................... 3-6
Organizational costs............................................................................. 5
</TABLE>
Deferred financing costs are amortized over the lives of the related debt
agreements.
IMPAIRMENT OF LONG-LIVED ASSETS--In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 121 requires that long-lived assets,
including intangible assets, be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable and establishes guidelines for determining fair value based on
future net cash flows for the use of the asset and for the measurement of the
impairment loss. Any impairment loss is recorded in the period in which the
recognition criteria are first applied and met. The adoption by the Company of
SFAS No. 121 had no material effect on its results of operations or on its
financial position at December 31, 1996.
MEMBERSHIP SERVICES REVENUE AND EXPENSE--Membership and Emergency Road
Service (ERS) revenues are deferred and recognized over the life of the
membership. Good Sam Club lifetime membership revenues and expenses are deferred
and recognized over 18 years which is the actuarially determined fulfillment
period. Promotional expenses, consisting primarily of direct mail advertising,
are deferred and expensed over the period of expected future benefit. Renewal
expenses are expensed at the time related materials are mailed. ERS claims
expenses are recognized when incurred.
PUBLICATIONS REVENUE AND EXPENSE--Newsstand sales of publications and
related expenses are recorded at the time of delivery net of estimated provision
for returns. Subscription sales of publications are reflected in income over the
lives of the subscriptions. The related selling expenses are expensed as
incurred. Advertising revenues and related expenses are recorded at the time of
delivery. Subscription and newsstand revenues and expenses related to annual
publications are deferred until the publications are distributed.
DEFERRED REVENUE--For balance sheet purposes, deferred revenues are
classified as long-term, although a portion of the amounts deferred expire over
the next year.
2. ACQUISITIONS
In October 1995, a wholly owned subsidiary of the Company acquired the
common stock of Affinity Thrift and Loan (ATL), formerly San Francisco Thrift
and Loan. Under the terms of the purchase agreement, ATL stock was acquired for
$125,000 and ATL entered into a non-compete agreement with the previous owner
for $75,000. In addition, in accordance with FDIC regulatory requirements, the
Company, through its wholly owned subsidiary, contributed an additional $1.0
million of capital to ATL in each of 1995 and 1996. For purposes of the Senior
Subordinated Notes Indenture (Indenture) and the senior
F-13
<PAGE>
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
2. ACQUISITIONS (CONTINUED)
credit facility discussed in Note 7, the Company's investment and the continuing
operations of the wholly owned subsidiary, ATL, has been designated as an
"unrestricted subsidiary".
In June 1995, the Company acquired the common stock of Affinity Insurance
Group, Inc. (AINS) formerly Aspen Indemnity Corporation, for $87,500. In
December 1995, AINS was licensed in the state of Colorado, its domicile state.
The Company contributed $3.5 million in capital to AINS in 1995 to meet
regulatory requirements of which $2.0 million is recorded as restricted.
In October 1994, the Company acquired substantially all the assets and
assumed certain liabilities of the National Association for Female Executives,
Inc. (NAFE). The total consideration for the acquisition, including assumed
liabilities and costs of acquisition, totaled $10.8 million. In the fourth
quarter of 1996, the Company adopted a plan to dispose of NAFE. See Note 18.
In May 1994, the Company acquired all the assets and assumed certain
liabilities of Woodall Publishing Company, L.P. and Woodall World of Travel,
L.P. (collectively Woodall). The total consideration for the acquisitions,
including assumed liabilities and costs of acquisition, totaled $11.5 million.
In April 1994 AGI Properties of Colorado, Inc. (AGIPC), a wholly-owned
subsidiary of AGI, acquired a 99.9% partnership interest from the principal
shareholder of AGHI for a total purchase price of $3,449,000 which included
$1,600,000 in cash and assumed liabilities of $1,849,000. In accordance with
generally accepted accounting principles for transfers among entities under
common control, the purchase has been reflected in the accounts of AGIPC at the
historical cost basis of the principal shareholder of AGHI of $2,174,000. The
difference between the consideration paid for the partnership interest and its
carrying value in the accounts of AGIPC of $1,275,000 has been reflected as a
reduction in additional paid-in capital in the accompanying consolidated
financial statements, net of a related deferred tax asset of $481,000. As of
December 31, 1995, AGIPC is designated a "restricted subsidiary" for the
purposes of the Indenture discussed in Note 7 and by virtue of a Supplemental
Indenture is a guarantor under the Indenture.
The operating results of ATL, AINS, AGIPC, and Woodall have been included in
the Company's consolidated results of operations from the dates of their
respective acquisitions. These acquisitions have been accounted for using the
purchase method of accounting and, accordingly, the assets and liabilities of
these companies have been recorded at their estimated fair value at the date of
their respective acquisitions. In connection with these acquisitions, the
Company has recognized goodwill of approximately $400,000 and $17,900,000 in
1995 and 1994, respectively.
The following unaudited pro forma results of operations for the year ended
December 31, 1994 assumes the acquisition of Woodall occurred as of January 1,
1994. ATL, AINS and AGIPC are excluded from the following pro forma results of
operations as their effects are immaterial. The summary pro forma results are
based on assumptions and are not necessarily indicative of the actual results
which would have
F-14
<PAGE>
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
2. ACQUISITIONS (CONTINUED)
occurred had this acquisition occurred on January 1, 1994, or of the future
results of operations of the Company.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
---------------
($ IN
THOUSANDS)
<S> <C>
Revenues.......................................................................... $ 130,485
Income before extraordinary item.................................................. 19,595
Net income........................................................................ 18,318
</TABLE>
3. DISPOSITIONS
BENBOW VALLEY RV RESORT AND GOLF COURSE RESORT:
The Company disposed of a portion of the Benbow Valley RV Resort and Golf
Course Resort in Northern California during 1994 and simultaneously entered into
a contract to sell the remaining assets. The assets of the resort were written
down to the expected combined sales price of $1.9 million and accruals were made
for the projected cost of sale resulting in a loss on disposal of $793,000. The
property was sold in 1996 for approximately the anticipated amount.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Land......................................................................... $ 536 $ 536
Building and improvements.................................................... 4,936 3,929
Furniture and equipment...................................................... 7,621 6,813
Software..................................................................... 2,276 1,935
Systems development in progress.............................................. 1,873 2,293
--------- ---------
17,242 15,506
Less accumulated depreciation................................................ (6,692) (4,737)
--------- ---------
Net Property and Equipment................................................... $ 10,550 $ 10,769
--------- ---------
--------- ---------
</TABLE>
F-15
<PAGE>
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
5. INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Goodwill................................................................... $ 116,785 $ 117,709
Membership and customer lists.............................................. 14,691 15,099
Resort and golf course participation agreements............................ 14,013 13,960
Noncompete and deferred consulting agreements.............................. 1,193 1,193
Deferred financing and organization costs.................................. 6,757 7,492
---------- ----------
153,439 155,453
Less accumulated amortization.............................................. (44,374) (40,444)
---------- ----------
$ 109,065 $ 115,009
---------- ----------
---------- ----------
</TABLE>
6. ACCRUED LIABILITIES
Accrued liabilities consisted of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Legal expense and litigation settlement................................. $ 9 $ 301
Compensation and benefits............................................... 4,994 6,083
Other accruals.......................................................... 9,513 9,885
--------- ---------
$ 14,516 $ 16,269
--------- ---------
--------- ---------
</TABLE>
F-16
<PAGE>
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
7. LONG-TERM DEBT
The following reflects outstanding long-term debt as of December 31 (in
thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Senior secured term note bearing interest that varies from prime to
prime plus 1.25%, or LIBOR plus 2.00% to 3.25%. Interest rate as of
December 31, 1996 was 8.25%. Quarterly principal installments of $1
million are due through September 30, 1999.......................... $ 11,000 $ 15,000
Revolving line of credit of $30 million, with the same interest
arrangement as the senior secured term note discussed above,
maturing September 1999............................................. 14,050 26,500
Senior subordinated notes, bearing interest at 11.50% per annum,
interest payable semi-annually each April 15 and October 15,
maturing October 2003............................................... 120,000 120,000
Other, primarily capital leases, settlement agreements, and building
mortgage............................................................ 2,325 2,996
---------- ----------
147,375 164,496
Less: current portion................................................. (5,344) (4,665)
---------- ----------
$ 142,031 $ 159,831
---------- ----------
---------- ----------
</TABLE>
In 1993, a total of $120 million of senior subordinated notes were issued in
a public offering. The notes bear interest at the rate of 11 1/2%, and mature on
October 15, 2003. These notes are unsecured obligations of AGI and are
subordinated in right of payment to the existing senior indebtedness, but rank
senior or pari passu with all other existing indebtedness and future
indebtedness of AGI.
On October 11, 1994, AGI entered into a new five year credit agreement with
certain lenders and First Bank National Association, as agent, consisting of a
term loan of $20.0 million and revolving credit facility of $30.0 million. The
funds were used primarily to retire senior secured term notes and revolving
credit lines established on October 29, 1993. The revolving loan must be repaid
so that the aggregate unpaid principal amount outstanding under the facility
does not exceed $15.0 million for at least 30 consecutive days in each fiscal
year of AGI. The loan agreement provides that if the cash flow leverage, as
defined, for any period of four consecutive fiscal quarters of AGI exceeds
4.25:1, then AGI is required to prepay the loans in amounts equal to 50% of the
excess cash flow as defined, for such four fiscal quarters.
The credit agreement and senior subordinated notes indenture contain certain
restrictive covenants related to, but not limited to, mergers, changes in the
nature of the business, acquisitions, additional indebtedness, sale of assets,
investments, payment of dividends, and minimum coverage ratios pertaining to
interest expense, fixed charges, levels of consolidated cash flow and cash flow
leverage ratio. Substantially all of the AGI's assets are pledged as collateral
under the terms of the credit agreement.
F-17
<PAGE>
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
7. LONG-TERM DEBT (CONTINUED)
The aggregate future maturities of long-term debt at December 31, 1996, are
as follows (in thousands):
<TABLE>
<S> <C>
1997.............................. $ 5,344
1998.............................. 4,137
1999.............................. 17,534
2000.............................. 48
2001.............................. 53
Thereafter........................ 120,259
---------
Total............................. $ 147,375
---------
---------
</TABLE>
8. INCOME TAXES
The components of the Company's income tax benefit (expense) from continuing
operations for the year ended December 31, consisted of (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal...................................................... $ (2,381) $ (317) $ --
State........................................................ (296) (4) (31)
Deferred..................................................... (3,467) (4,726) 13,286
--------- --------- ---------
Income tax benefit (expense)................................... $ (6,144) $ (5,047) $ 13,255
--------- --------- ---------
--------- --------- ---------
</TABLE>
A reconciliation of income tax benefit (expense) from continuing operations
to the federal statutory rate for the year ended December 31, is as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Income taxes computed at federal statutory rate................ $ (3,928) $ (3,477) $ (2,688)
State income taxes--net of federal benefit..................... (603) (398) (8)
Permanent differences:
Interest expense-warrants.................................... -- -- 4,668
Amortization of goodwill..................................... (1,520) (1,499) (1,499)
Change in valuation allowance.................................. (495) -- 12,842
Other.......................................................... 402 327 (60)
--------- --------- ---------
Income tax benefit (expense)................................... $ (6,144) $ (5,047) $ 13,255
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax
F-18
<PAGE>
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
8. INCOME TAXES (CONTINUED)
purposes and operating loss and tax credit carryforwards. Significant items
comprising the net deferred tax asset at December 31, are (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Prepaid expenses................................................................ $ (2,115) $ (1,745)
Directory revenue............................................................... (274) (204)
Intangible assets............................................................... (140) (284)
Loans receivable................................................................ (59) (130)
Other........................................................................... (15) (56)
--------- ---------
Deferred income tax liabilities................................................. (2,603) (2,419)
DEFERRED TAX ASSETS:
Accrual for litigation and settlements.......................................... 207 483
Intangible assets............................................................... 135 --
Accelerated depreciation........................................................ 539 310
Deferred revenues............................................................... 8,064 6,838
Accrual for employee benefits and severance..................................... 1,123 1,081
Accrual for deferred phantom stock compensation................................. 1,483 2,283
Organizational and start up costs............................................... 171 192
Net operating loss carryforward................................................. 5,347 9,820
Tax credits..................................................................... 1,698 1,443
Emergency road service claim reserve............................................ 393 479
Accounts receivable reserve..................................................... 513 437
Building lease abandonment reserve.............................................. 411 619
Relocation reserve.............................................................. 17 180
Other real estate owned......................................................... -- 77
Provision for loss on discontinued operations................................... 1,476 --
Reserve for resort cards........................................................ 1,139 --
Other reserves.................................................................. 794 1,255
--------- ---------
Deferred tax assets............................................................. 23,510 25,497
Valuation allowance............................................................. (5,163) (4,668)
--------- ---------
Net deferred tax asset.......................................................... $ 15,744 $ 18,410
--------- ---------
--------- ---------
</TABLE>
At December 31, 1996, the Company has unused net operating loss
carryforwards for federal income tax purposes of approximately $14.6 million
which expire through 2009. The Company also has alternative minimum tax credit
(AMT) carryforwards remaining of approximately $1.4 million and general business
credit carryforwards attributable to a subsidiary of approximately $256,000. The
Company and its subsidiaries are parties to a tax-sharing agreement with the
Company's parent; however, taxes are determined on a separate company basis.
F-19
<PAGE>
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
9. COMMITMENTS AND CONTINGENCIES
LEASES--The Company holds certain property and equipment under rental
agreements and operating leases which have varying expiration dates. Future
minimum annual fixed rentals under operating leases having an original term of
more than one year as of December 31, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
1997................................ $ 1,435
1998................................ 988
1999................................ 811
2000................................ 669
2001................................ 613
Thereafter.......................... 1,912
---------
Total............................... $ 6,428
---------
---------
</TABLE>
During 1996, 1995, and 1994, respectively, approximately $1,571,000,
$1,297,000, and $1,223,000 of rent expense was charged to costs and expenses.
In the fourth quarter of 1995, the Company abandoned its leased facility in
Camarillo, California. As a result of this abandonment the Company recognized a
loss on this operating leased asset representing the future minimum annual fixed
rental charges and other incidental costs to be incurred over the term of the
related lease through May 1998 of $1,228,000, and wrote off net leasehold
improvements of $400,000.
LITIGATION--From time to time, the Company is involved in litigation arising
in the normal course of business operations. In the opinion of management, the
Company's consolidated financial statements adequately provide for liabilities
associated with all lawsuits to which it is a party.
EMPLOYMENT AGREEMENTS--The Company has employment agreements with certain
officers. The agreements include, among other things, one year's severance pay
beyond the termination date.
10. RELATED-PARTY TRANSACTIONS
Effective June 1995, the Company entered into a lease agreement for its
corporate facilities in Ventura, California (the Lease Agreement) with AGI Real
Estate Holdings, Inc. The owners of AGI Real Estate Holdings, Inc. are minority
shareholders of the Company's parent and are also related to the Company's
Chairman. The lease extends for an initial term of 20 years. Upon execution of
the Lease Agreement, the Company paid $1,650,000 as initial rent and pays
monthly base rent, commencing at $369,000 annually and increasing to $492,000,
through year 10 of the lease. On the tenth anniversary of the lease, and
extending through the term of the initial lease, either party may compel the
other party to enter into a 20 year extension of the lease term. The rental rate
will be set based on the fair value of the leased premises at the time of the
extension.
In 1995, the Company purchased $3 million of subordinated notes of Adams
Outdoor Advertising Limited Partnership (AOALP) from its parent. The Company's
Chairman is the principal owner of its parent and AOALP. The investment and
related accrued interest are included in note receivable from affiliate in the
accompanying balance sheet. On March 12, 1996 the notes were paid in full.
Included in income in the accompanying statement of operations for 1996 and 1995
is $54,000 and $113,000, respectively, of interest income related to these
notes.
F-20
<PAGE>
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
10. RELATED-PARTY TRANSACTIONS (CONTINUED)
Certain facilities used by the Company were leased until April 1994 from
partnerships in which certain former and current officers of the Company were
partners. Aggregate rental payments under the terms of the leases were
approximately $101,000 during 1994.
11. STATEMENTS OF CASH FLOWS
Supplemental disclosures of cash flow information for December 31 (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash paid during the year for:
Interest............................................... $ 16,795 $ 16,724 $ 16,085
Income taxes........................................... 568 152 36
</TABLE>
The Company entered into the following non-cash investing transactions:
1996:
- The Company received a note receivable of $1,000,000 in the sale of
the Benbow Golf Course.
1995:
- The Company assumed $11,122,000 of liabilities in the acquisition of
ATL.
1994:
- The Company assumed $983,000 of liabilities in the acquisition of
Woodall.
- The Company assumed $4,797,000 of liabilities in the acquisition of
NAFE.
- The Company assumed $1,849,000 of liabilities in the acquisition of
AGIPC.
- The Company received notes receivable of $491,000 for the sale of
Benbow Resort.
- The Company transferred property valued at $1,350,000 to other assets
held for sale.
12. BENEFIT PLAN
The Company has a 401(k) deferred savings and profit sharing plan. Employees
must have attained age 21 and completed 1,950 hours of service to participate in
the plan. Vesting occurs ratably over 7 years at which time the participants are
100% vested.
Employees may contribute up to 15% of their salaries, and the Company
matches these employee contributions at the rate of 75%, up to 6% of the
employee's salary. Contributions are limited to the maximum amount deductible
for federal income tax purposes during the year. The Company's contributions to
the plan totaled approximately $416,000, $396,000, and $348,000 for 1996, 1995,
and 1994, respectively.
13. DEFERRED PHANTOM STOCK COMPENSATION
The Company has deferred compensation agreements with certain officers. The
agreements provide for payment to the officers upon their termination, death,
disability, or sale of the Company. Deferred
F-21
<PAGE>
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
13. DEFERRED PHANTOM STOCK COMPENSATION (CONTINUED)
compensation is included in other long-term liabilities as if fully vested.
Deferred compensation to be paid in 1997 has been classified in current
liabilities. This deferred compensation is subject to vesting under the terms of
the individual agreements. Vesting periods range from 20% per year over a five
year period to immediate vesting upon entering an agreement.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments.
CASH AND CASH EQUIVALENTS--The carrying amount approximates fair value
because of the short maturity of these instruments.
INVESTMENTS--The fair value of investments is based on quoted rates for
similar instruments.
LOANS RECEIVABLE--The carrying amount approximates fair value because the
loans are predominately variable rate loans.
CUSTOMER DEPOSITS--The carrying amount approximates fair value because the
deposits are predominately instruments with a short maturity.
LONG-TERM DEBT--The fair value of the Company's long-term debt is estimated
based on the quoted market prices for the same or similar issues or on the
current rates offered for debt of the same or similar remaining maturities.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial Instruments Recorded as Assets:
Cash and cash equivalents......................................... $ 4,278 $ 4,278 $ 3,833 $ 3,833
Investments....................................................... 2,636 2,614 3,529 3,529
Loans Receivable.................................................. 13,134 13,134 8,474 8,474
Financial Instruments Recorded as Liabilities:
Customer deposits................................................. 14,979 14,979 10,974 10,974
Long-term debt.................................................... 147,375 152,175 164,496 166,296
</TABLE>
CONCENTRATION OF CREDIT RISK--The Company is potentially subject to
concentrations of credit risk in accounts receivable and loans receivable.
Concentrations of credit risk with respect to accounts receivable is limited due
to the large number of customers and their geographical dispersion. The
Company's loans receivable are secured by real estate. At December 31, 1996,
approximately $6.0 million of these loans are secured by residential real estate
located in southern California and the remaining loans are secured by real
estate located primarily in the San Francisco Bay area.
F-22
<PAGE>
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
15. SEGMENT INFORMATION
The Company operates principally in two segments--membership services and
publications. Financial information by industry segment is summarized as follows
(in thousands):
<TABLE>
<CAPTION>
MEMBERSHIP
SERVICES PUBLICATIONS CORPORATE CONSOLIDATED
----------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Income (loss) from continuing operations
before income taxes and extraordinary
item.................................... $ 35,569 $ 10,515 $ (34,859) $ 11,225
Identifiable assets....................... 103,171 47,050 32,934 183,155
Capital expenditures...................... 764 54 925 1,743
Depreciation and amortization............. 5,941 450 1,949 8,340
YEAR ENDED DECEMBER 31, 1995
Income (loss) from continuing operations
before income taxes and extraordinary
item.................................... $ 37,117 $ 9,245 $ (36,429) $ 9,933
Identifiable assets....................... 106,859 51,319 33,792 191,970
Capital expenditures...................... 3,274 496 943 4,713
Depreciation and amortization............. 6,865 653 1,495 9,013
YEAR ENDED DECEMBER 31, 1994
Income (loss) from continuing operations
before income taxes and extraordinary
item.................................... $ 30,352 $ 8,248 $ (30,919) $ 7,681
Identifiable assets....................... 92,621 53,657 29,600 175,878
Capital expenditures...................... 2,287 274 606 3,167
Depreciation and amortization............. 7,232 2,163 1,625 11,020
</TABLE>
MAJOR CUSTOMERS--Included in revenues in 1996, 1995 and 1994 are $17.2
million, $17.3 million, and $12.6 million, respectively, received under
contracts from one customer of the Company. These revenues have been reported in
the Membership Services segment.
16. SELECTED UNAUDITED QUARTERLY INFORMATION
The following is a summary of selected quarterly information for the years
ended December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996
----------- --------- ------------- ------------
<S> <C> <C> <C> <C>
Total revenue............................ $ 31,593 $ 33,206 $ 32,159 $ 43,021
Gross profit............................. 10,456 13,522 12,303 17,124
Income from continuing operations........ 225 1,491 916 2,449
Net income (loss)........................ 91 1,099 685 (3,346)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1995 1995 1995 1995
----------- --------- ------------- ------------
<S> <C> <C> <C> <C>
Total revenue............................ $ 31,646 $ 32,478 $ 31,797 $ 43,316
Gross profit............................. 11,782 13,763 12,878 16,911
Income from continuing operations........ 408 1,048 718 2,712
Net income............................... 458 1,223 1,290 2,345
</TABLE>
F-23
<PAGE>
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
16. SELECTED UNAUDITED QUARTERLY INFORMATION (CONTINUED)
The loss in the fourth quarter of 1996 is primarily a result of recording a
$5.9 million estimated loss on the disposal of NAFE. The information for the
quarters in 1995 and the quarters ended March 31, June 30 and September 30, 1996
have been restated to reflect the operations of NAFE as discontinued. See Note
18.
17. GUARANTOR SUBSIDIARIES FINANCIAL INFORMATION
Under terms of the AGI's various debt agreements, all wholly-owned
subsidiaries of AGI which are not designated as unrestricted subsidiaries are
guarantors of AGI's obligations under the debt agreements. There are no
contractual restrictions on the ability of any guarantor subsidiaries to make
distributions to AGI. Separate financial statements and related disclosures for
the subsidiaries are omitted as, in the opinion of management, they are not
material; however, summarized combined financial information of the guaranteeing
subsidiaries at December 31, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Combined current assets............................................... $15,384 $17,922
Combined non-current assets........................................... 30,340 48,110
Combined current liabilities.......................................... 16,362 14,210
Combined non-current liabilities...................................... 70,609 72,415
</TABLE>
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Combined revenues..................................................... $ 116,472 $ 125,698
Combined costs and expenses........................................... 87,283 99,014
Combined income from continuing operations............................ 19,649 29,758
Combined net income................................................... 11,968 30,452
</TABLE>
18. DISCONTINUED OPERATIONS
In October 1994, the Company acquired substantially all the assets and
assumed certain liabilities of the National Association for Female Executives,
Inc. (NAFE). The total consideration for the acquisition, including assumed
liabilities and costs of acquisition, totaled $10.8 million.
During the fourth quarter of 1996, the Company adopted a plan to dispose of
the assets related to NAFE. The Company intends to sell NAFE to an unidentified,
unrelated third party during 1997. In connection with the plan, the Company
recorded a loss of $5.9 million net of related income taxes of $1,060,000 in the
fourth quarter 1996 based on the anticipated proceeds upon sale. The results of
operations of NAFE have been classified as discontinued operations in the
accompanying financial statements.
F-24
<PAGE>
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
18. DISCONTINUED OPERATIONS (CONTINUED)
Information relating to the operations of NAFE for the years ended December
31, 1996, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Revenues.................................... $ 5,062 $ 7,887 $ 1,491
Costs applicable to revenues................ 5,090 6,001 806
--------- --------- ---------
Gross profit (loss)......................... (28) 1,886 685
Operating expenses.......................... 1,042 1,192 258
--------- --------- ---------
Income (loss) from operations............... (1,070) 694 427
Income tax (expense) benefit................ 384 (264) (162)
Estimated loss on disposal, net of taxes.... (5,866) -- --
--------- --------- ---------
Income (loss) from discontinued
operations................................ $ (6,552) $ 430 $ 265
--------- --------- ---------
--------- --------- ---------
</TABLE>
The assets and liabilities of NAFE included in the accompanying consolidated
balance sheet as of December 31, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Current assets:
Cash.................................................................... $ 261 $ --
Accounts receivable..................................................... 539 570
Inventories............................................................. 183 173
Prepaid expenses........................................................ 884 418
--------- ---------
Total current assets.................................................. 1,867 1,161
Current liabilities:
Accounts payable........................................................ 1,048 391
Accrued liabilities..................................................... 2,283 313
--------- ---------
Total current liabilities............................................. 3,331 704
--------- ---------
Net current assets (liabilities)........................................ $ (1,464) $ 457
--------- ---------
--------- ---------
Long-term assets:
Property and equipment.................................................. $ 67 $ 107
Intangible assets....................................................... 3,000 7,570
Other assets............................................................ 25 26
--------- ---------
Total long-term assets................................................ 3,092 7,703
Long-term liabilities:
Deferred revenues....................................................... 2,119 2,431
--------- ---------
Net long-term assets.................................................... $ 973 $ 5,272
--------- ---------
--------- ---------
</TABLE>
F-25
<PAGE>
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
19. SUBSEQUENT EVENTS
On March 6, 1997, AGI acquired the common stock of the Ehlert Publishing
companies for $22.3 million. The purchase price was funded primarily through
borrowings under AGI's revolving credit facility, loans to the Company from its
parent and a $1.5 million loan from the sellers to the Company, of which $1.0
million was recently repaid. In addition, the principal shareholder and the
Company entered into a non-competition agreement for $200,000.
On April 2, 1997, AGI acquired the common stock of Camping World, Inc. for
approximately $89 million, including debt repayment upon acquisition. Certain
Camping World executives also entered into non-competition and consulting
agreements pursuant to which AGI paid $19 million at closing. In addition, at
closing the Company and certain members of Camping World management entered into
incentive compensation agreements pursuant to which an additional $15 million
will be paid subsequent to the closing of which $1.0 million is payable annually
on the first four anniversaries after the closing date with the balance, $11.0
million, due on the fifth anniversary of the closing date.
The Camping World acquisition was financed through a $130.0 million bond
offering by the Company, the proceeds of which were contributed, as capital, to
AGI net of closing fees and expenses and repayment of approximately $7.5 million
of the Company's indebtedness. These net proceeds and new borrowings under a new
$75.0 million credit facility discussed below of AGI were adequate to close the
acquisition.
Unaudited pro forma net revenue, income from operations and net income for
the year ended December 31, 1996 assuming the transactions had closed January 1,
1996, are estimated to have been $324.0 million, $43.0 million, and $5.4
million, respectively.
The new AGI credit facility is a senior secured credit facility consisting
of a revolving line of credit of $45.0 million and a term loan of $30.0 million.
The interest on borrowings under the new AGI credit facility is at variable
rates based on the ratio of total cash flow to outstanding indebtedness (as
defined) and AGI pays a commitment fee of 0.5% per annum on the unused amount of
its revolving credit line. Borrowings under the new AGI credit facility were
also used to pay-off outstanding balances under the previous senior secured note
and the previous revolving line of credit (see Note 7).
*****
F-26
<PAGE>
CAMPING WORLD, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
1997
-------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................................ $ 6,680,473
Trade accounts receivable, no allowance for doubtful accounts considered necessary............... 669,190
Inventories...................................................................................... 31,330,694
Vendor and other receivables..................................................................... 2,696,589
Prepaid expenses, deferred catalog costs and other............................................... 2,043,801
-------------
Total current assets....................................................................... 43,420,747
PROPERTY AND EQUIPMENT, net........................................................................ 31,967,184
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, net of accumulated amortization of
$1,643,974....................................................................................... 6,087,817
OTHER ASSETS....................................................................................... 2,256,805
-------------
TOTAL.............................................................................................. $ 83,732,553
-------------
-------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................................. $ 22,376,418
Accrued expenses and other....................................................................... 3,638,266
Deferred income.................................................................................. 2,342,622
Short-term borrowings............................................................................ 9,838,352
Current maturities of long-term debt............................................................. 3,425,283
-------------
Total current liabilities.................................................................. 41,620,941
DEFERRED INCOME TAXES.............................................................................. 5,124,180
DEFERRED INCOME.................................................................................... 587,794
LONG-TERM DEBT..................................................................................... 19,567,779
SUBORDINATED NOTES................................................................................. 3,394,540
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock--Class A voting, $0.01 par value; authorized, 13,000,00 shares; issued and
outstanding, 1,236,880 shares.................................................................. 12,369
Common stock--Class B nonvoting, $0.01 par value; authorized, 2,000,000 shares; issued and
outstanding, 1,276,828 shares.................................................................. 12,768
Additional paid-in capital....................................................................... 1,202,641
Retained earnings................................................................................ 12,209,541
-------------
Total shareholders' equity................................................................. 13,437,319
-------------
TOTAL.............................................................................................. $ 83,732,553
-------------
-------------
</TABLE>
See notes to consolidated financial statements.
F-27
<PAGE>
CAMPING WORLD, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
-----------------------------
1997 1996
-------------- -------------
<S> <C> <C>
REVENUES:
Merchandise sales................................................................ $ 62,953,743 $ 59,065,034
Other revenues................................................................... 10,811,773 9,695,036
-------------- -------------
Total revenues................................................................. 73,765,516 68,760,070
COST RELATED TO MERCHANDISE SOLD AND OTHER
REVENUES......................................................................... 48,013,522 43,689,279
-------------- -------------
Gross profit..................................................................... 25,751,994 25,070,791
OPERATING EXPENSES
Selling, general and administrative expenses..................................... 26,496,986 23,421,044
Compensation expense - redemption of stock options............................... 2,842,683 --
-------------- -------------
Operating income (loss)...................................................... (3,587,675) 1,649,747
OTHER INCOME (EXPENSE):
Interest income.................................................................. 258,014 194,792
Interest expense................................................................. (1,926,283) (1,861,132)
-------------- -------------
Total other income (expense)................................................... (1,668,269) (1,666,340)
-------------- -------------
LOSS BEFORE INCOME TAX BENEFIT..................................................... (5,255,944) (16,593)
INCOME TAX BENEFIT................................................................. (2,024,000) (7,000)
-------------- -------------
NET LOSS........................................................................... $ (3,231,944) $ (9,593)
-------------- -------------
-------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-28
<PAGE>
CAMPING WORLD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.......................................................................... $ (3,231,944) $ (9,593)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization................................................... 1,310,996 1,025,022
Amortization of debt related costs.............................................. 174,917 174,337
Amortization of intangibles..................................................... 96,648 61,902
Amortization of deferred income on sale/leaseback............................... (7,968) (4,217)
(Gain) loss on sale of property and equipment and other assets.................. (1,000) 374
Deferred income taxes........................................................... -- 60,207
(Increase) decrease in operating assets:
Trade accounts receivable..................................................... (13,821) 436,389
Inventories................................................................... (4,002,758) (4,402,296)
Vendor and other receivables.................................................. (387,947) (56,384)
Prepaid expenses, deferred catalog costs and other............................ 1,597,732 (752,236)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses....................................... 6,658,298 3,336,915
Deferred income............................................................. 12,907 (739,331)
------------- -------------
Net cash provided by (used in) operating activities....................... 2,206,060 (868,911)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment............................................... (1,861,575) (2,980,348)
Proceeds from sale of property and equipment...................................... 1,000 --
Increase in other assets.......................................................... (33,041) (1,856,305)
------------- -------------
Net cash used in investing activities..................................... (1,893,616) (4,836,653)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to property held for sale/leaseback..................................... -- (343,924)
Net increase in short-term borrowings............................................. 3,743,581 6,161,827
Proceeds from issuance of long-term debt.......................................... 1,129,000 2,284,000
Payments of long-term debt........................................................ (2,289,711) (1,316,845)
------------- -------------
Net cash provided by financing activities................................. 2,582,870 6,785,058
NET INCREASE IN CASH AND CASH EQUIVALENTS........................................... 2,895,314 1,079,494
------------- -------------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...................................... 3,785,159 2,572,876
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD............................................ $ 6,680,473 $ 3,652,370
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION;
Cash paid during the period for:
Interest (net of amounts capitalized)........................................... $ 1,886,809 $ 1,713,600
------------- -------------
------------- -------------
Income taxes.................................................................... $ 938,043 $ 1,049,095
------------- -------------
------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-29
<PAGE>
CAMPING WORLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements included herein include the results of
Camping World, Inc. and subsidiaries (the "Company") in accordance with
generally accepted accounting principles. These consolidated financial
statements have not been audited, reviewed or compiled by the Company's
independent auditors and they assume no responsibility for such consolidated
financial statements. These interim consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes for the
year ended September 30, 1996. In the opinion of management of the Company,
these consolidated financial statements contain all adjustments of a normal
recurring nature necessary to present fairly the financial position, results of
operations and cash flows of the Company for the interim periods presented.
2. SUBSEQUENT EVENTS
On February 25, 1997 the shareholders entered into an agreement to sell the
outstanding stock of the Company to Affinity Group, Inc. ("AGI"). The stock sale
closed on April 2, 1997 simultaneously with the closing of a note offering by
the parent company of AGI. Additionally, certain executives and members of
management of the Company will enter into non-competition, consulting, and
incentive compensation agreements with AGI or the parent of AGI.
3. OTHER MATTERS
On February 7, 1997 Affinity Group Plans, Inc. (an entity not affiliated
with AGI) and National Alliance Insurance Company filed a complaint in the
United States District Court for the Eastern District of Missouri against the
Company, a subsidiary of the Company, and two of the directors of the Company
seeking damages in excess of $125 million (and punitive damages of a like
amount) alleging breaches of contract, misrepresentations, misappropriation of
information and breaches of fiduciary duty in connection with the Company's
preliminary discussions with AGI to sell certain assets of the Company
(excluding insurance marketing arrangements and related assets in which the
plaintiffs have an interest). The shareholders of the Company and AGI have
structured the sale as a stock sale. Under the stock sale agreement, the
insurance marketing arrangements and related assets in dispute remain as assets
of the Company. AGI has advised the plaintiffs in this litigation that it
recognizes the contractual obligations of the Company relating to such marketing
arrangements and that it intends to comply (and cause the Company to comply)
with the terms of such insurance marketing arrangements. The Company and
defendant directors believe such litigation will not have a material adverse
effect on the Company.
F-30
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Camping World, Inc.
Bowling Green, Kentucky
We have audited the consolidated balance sheets of Camping World, Inc. and
subsidiaries as of September 30, 1996 and 1995, and the related consolidated
statements of earnings, shareholders' equity and cash flows for each of the
three years in the period ended September 30, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Camping World, Inc. and
subsidiaries as of September 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
November 22, 1996 (April 2, 1997 with respect to Note 14)
Nashville, Tennessee
F-31
<PAGE>
CAMPING WORLD, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1)............................................... $ 3,785,159 $ 2,572,876
Trade accounts receivable, no allowance for doubtful accounts considered
necessary (Note 2)............................................................. 655,369 1,286,623
Inventories (Notes 1 and 3)...................................................... 27,327,936 24,741,370
Vendor and other receivables..................................................... 3,252,447 2,041,837
Prepaid expenses, deferred catalog costs and other (Note 1)...................... 2,126,657 2,098,375
------------- -------------
Total current assets....................................................... 37,147,568 32,741,081
PROPERTY AND EQUIPMENT, net (Notes 1, 4 and 6)..................................... 32,005,469 29,117,567
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, net of accumulated
amortization of $1,547,323 and $1,354,027 (Note 1)............................... 6,184,465 6,377,761
OTHER ASSETS (Notes 1 and 5)....................................................... 2,360,702 2,935,762
------------- -------------
TOTAL.............................................................................. $ 77,698,204 $ 71,172,171
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................. $ 13,354,907 $ 12,862,633
Accrued expenses and other (Note 10)............................................. 5,078,742 4,984,291
Deferred income (Note 1)......................................................... 2,383,056 3,235,453
Income taxes payable (Notes 1 and 11)............................................ 922,671 987,000
Short-term borrowings (Note 6)................................................... 6,094,771 3,696,593
Current maturities of long-term debt (Note 6).................................... 3,203,158 2,733,224
------------- -------------
Total current liabilities.................................................. 31,037,305 28,499,194
DEFERRED INCOME TAXES (Notes 1 and 11)............................................. 5,124,245 4,825,245
DEFERRED INCOME (Note 1)........................................................... 542,421 705,222
LONG-TERM DEBT (Note 6)............................................................ 20,950,616 21,153,985
SUBORDINATED NOTES (Note 7)........................................................ 3,374,354 3,334,853
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY: (Notes 1, 9 and 12)
Common stock--Class A voting, $0.0l par value; authorized, 13,000,000 shares;
issued and outstanding, 1,236,880 shares and 1,233,880 shares, respectively.... 12,369 12,339
Common stock--Class B nonvoting, $0.0l par value; authorized, 2,000,000 shares;
issued and outstanding, 1,276,828 shares....................................... 12,768 12,768
Additional paid-in capital....................................................... 1,202,641 1,161,551
Retained earnings................................................................ 15,441,485 11,467,014
------------- -------------
Total shareholders' equity................................................. 16,669,263 12,653,672
------------- -------------
TOTAL.............................................................................. $ 77,698,204 $ 71,172,171
------------- -------------
------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-32
<PAGE>
CAMPING WORLD, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
REVENUES:
Merchandise sales............................................... $ 147,254,869 $ 143,344,126 $ 137,711,646
Other revenues (Note 1)......................................... 22,514,926 19,079,029 16,321,237
-------------- -------------- --------------
Total revenues................................................ 169,769,795 162,423,155 154,032,883
COST RELATED TO MERCHANDISE SOLD AND OTHER REVENUES (Notes 1, 4
and 8)........................................................ 108,768,825 104,951,237 100,097,229
-------------- -------------- --------------
Gross profit.................................................. 61,000,970 57,471,918 53,935,654
OPERATING EXPENSES:
Selling, general and administrative expenses (Notes 1, 4, 8
and 10)..................................................... 51,175,164 49,667,616 44,754,811
-------------- -------------- --------------
Operating income.............................................. 9,825,806 7,804,302 9,180,843
-------------- -------------- --------------
OTHER INCOME (EXPENSE):
Interest income................................................. 523,377 438,063 380,221
Interest expense (Notes 1, 5, 6 and 7).......................... (3,601,712) (3,861,768) (4,342,138)
Other........................................................... -- -- (143,500)
-------------- -------------- --------------
Total other income (expense).................................. (3,078,335) (3,423,705) (4,105,417)
-------------- -------------- --------------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM............... 6,747,471 4,380,597 5,075,426
PROVISION FOR INCOME TAX EXPENSE (Notes 1 and 11)............... 2,773,000 1,796,000 2,081,000
-------------- -------------- --------------
INCOME BEFORE EXTRAORDINARY ITEM................................ 3,974,471 2,584,597 2,994,426
EXTRAORDINARY ITEM--Loss on early extinguishment of debt, less
applicable income taxes of $240,000 (Note 6).................. -- -- 346,476
-------------- -------------- --------------
NET INCOME...................................................... $ 3,974,471 $ 2,584,597 $ 2,647,950
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See notes to consolidated financial statements.
F-33
<PAGE>
CAMPING WORLD, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
CLASS A VOTING COMMON CLASS B NONVOTING
STOCK COMMON STOCK ADDITIONAL TOTAL
---------------------- ---------------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ----------- --------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1993............ 1,200,000 $ 12,000 1,200,000 $ 12,000 $1,667,455 $6,234,467 $ 7,925,922
Exercise of stock options.............. 21,000 210 -- -- 52,290 -- 52,500
Repurchase and retirement of common
stock................................ (9,000) (90) -- -- (61,380) -- (61,470)
Net income............................. -- -- -- -- -- 2,647,950 2,647,950
--------- ----------- --------- ----------- ----------- ---------- -------------
BALANCE, SEPTEMBER 30, 1994............ 1,212,000 12,120 1,200,000 12,000 1,658,365 8,882,417 10,564,902
Exercise of stock options and
warrants............................. 58,630 587 76,828 768 37,898 -- 39,253
Repurchase and retirement of common
stock................................ (36,750) (368) -- -- (534,712) -- (535,080)
Net income............................. -- -- -- -- -- 2,584,597 2,584,597
--------- ----------- --------- ----------- ----------- ---------- -------------
BALANCE, SEPTEMBER 30, 1995............ 1,233,880 12,339 1,276,828 12,768 1,161,551 11,467,014 12,653,672
Exercise of stock options.............. 3,000 30 -- -- 41,090 -- 41,120
Net income............................. -- -- -- -- -- 3,974,471 3,974,471
--------- ----------- --------- ----------- ----------- ---------- -------------
BALANCE, SEPTEMBER 30, 1996............ 1,236,880 $ 12,369 1,276,828 $ 12,768 $1,202,641 $15,441,485 $16,669,263
--------- ----------- --------- ----------- ----------- ---------- -------------
--------- ----------- --------- ----------- ----------- ---------- -------------
</TABLE>
See notes to consolidated financial statements.
F-34
<PAGE>
CAMPING WORLD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................ $ 3,974,471 $ 2,584,597 $ 2,647,950
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization........................................... 2,186,434 1,943,395 1,813,444
Amortization of debt related costs...................................... 368,615 443,374 414,067
Amortization of intangibles............................................. 193,296 193,296 193,296
Amortization of deferred income on sale/leaseback....................... (14,231) (2,811) --
(Gain) loss on sale of property and equipment and other assets.......... (609) 5,062 (152,430)
Extraordinary loss on debt extinguishment............................... -- -- 586,476
Deferred income taxes................................................... 299,000 (44,000) 60,000
(Increase) decrease in operating assets:
Trade accounts receivable............................................. 631,254 (1,148,706) 1,566,286
Inventories........................................................... (2,586,566) 517,049 (3,832,037)
Vendor and other receivables.......................................... (1,210,610) (1,035,393) 90,866
Prepaid expenses, deferred catalog costs and other.................... (28,282) 216,384 (952,706)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses................................. 586,725 2,061,280 2,596,024
Deferred income....................................................... (1,000,967) 1,691,939 271,482
Income taxes payable.................................................. (64,329) 112,014 670,359
----------- ----------- -----------
Net cash provided by operating activities........................... 3,334,201 7,537,480 5,973,077
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment....................................... (5,109,141) (3,265,825) (1,655,088)
Proceeds from sale of property and equipment.............................. 1,400 71,889 376,812
Decrease (increase) in other assets....................................... 245,946 (670,834) (233,091)
----------- ----------- -----------
Net cash used in investing activities............................... (4,861,795) (3,864,770) (1,511,367)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to property held for sale/leaseback............................. (2,715,986) (3,818,575) --
Proceeds from sale/leaseback of property.................................. 2,750,000 4,167,800 --
Deferred financing costs.................................................. -- -- (1,752,868)
Net increase (reduction) in short-term borrowings......................... 3,814,178 (866,606) 1,420,175
Proceeds from issuance of long-term debt.................................. 3,981,006 -- 24,000,000
Payments of long-term debt................................................ (5,130,441) (1,935,945) (28,366,415)
Exercise of stock options and warrants.................................... 41,120 39,253 52,500
Repurchase and retirement of common stock................................. -- (535,080) (61,470)
----------- ----------- -----------
Net cash provided by (used in) financing activities................. 2,739,877 (2,949,153) (4,708,078)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................ 1,212,283 723,557 (246,368)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............................. 2,572,876 1,849,319 2,095,687
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................................... $ 3,785,159 $ 2,572,876 $ 1,849,319
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amounts capitalized)................................... $ 3,501,893 $ 3,427,384 $ 4,080,708
----------- ----------- -----------
----------- ----------- -----------
Income taxes............................................................ $ 2,537,218 $ 1,573,397 $ 1,110,922
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-35
<PAGE>
CAMPING WORLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE CONSOLIDATED FINANCIAL STATEMENTS of Camping World, Inc. (the "Company")
include the accounts of the Company and its wholly-owned subsidiaries. All
material intercompany transactions have been eliminated. The Company operates 27
retail Supercenters and a mail order/telephone order catalog service offering a
variety of merchandise and services to the owners of recreational vehicles.
CASH AND CASH EQUIVALENTS principally consist of demand deposits and
repurchase agreements at banks with maturities less than three months.
INVENTORIES are generally valued at the lower of cost or net realizable
market value. Inventory costs are charged to cost of goods sold primarily by the
last-in, first-out (LIFO) method.
CATALOG COSTS associated with the production and mailing of the Company's
direct mail catalogs and national media offerings are deferred and amortized
over the periods in which the related revenues are generated, generally three
months or less.
PROPERTY AND EQUIPMENT are stated at cost, less accumulated depreciation and
amortization. Depreciation of property and equipment is calculated using the
straight-line method over the estimated useful lives of the assets (ranging from
three to twenty-five years). Leasehold improvements are amortized using the
straight-line method over the shorter of the lease term or the estimated useful
life of the asset (ranging from seven to fifteen years).
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED is amortized on the
straight-line basis over forty years.
LONG-LIVED ASSETS--The Company assesses the impairment of the value of
property and equipment, excess of cost over fair value of net assets acquired
and other long-lived assets from time to time utilizing valuation methodologies
that reflect the current fair market value of the assets. Effective October 1,
1996, the Company will adopt the provisions of Statement of Financial Accounting
Standards (SFAS) No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND
FOR LONG-LIVED ASSETS TO BE DISPOSED OF. The Company does not expect the
adoption of SFAS No. 121 to result in an adjustment to the financial statements
at the date of adoption.
OTHER ASSETS include deferred financing costs which are carried at cost less
accumulated amortization. Deferred financing costs are amortized over the lives
of the related borrowings using the effective interest rate method.
THE PRESIDENT'S CLUB program consists of a program whereby customers pay a
membership fee and are entitled to special mailings, promotions and discounts.
Membership fees from the President's Club program are included in other
revenues. The membership fees are deferred and recognized as revenues in
proportion to the buying patterns of members.
INCOME TAXES are accounted for in accordance with SFAS No. 109, ACCOUNTING
FOR INCOME TAXES.
INTEREST is capitalized on borrowed funds used to construct qualifying
assets as part of the cost of the asset. Interest is capitalized using the
Company's incremental borrowing rate or, where appropriate, the rate on
borrowings specifically associated with a qualifying asset.
STOCK OPTIONS--SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, is
effective October 1, 1996 for the Company. The new standard encourages companies
to adopt a fair value method of accounting for
F-36
<PAGE>
CAMPING WORLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
employee stock options but allows companies to continue to account for those
plans using the accounting prescribed by Accounting Principles Board (APB)
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. The Company will adopt
the disclosure requirements of the new standard in fiscal 1997 and plans to
continue accounting for stock compensation using APB Opinion 25, making pro
forma disclosures of net income as if the fair value method had been applied.
MANAGEMENT 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 revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CERTAIN RECLASSIFICATIONS of prior year amounts have been made to conform to
the current year presentation.
2. TRADE ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK
The Company offers to its catalog customers various deferred installment
payment plans ranging from three to twelve months. At September 30, 1996 and
1995, the Company had installment plan receivables of approximately $655,000 and
$1,287,000, respectively. The Company also issues it own private label credit
card through an independent financial institution. All receivables and related
financing, credit approval, collection efforts, and supporting services on the
private label credit card are provided without recourse to the Company by the
independent financial institution.
Except for the above mentioned financing arrangements offered to its
customers, the Company accepts cash, checks, and major credit cards in full
payment for goods and services at the point of sale. The Company's credit risk
is minimal since no single customer accounts for a significant amount of
business. The Company's retail stores are located in 17 states with eight
locations in California and three in Florida. The retail market penetration
covers the continental United States, except for the northeastern portion. The
catalog operation ships to all fifty states and to a much lesser extent Canada,
Japan and Europe.
3. INVENTORIES
Inventories consist of finished goods purchased principally from
manufacturers and are primarily valued at the lower of last-in, first-out (LIFO)
cost or net realizable market value. If inventories had been stated at current
cost, inventories would have increased by approximately $189,000 and $403,000 at
September 30, 1996 and 1995, respectively.
F-37
<PAGE>
CAMPING WORLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Land.......................................................... $ 9,840,907 $ 10,710,584
Buildings..................................................... 17,307,343 16,751,974
Furniture, fixtures and equipment............................. 14,659,390 10,464,128
Leasehold improvements........................................ 952,158 682,253
Capital projects-in-progress.................................. 2,427,551 1,529,903
-------------- --------------
45,187,349 40,138,842
Less accumulated depreciation and amortization................ (13,181,880) (11,021,275)
-------------- --------------
$ 32,005,469 $ 29,117,567
-------------- --------------
-------------- --------------
</TABLE>
Interest costs capitalized were $303,035, $212,068 and $0, respectively, for
the years ended September 30, 1996, 1995 and 1994. These costs related primarily
to Supercenters constructed and subsequently sold/leased back during the years
ended September 30, 1996 and 1995.
5. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
Deferred financing costs (net of accumulated amortization of
$835,205 and $506,091).......................................... $ 1,969,565 $ 2,298,679
Long-term deposits and other...................................... 391,137 637,083
------------ ------------
$ 2,360,702 $ 2,935,762
------------ ------------
------------ ------------
</TABLE>
6. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
On May 31, 1994, the Company refinanced a major portion of its debt
structure through an agreement (the "Credit Agreement") with a financial
institution. The new facility aggregated $44 million and is comprised of three
major loan arrangements. First, a new $24 million term loan was obtained to pay
off the existing term loan and revolving credit note with the Company's former
senior lending institution. Additionally, the remaining proceeds from the term
loan and a portion of the available line of credit from a $10 million revolving
loan with the new senior lending financial institution were used to pay off a
$7.5 million senior subordinated note and $1 million each of the acquisition and
junior subordinated notes (See Note 7). The third portion of the new facility is
a $10 million commitment from the new senior lender for expansion of the number
of the Company's retail Supercenters.
This refinancing resulted in an approximate $586,000 write-off of deferred
financing costs during 1994 related to the early retirement of existing debt
described above.
F-38
<PAGE>
CAMPING WORLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
6. SHORT-TERM BORROWINGS AND LONG-TERM DEBT (CONTINUED)
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
Term loan, interest on the first $19.5 million outstanding at the
London Interbank Offered Rate (LIBOR) one month rate plus 3% (8.5%
at September 30, 1996), interest on the remaining outstanding
balance at the prime rate of interest plus 1.5% (9.75% at
September 30, 1996) payable monthly, principal due in quarterly
installments of $500,000 beginning January 1, 1995; the quarterly
installments increase by $125,000 each year until the term loan
expires on September 30, 2001..................................... $ 20,125,000 $ 22,500,000
Revolving loan, interest at the prime rate of interest plus 1.5%
(9.75% at September 30, 1996) payable monthly..................... 6,094,771 2,280,593
Expansion loans, interest at the LIBOR one month rate plus 3.5% (9%
at September 30, 1996) payable monthly............................ 3,000,000 1,416,000
Mortgage payable, interest at the rate of 7.25% at September 30,
1996, monthly principal and interest payments of $20,470 through
1998, collateralized by property with a net book value of
approximately $1,064,000 at September 30, 1996.................... 847,779 1,024,722
Installment notes payable, interest rates ranging from 9.25% to
9.75% at September 30, 1996, monthly principal and interest
payments ranging from $4,121 to $6,155 through 1997,
collateralized by furniture, fixtures and equipment with a net
book value of approximately $393,000 at September 30, 1996........ 180,995 362,487
------------ ------------
30,248,545 27,583,802
Less short-term borrowings.......................................... (6,094,771) (3,696,593)
Less current maturities of long-term debt........................... (3,203,158) (2,733,224)
------------ ------------
$ 20,950,616 $ 21,153,985
------------ ------------
------------ ------------
</TABLE>
Borrowings under the revolving loan are limited to the lesser of $10,000,000
or 55% of eligible inventory as defined in the Credit Agreement. The revolving
loan expires September 30, 2001. As of September 30, 1996, $3,905,229 was
available under the revolving loan. Borrowings under the revolving loan are
expected to be repaid prior to September 30, 1997 and are classified as current
at September 30, 1996. Borrowings under the expansion loan facility are limited
to $10,000,000. The expansion loan facility expires October 1, 1999 at which
point any outstanding balance becomes payable quarterly beginning January 1,
2000. As of September 30, 1996, $7,000,000 was available under the expansion
loan facility. The weighted average interest rate on outstanding short-term
borrowings was 9.47% and 9.60% for the years ended September 30, 1996 and 1995,
respectively.
The Credit Agreement contains restrictive covenants, the more significant of
which require the Company to maintain certain interest coverage, fixed charge
coverage, and adjusted total debt coverage ratios; certain minimum levels of
earnings before interest, depreciation, amortization, and taxes; certain minimum
levels of net worth; and prohibits cash dividends. In addition, certain limits
are placed upon capital expenditures. At September 30, 1996, the Company was in
compliance with these covenants.
F-39
<PAGE>
CAMPING WORLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
6. SHORT-TERM BORROWINGS AND LONG-TERM DEBT (CONTINUED)
Substantially all of the assets of the Company serve as collateral for loans
outstanding under the Credit Agreement.
The aggregate maturities of long-term debt subsequent to September 30, 1997
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30, AMOUNT
- ------------------------------------------------------------------------------- -------------
<S> <C>
1998........................................................................... $ 3,625,934
1999........................................................................... 4,095,263
2000........................................................................... 7,604,419
2001........................................................................... 5,625,000
-------------
$ 20,950,616
-------------
-------------
</TABLE>
7. SUBORDINATED NOTES
Subordinated notes consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
Acquisition subordinated notes.................................... $ 2,000,000 $ 2,000,000
Junior subordinated notes (net of discount of $125,646 and
$165,147)....................................................... 1,374,354 1,334,853
------------ ------------
$ 3,374,354 $ 3,334,853
------------ ------------
------------ ------------
</TABLE>
The acquisition subordinated notes as amended May 31, 1994 bear interest at
16.5%, payable quarterly until maturity. The notes are due in various quarterly
installments beginning September 2001 until maturity in June 2004.
The junior subordinated notes as amended May 31, 1994 bear interest at
16.5%, payable quarterly until maturity. Assuming the amortization of the
related discount to be additional interest, the stated rate of interest would be
increased by 2.92%. The notes are due in various quarterly installments
beginning September 2001 until maturity in August 2006.
The acquisition and junior subordinated notes incorporate covenants
applicable to the covenants in the Credit Agreement (See Note 6) and consist of
notes payable to certain shareholders of the Company. Interest expense
applicable to these subordinated notes was approximately $587,000 for each of
the years ended September 30, 1996 and 1995 and $808,000 for the year ended
September 30, 1994.
8. COMMITMENTS AND CONTINGENCIES
The Company leases certain of its buildings under operating leases. Rental
expense under such lease agreements was approximately $5,670,000, $4,676,000 and
$4,470,000 for the years ended September 30, 1996, 1995 and 1994, respectively.
F-40
<PAGE>
CAMPING WORLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease commitments at September 30, 1996 for all noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30, AMOUNT
- ------------------------------------------------------------------------------- -------------
<S> <C>
1997........................................................................... $ 6,183,000
1998........................................................................... 5,915,000
1999........................................................................... 5,976,000
2000........................................................................... 6,062,000
2001........................................................................... 5,949,000
Thereafter..................................................................... 33,957,000
-------------
$ 64,042,000
-------------
-------------
</TABLE>
Certain operating leases provide for five year renewal periods at the option
of the Company.
Certain operating leases result from sale/leaseback transactions. The terms
of these leases are not substantially different from terms that an independent
third-party lessor or lessee would accept. The Company has no continuing
involvement in the leases as contemplated by SFAS No. 98, ACCOUNTING FOR LEASES.
The Company leased seven, five and five facilities during the years ended
September 30, 1996, 1995 and 1994, respectively, from partnerships in which the
partners include shareholders of the Company in addition to unrelated parties.
These leases are classified as operating leases. Payments made under these
leases were approximately $2,103,000, $1,618,000 and $1,561,000 for the years
ended September 30, 1996, 1995 and 1994, respectively. During the year ended
September 30, 1996 the Company sold to and leased back one property from a
partnership considered to be a related party for a price of $2,750,000. During
the year ended September 30, 1995 the Company sold to and leased back one
property from a partnership considered to be a related party for a price of
$2,900,000. There were no sale/leaseback transactions during the year ended
September 30, 1994.
During the year ended September 30, 1996, the Company received notice of a
condemnation action from the State of California--Department of Transportation
indicating that the state was condemning one of the Company's Supercenters as a
result of interstate highway expansion. Although the state has remitted a
compensation award to the Company based upon an appraisal, the compensation
portion of the case is pending and awaiting a trial date which is expected to
occur during the fall of 1997. The carrying amount of the related property and
equipment, reflected in the accompanying consolidated balance sheet as of
September 30, 1996, exceeds the amount of the compensation award by
approximately $550,000 and there is the potential for a loss in that amount. The
Company has not recorded a provision for loss as of the date of the accompanying
consolidated financial statements. The Company plans to vigorously pursue
collection of the balance of the carrying value of the property. In the opinion
of management the likelihood of an unfavorable outcome is not probable as of the
date of the accompanying consolidated financial statements.
The Company is a party to other legal proceedings incidental to its
business. In the opinion of management, any ultimate liability with respect to
these actions will not materially affect the consolidated financial position or
results of operations of the Company.
F-41
<PAGE>
CAMPING WORLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
9. SHAREHOLDERS' EQUITY AND REDEMPTION PROVISIONS
The Class B common stock contains provisions whereby the stock will be
converted into Class A common stock in the event of any one of the following
occurrences: 1) the consummation of a public offering of the Class A common
stock, 2) a sale of all of the Class A common stock, or 3) a merger or sale of
all or substantially all of the assets of the Company. Voting powers are
extended to Class B shareholders with regard to amending the corporate charter
and authorizing material changes in the nature or form of the Company's
business.
Included in additional paid-in capital is the allocated amount for the fair
value of detachable stock warrants issued in connection with the acquisition
subordinated notes. Also included in additional paid-in capital is the allocated
amount for the fair value of detachable stock warrants issued in connection with
the junior subordinated notes.
Outstanding warrants, issued in connection with the subordinated notes,
represented 210,735 and 207,183 shares of Class A common stock at September 30,
1996 and 1995, respectively. All warrants outstanding at September 30, 1996 and
1995 were exercisable at a nominal exercise price.
Under the terms of a Stockholder's Agreement, certain shareholders may
require the Company to repurchase their outstanding shares of common stock and
shares represented by the warrants issued with subordinated notes (representing
in the aggregate 677,136 shares of Class A common stock and 1,276,828 shares of
Class B common stock at September 30, 1996) for fair market value beginning on
or after the later of payment of obligations under the Credit Agreement (see
Note 6) or September 30, 2001. At the Company's option, the same shares of
common stock and shares represented by warrants may be repurchased at fair
market value beginning September 30, 1996. The repurchase provisions terminate
upon a firm commitment underwritten public offering, provided the underwriters
value the equity of the Company at no less than $25 million. Classification of
the related common stock and warrants associated with these repurchase rights is
reflected as equity in the consolidated balance sheets of the Company as the
repurchase rights have subsequently been eliminated through the acquisition of
the Company's outstanding shares by Affinity Group, Inc. (see Note 14).
10. PROFIT-SHARING PLAN
The Company has a profit sharing plan for substantially all employees. This
plan provides for annual contributions based on employee deferrals. The Company
may also make additional contributions as determined by the Board of Directors
in excess of the required matching amounts. The Company accrued contributions of
approximately $115,000, $99,000 and $75,000 to the plan for the years ended
September 30, 1996, 1995 and 1994, respectively.
F-42
<PAGE>
CAMPING WORLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
11. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Currently payable:
Federal........................................... $ 2,059,000 $ 1,513,000 $ 1,677,000
State............................................. 415,000 327,000 344,000
------------ ------------ ------------
2,474,000 1,840,000 2,021,000
Deferred............................................ 299,000 (44,000) 60,000
------------ ------------ ------------
$ 2,773,000 $ 1,796,000 $ 2,081,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
A current income tax benefit of $240,000 was recognized during the year
ended September 30, 1994 as a result of a loss on the early extinguishment of
debt (see Note 6).
The difference between the provision for income taxes and the amount that
would be computed using statutory federal income tax rates is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Income taxes computed using federal statutory
rates............................................. $ 2,294,000 $ 1,489,000 $ 1,726,000
State income taxes, net of federal income tax
benefit........................................... 314,000 217,000 221,000
Amortization of excess of cost over fair value of
net assets acquired............................... 79,000 79,000 79,000
Other............................................... 86,000 11,000 55,000
------------ ------------ ------------
$ 2,773,000 $ 1,796,000 $ 2,081,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-43
<PAGE>
CAMPING WORLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
11. INCOME TAXES (CONTINUED)
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Deferred tax liabilities:
Differences between book and tax basis of property............ $ (5,759,045) $ (5,648,245)
Deferred catalog costs........................................ (209,083) (232,680)
Pre-opening expenses.......................................... (115,431) (47,812)
Other......................................................... (80,143) (50,919)
------------- -------------
(6,163,702) (5,979,656)
Deferred tax assets:
Stock option compensation..................................... 434,231 451,149
Deferred income............................................... 109,515 200,612
Capitalized inventory costs................................... 197,731 170,645
Accruals without economic substance........................... 225,610 231,200
Other......................................................... 72,370 100,805
------------- -------------
1,039,457 1,154,411
------------- -------------
Net deferred tax liability...................................... $ (5,124,245) $ (4,825,245)
------------- -------------
------------- -------------
</TABLE>
The Company provided no valuation allowance against deferred tax assets
recorded as of September 30, 1996 and 1995 as the Company believes that all
deferred assets will more likely than not be fully realizable in future taxable
periods.
12. STOCK OPTIONS
Under the 1991 Stock Option Plan (the "Plan"), options may be granted to key
employees to purchase shares of Class A common stock at a price not less than
85% of the fair market value at date of grant, nor greater than 110%. The Plan
permits the grant of options for a term of up to ten years, except in the case
of an individual who, at the time of the grant, owns more than 10% of the
Company, in which case the term of options is limited to five years.
F-44
<PAGE>
CAMPING WORLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
12. STOCK OPTIONS (CONTINUED)
A summary of the Plan activity follows:
<TABLE>
<CAPTION>
OUTSTANDING PRICE RANGE
----------- ---------------
<S> <C> <C>
September 30, 1993............................................. 142,040 $ 2.50-$9.70
Granted...................................................... 30,000 $ 6.83
Exercised.................................................... (21,000) $ 2.50
Cancelled.................................................... -- --
-----------
September 30, 1994............................................. 151,040 $ 2.50-$9.70
Granted...................................................... 50,200 $ 14.56
Exercised.................................................... (3,750) $ 9.70
Cancelled.................................................... (750) $ 9.70
-----------
September 30, 1995............................................. 196,740 $ 2.50-$14.56
Granted...................................................... 27,675 $ 13.28
Exercised.................................................... (3,000) $ 13.28
Cancelled.................................................... (1,750) $ 14.56
-----------
September 30, 1996............................................. 219,665 $ 2.50-$14.56
-----------
-----------
</TABLE>
All outstanding options at September 30, 1996 and 1995 were exercisable.
Exercisable options outstanding at September 30, 1994 were 150,290.
13. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS. Fair values of cash and
cash equivalents and short-term borrowings approximate cost due to the short
period of time to maturity. Fair values of long-term debt approximate face value
since the interest rate is floating with the market on a monthly basis. The
Company believes that since the subordinated debt is held by major shareholders,
the terms of this debt are unique, and the fact that there is no public market
for these debt instruments, fair value cannot be determined on a reasonable
basis.
14. SUBSEQUENT EVENTS
On February 25, 1997 the shareholders entered into an agreement to sell the
outstanding stock of the Company to Affinity Group, Inc. ("AGI"). The stock sale
transaction is expected to closed on April 2, 1997 simultaneously with the
closing of a note offering by the parent company of AGI. Additionally, certain
executives and members of management of the Company will enter into
non-competition, consulting, and incentive compensation agreements with AGI or
the parent of AGI.
On February 7, 1997 Affinity Group Plans, Inc. (an entity not affiliated
with AGI) and National Alliance Insurance Company filed a complaint in the
United States District Court for the Eastern District of Missouri against the
Company, a subsidiary of the Company, and two of the directors of the Company
seeking damages in excess of $125 million (and punitive damages of a like
amount) alleging breaches of contract, misrepresentations, misappropriation of
information and breaches of fiduciary duty in connection with the Company's
preliminary discussions with AGI to sell certain assets of the Company
(excluding
F-45
<PAGE>
CAMPING WORLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
14. SUBSEQUENT EVENTS (CONTINUED)
insurance marketing arrangements and related assets in which the plaintiffs have
an interest). The shareholders of the Company and AGI have structured the sale
as a stock sale. Under the stock sale agreement, the insurance marketing
arrangements and related assets in dispute remain as assets of the Company. AGI
has advised the plaintiffs in this litigation that it recognizes the contractual
obligations of the Company relating to such marketing arrangements and that it
intends to comply (and cause the Company to comply) with the terms of such
insurance marketing arrangements. The Company and defendant directors believe
such litigation will not have a material adverse effect on the Company.
F-46
<PAGE>
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE 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 TO ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information.......................... 2
Prospectus Summary............................. 3
Risk Factors................................... 20
The Exchange Offer............................. 24
The Acquisitions............................... 31
Use of Proceeds................................ 32
Capitalization................................. 34
Selected Financial Data........................ 35
Pro Forma Combined Financial Statements........ 39
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 46
Business....................................... 53
Management..................................... 70
Certain Transactions........................... 76
Principal Shareholders and Security Ownership
of Management................................ 77
Description of Other Indebtedness.............. 78
Description of the Notes....................... 80
Certain U.S. Federal Income Tax Consequences... 103
Plan of Distribution........................... 105
Legal Matters.................................. 105
Experts........................................ 106
Index to Consolidated Financial Statements..... F-1
</TABLE>
--------------------------
UNTIL DECEMBER 11, 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL
DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN SELLING NEW NOTES
RECEIVED IN EXCHANGE FOR ORIGINAL NOTES HELD FOR THEIR OWN ACCOUNT. SEE "PLAN OF
DISTRIBUTION."
AFFINITY GROUP HOLDING, INC.
OFFER TO EXCHANGE ITS
11% SENIOR NOTES DUE 2007
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT
FOR ANY AND ALL OF ITS
OUTSTANDING
11% SENIOR NOTES DUE 2007
PROSPECTUS
DATED AUGUST 13, 1997
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