<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 29, 1997
REGISTRATION NO. 333-34099
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMF BOWLING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7933,3949 13-3873268
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
8100 AMF DRIVE
RICHMOND, VIRGINIA 23111
(804) 730-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DOUGLAS J. STANARD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AMF BOWLING, INC.
8100 AMF DRIVE
RICHMOND, VIRGINIA 23111
(804) 730-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
DANIEL A. NEFF, ESQ. ROBERT E. BUCKHOLZ, JR., ESQ.
WACHTELL, LIPTON, ROSEN & KATZ SULLIVAN & CROMWELL
51 WEST 52ND STREET 125 BROAD STREET
NEW YORK, NY 10019 NEW YORK, NY 10004
(212) 403-1000 (212) 558-4000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE OFFERING OFFERING PRICE PER REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1)(2) PRICE SHARE FEE(3)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per
share......................... 14,375,000 shares $301,875,000.00 $21.00 $91,477.27
==================================================================================================================
</TABLE>
(1) Includes shares issuable upon exercise of the Underwriters' over-allotment
option. See "Underwriting".
(2) The shares of Common Stock are not being registered for the purposes of
sales outside the United States.
(3) The Registration Fee was previously paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 29, 1997
12,500,000 SHARES
AMF BOWLING, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
[AMF LOGO]
------------------------
Of the 12,500,000 shares of Common Stock offered, 10,000,000 shares are
being offered hereby in the United States and 2,500,000 shares are being offered
in a concurrent international offering outside the United States. The initial
public offering price and the aggregate underwriting discount per share will be
identical for both Offerings. See "Underwriting". All of the shares of Common
Stock offered are being sold by the Company. After consummation of the
Offerings, certain affiliates of Goldman, Sachs & Co. (collectively, "GSCP")
will beneficially own approximately 53.7% of the shares of Common Stock. As a
result of such ownership and the terms of a stockholders agreement, GSCP will
have the ability to control the election of a majority of the Board of
Directors.
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price per share will be between $18.00 and $21.00. For factors to be considered
in determining the initial public offering price, see "Underwriting".
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
The Common Stock has been approved for listing, subject to notice of
issuance, on the New York Stock Exchange under the symbol "PIN".
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per Share..................... $ $ $
Total(3)...................... $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting estimated expenses of $2,448,800 payable by the Company.
(3) The Company has granted the U.S. Underwriters an option for 30 days to
purchase up to an additional 1,500,000 shares at the initial public offering
price per share, less the underwriting discount, solely to cover
over-allotments. Additionally, the Company has granted the International
Underwriters a similar option with respect to an additional 375,000 shares
as part of the concurrent international offering. If such options are
exercised in full, the total initial public offering price, underwriting
discount and proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting".
------------------------
The shares offered hereby are offered severally by the U.S. Underwriters,
as specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York, on
or about , 1997, against payment therefor in immediately available
funds.
GOLDMAN, SACHS & CO.
MORGAN STANLEY DEAN WITTER
COWEN & COMPANY
SCHRODER & CO. INC.
------------------------
The date of this Prospectus is , 1997.
<PAGE> 3
AMF Bowling intends to furnish to its stockholders annual reports
containing audited financial statements and quarterly reports containing
unaudited interim financial information for the first three fiscal quarters of
each fiscal year.
------------------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERINGS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
AVAILABLE INFORMATION
AMF Bowling, Inc. ("AMF Bowling") has filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement on Form S-1
(together with all amendments and exhibits, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the common stock, par value $.01 per share, of AMF Bowling (the "Common Stock")
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to AMF Bowling and the Common Stock, reference is
hereby made to the Registration Statement. The Registration Statement, including
all exhibits and schedules thereto, may be inspected without charge at the
public reference facilities maintained by the Commission at the Commission's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549 and the
Commission's regional offices at 7 World Trade Center, 13th Floor, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of the Registration Statement may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates.
Statements contained in this Prospectus as to the contents of any contract
or other document are not necessarily complete, although the material terms
thereof are described in this Prospectus, and, in each instance, reference is
made to the copy of such contract or document filed as an exhibit to the
Registration Statement. Each such statement is qualified by such reference to
such exhibits.
AMF Bowling will be subject to the periodic reporting and other
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). AMF Bowling will fulfill its obligations with respect to
such requirements by filing reports, proxy statements and other information with
the Commission. Such materials may be inspected and copied at the offices of the
Commission and in the manner described above, as well as on the World Wide Web
site maintained by the Commission at http://www.sec.gov. Such materials will
also be available at the offices of The New York Stock Exchange, Inc. (the
"NYSE").
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements, which are
statements other than historical information or statements of current condition.
Some forward-looking statements may be identified by use of terms such as
"believes", "anticipates", "intends" or "expects". The forward-looking
statements contained in this Prospectus are generally located in the material
set forth under "Prospectus Summary", "Risk Factors", "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business",
but may be found in other locations as well. These forward-looking statements
relate to the plans and objectives of the Company for future operations. In
light of the risks and uncertainties inherent in all future projections, the
inclusion of forward-looking statements in this Prospectus should not be
regarded as a representation by AMF Bowling or any other person that the
objectives or plans of the Company will be achieved. Many
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<PAGE> 4
factors could cause the Company's actual results to differ materially from those
in the forward-looking statements, including, among other things: (i) the
Company's ability to execute successfully acquisition opportunities and to
integrate acquired operations into its business, (ii) the continued development
and growth of new bowling markets and the Company's ability to continue to
identify those markets and to generate sales of products in those markets before
market saturation, (iii) the risk of adverse political acts or developments in
the Company's existing or proposed markets for its products or in which it
operates its bowling centers, (iv) the Company's ability to retain experienced
senior management, (v) the ability of AMF Bowling and its subsidiaries to
generate sufficient cash flow in a timely manner to satisfy principal and
interest payments on their indebtedness and (vi) the popularity of bowling as an
activity in the United States and abroad. In addition, actual results may also
differ materially from forward-looking statements in this Prospectus as a result
of factors generally applicable to companies in similar businesses, including,
among other things: (i) a decline in general economic conditions, (ii) an
adverse judgment in pending or future litigation and (iii) increased competitive
pressure from current competitors and future market entrants. The foregoing
review of important factors should not be construed as exhaustive and should be
read in conjunction with other cautionary statements that are included in the
Registration Statement. AMF Bowling undertakes no obligation to release publicly
the results of any future revisions it may make to forward-looking statements to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
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<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and financial statements appearing elsewhere in this
Prospectus. As used in this Prospectus, "AMF Bowling" refers to AMF Bowling,
Inc., and the "Company" or "AMF" refers to AMF Bowling and its subsidiaries.
Unless otherwise indicated, all information in this Prospectus assumes that the
over-allotment options granted to the Underwriters are not exercised. Except as
otherwise indicated herein, all pro forma information has been prepared to give
effect to the Acquisition (as hereinafter defined) of AMF as if it had occurred
on January 1, 1996. EBITDA (which represents earnings before net interest
expense, income taxes, depreciation and amortization, and other income and
expenses) is not intended to represent and should not be considered more
meaningful than, or an alternative to, other measures of performance determined
in accordance with generally accepted accounting principles ("GAAP"). The
fragmented nature of the bowling centers business makes it difficult to compile
reliable industry-wide statistics. Accordingly, industry statistics provided in
this Prospectus should be regarded as approximations with a potentially
significant margin of error. Except as otherwise indicated herein, all
information with respect to the price per share of Common Stock issued in the
Offerings and all information reflecting the consummation of the Offerings
assumes that the Common Stock is issued at an initial public offering price per
share of $19.50 (the midpoint of the estimated range of initial public offering
prices per share specified on the cover page of this Prospectus).
THE COMPANY
AMF is the largest bowling company in the world. The Company operates 439
bowling centers worldwide which generate over 60 million customer visits per
year. AMF is the U.S. market leader with 353 bowling centers, and is also the
largest operator internationally, with 86 bowling centers in nine countries. In
addition, AMF has been a leader in the bowling equipment industry for over 50
years, having revolutionized ten pin bowling with the introduction of the first
automatic pinspotter in 1946. AMF is one of only two bowling equipment
manufacturers that compete on a global basis. Management believes that AMF
bowling equipment accounts for approximately 41% of the world's installed base
of bowling equipment.
The worldwide bowling center and bowling equipment industry generates
approximately $9 billion in annual revenue and includes approximately 13,000
bowling centers in over 80 countries. The U.S. bowling center and bowling
equipment industry generates in excess of $4 billion of revenue annually and
includes approximately 5,900 centers. Over 100 million people participate
annually in bowling worldwide, according to the Federation Internationale des
Quilleurs (the "FIQ"), the official organization of the worldwide bowling
industry. The bowling center industry in both the U.S. and abroad is highly
fragmented. In the U.S., the next closest competitor to AMF's 353 centers has
approximately 111 centers. The next three largest operators collectively account
for approximately 55 of the total 5,900 centers.
An investor group led by GS Capital Partners II, L.P. (together with
affiliated investment funds, "GSCP"), an affiliate of Goldman, Sachs & Co.,
acquired AMF in May 1996 for a total purchase price of approximately $1.37
billion. The investor group appointed a new management team that has
aggressively pursued a three-part strategy:
- consolidate the U.S. bowling center industry,
- build a nationally recognized brand of superior bowling and
entertainment centers, and
- capitalize on the demand for bowling products and centers in certain
international markets.
Management is utilizing the well-recognized AMF name to build the only
national branded network of bowling and entertainment centers in the U.S.
through a series of initiatives. These include introducing innovative new
products, such as bumper bowling and Xtreme(TM) Bowling, upgrading the physical
appearance of centers, and improving the food and beverage offerings.
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<PAGE> 6
Since May 1996, AMF's management team has grown the number of AMF's U.S. centers
from 207 to 353, an increase of approximately 71%, principally through
acquisitions.
AMF is also capitalizing on the strong international growth in the demand
for bowling products through direct sales of equipment and the building of new
bowling centers abroad. Strong demand for AMF's New Center Packages ("NCPs"),
which include all of the equipment necessary to outfit one new bowling lane,
drove AMF's backlog from 1,426 NCP units at December 31, 1996 to 2,059 NCP units
at October 19, 1997, an increase of approximately 44%. Over 90% of the Company's
NCP backlog is to international markets such as China, Japan and Germany.
Further, AMF is acting to accelerate the development of bowling in key potential
markets. During 1997, AMF entered into joint ventures to build and operate
bowling centers equipped with AMF bowling products in China and selected
Southeast Asian countries, and in Brazil and Argentina.
BUSINESS STRATEGY
AMF believes that its future growth will depend on the continued success of
its three-part strategy to consolidate the U.S. bowling center industry, build a
nationally recognized AMF brand of superior bowling and entertainment centers,
and capitalize on the demand for bowling products and centers in certain
international markets. The key elements of the strategy are:
CONSOLIDATE THE FRAGMENTED U.S. BOWLING CENTER INDUSTRY. In addition to
the 152 centers that AMF has acquired since May 1996, the Company's dedicated
acquisition team has identified approximately 2,000 potential center acquisition
candidates in the United States. The Company employs a regional clustering
strategy for its U.S. centers and focuses on acquiring centers that either fit
into existing geographic clusters or could be the base for forming new clusters.
Management believes that none of the Company's competitors in the U.S. bowling
industry is pursuing such an active acquisition strategy.
IMPROVE ACQUIRED CENTERS' PROFITABILITY. The Company believes that its
EBITDA margins are among the highest of operators of U.S. bowling center chains.
This belief is based on publicly available information and on the Company's
knowledge of the industry, due to the Company's experience in operating the
largest U.S. bowling center chain, in participating in various industry trade
associations and in evaluating many U.S. bowling centers and chains for possible
acquisition. Following an acquisition, management acts to increase profitability
by cutting costs and introducing programs to increase revenue. Specifically, the
Company improves marketing programs, reduces overhead, optimizes staffing,
implements improved financial controls, centralizes management and maintenance
of equipment, and centralizes purchasing. The Company often makes immediate
capital and other improvements to upgrade the centers it acquires which are
designed to generate increased revenue and to further AMF's goal of creating a
nationally recognized brand of superior bowling and entertainment centers.
BUILD A NATIONALLY RECOGNIZED BRAND OF SUPERIOR BOWLING AND ENTERTAINMENT
CENTERS. AMF believes it offers a superior bowling and entertainment experience
utilizing innovative products such as Xtreme(TM) Bowling, which uses
glow-in-the-dark pins and equipment, black lighting and music; bumper bowling
for children, in which bumpers prevent balls from rolling into the gutter;
computerized, automatic and color scoring; and time period discounts for certain
groups, such as seniors and children. The Company is also increasing concourse
space in certain of its centers for amusement games, billiards and other
activities. AMF is selectively introducing the "Family Fun Fest" bowling center,
which offers expanded state-of-the-art arcade and video games. The Company also
seeks to increase its profile through the sponsorship of Special Olympics
International and by hosting professional bowling tournaments.
BUILD NEW CENTERS. The Company has built new bowling centers in attractive
markets to enhance its Bowling Centers business and also to serve as a showcase
for the products manufactured by its Bowling Products business. These centers
utilize state-of-the-art equipment and present bowling as part of a family
entertainment experience and are an integral part of AMF's
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<PAGE> 7
efforts to build a nationally branded network of superior bowling and
entertainment centers. For instance, in August 1997, the Company opened a new
40-lane bowling center at Chelsea Piers in New York, the first new bowling
center in Manhattan in 30 years.
IMPROVE FOOD AND BEVERAGE REVENUES. The Company estimates that it has over
60 million customer visits per year in its bowling centers. The Company is
expanding and improving the food and beverage product offerings at many of its
centers to take better advantage of its significant customer traffic. AMF also
capitalizes on purchasing economies of scale. The Company is one of the nation's
leading on-premise accounts for both Anheuser Busch Companies, Inc. and The
Coca-Cola Company.
CAPITALIZE ON GROWING GLOBAL DEMAND FOR BOWLING PRODUCTS. Management
believes that AMF's well-established global brand name, the quality of its
products, and its comprehensive service and strong direct sales force and
distribution network will enable it to take advantage of growing NCP demand
worldwide. The Company is focused on sales of NCPs (which comprised 48% of AMF's
Bowling Products sales in 1996) into selected countries with demonstrated strong
demand for bowling products. AMF's backlog of NCPs increased by approximately
44% from 1,426 units at December 31, 1996 to 2,059 units at October 19, 1997.
Customers outside the U.S. comprise over 90% of the current NCP backlog total,
with the largest portion going to markets such as China, Japan and Germany. In
addition, AMF will continue to acquire and to build international bowling
centers on a selective basis, either to enhance the growth of bowling in
countries which present attractive opportunities for the sale of bowling
products or to enhance AMF's competitive position in a particular country's
bowling center industry.
ACCELERATE THE DEVELOPMENT OF BOWLING IN SELECTED INTERNATIONAL
MARKETS. In addition to the international markets that currently have a high
demand for bowling products, management believes that selected international
markets which are in the early development stage have the potential for high
growth. Examples of such early stage markets are India which has over 25 million
people per lane of installed bowling equipment, Poland which has over 2 million
people per lane, Indonesia which has over 650,000 people per lane, and Brazil
which has 450,000 people per lane. By contrast, mature markets, such as the U.S.
and Korea, have populations per lane of 2,000 and 3,600, respectively. There can
be no assurance that these early stage markets will develop to the same extent
as the United States or Korea, as only a small number of markets have achieved
this level of development. AMF seeks to accelerate the industry's growth in
early stage markets by building showcase centers and conducting promotional
programs. As bowling becomes more popular, local developers and entrepreneurs
build new bowling centers, which are outfitted with equipment, and drive demand
for NCPs. To capitalize on this development cycle, AMF has entered into joint
ventures to build, own and operate up to 20 bowling centers in China and
Southeast Asia and 39 bowling centers in Brazil and Argentina. The Company is
also developing a center in India and pursuing opportunities in Russia and
Poland.
PROVIDE INNOVATIVE AND QUALITY PRODUCTS. AMF expects to continue to
maintain its leadership position in manufacturing by setting industry standards
for quality and innovation. Management believes that AMF has the fastest
pinspotters, the highest scoring lanes and the most durable pins. Since the
development of the first automatic pinspotter over 50 years ago, AMF has been an
innovator in the advancement of such products as automatic scoring, bumpers, and
Xtreme(TM) Bowling. AMF positions its products as high quality and
technologically advanced, allowing it generally to command premium prices.
Management believes that AMF uses its position as an integrated bowling center
operator and bowling products manufacturer to AMF's advantage in testing and
developing product innovations.
INCREASE MODERNIZATION AND CONSUMER PRODUCT SALES. Management expects AMF
to benefit as the worldwide base of bowling centers grows due to the increased
popularity of bowling. AMF's brand name, the large installed base of AMF bowling
equipment, AMF's established direct sales force and distribution network and its
quality products will position AMF to increase sales of
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Modernization and Consumer Products. These products, which include modernization
equipment, supplies, spare parts and consumable products, comprised 52% of AMF's
Bowling Products sales in 1996. Furthermore, when AMF acquires or constructs a
center and installs state-of-the-art equipment in that center, management
believes that competing centers may purchase Modernization and Consumer
Products, often from AMF, to remain viable competitors to the AMF center.
RECENT FINANCIAL PERFORMANCE
AMF's management has significantly improved financial results since the May
1996 acquisition. Revenue and EBITDA increased by 33.9% to $318.1 million and by
30.4% to $85.8 million, respectively, for the first six months of 1997 as
compared to the pro forma results for the first six months of 1996. Net loss for
the first six months of 1997 was $12.2 million as compared to a pro forma net
loss of $13.5 million for the first six months of 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Consolidated Items -- Net Income (Loss)". Management believes that
AMF's Bowling Centers and Bowling Products businesses have been characterized by
high EBITDA margins and attractive returns on investment. Management believes
that the Company is well-positioned, due to its long established industry
leadership position, the AMF brand, the Company's large installed base and its
strategy, to develop and capitalize on the growth potential of bowling
worldwide.
BACKGROUND
AMF Bowling is a Delaware corporation which was incorporated in 1996 by
GSCP to effect the acquisition of AMF (the "Acquisition"). AMF Bowling was
initially incorporated under the name "AMF Holdings Inc." and was subsequently
renamed "AMF Bowling, Inc."
After the incorporation of AMF Bowling, GSCP sold certain equity interests
in AMF Bowling to investment funds affiliated with The Blackstone Group, Kelso &
Company, Bain Capital Inc. and Citicorp North America, Inc. and to certain
officers and directors of AMF Bowling.
AMF Group Holdings Inc. ("AMF Group Holdings"), a direct, wholly owned
subsidiary of AMF Bowling, acquired substantially all of the assets of AMF's
predecessor (the "Predecessor Company") on May 1, 1996 pursuant to the Stock
Purchase Agreement, dated February 16, 1996, between AMF Group Holdings and the
then-current stockholders of the Predecessor Company, as amended (the "Stock
Purchase Agreement"). The purchase price for the Acquisition was approximately
$1.37 billion.
AMF Bowling's principal executive offices are located at 8100 AMF Drive,
Richmond, Virginia, and the telephone number of AMF Bowling is (804) 730-4000.
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<PAGE> 9
THE OFFERINGS
The offering hereby of 10,000,000 shares of Common Stock initially being
offered in the United States (the "U.S. Offering") and the offering of 2,500,000
shares of Common Stock initially being offered in a concurrent international
offering outside the United States (the "International Offering") are
collectively referred to as the "Offerings". The underwriters for the U.S.
Offering (the "U.S. Underwriters") and the underwriters for the International
Offering (the "International Underwriters") are collectively referred to as the
"Underwriters". The closing of each Offering is conditioned upon the closing of
the other Offering.
<TABLE>
<S> <C>
Common Stock offered by the Company: (1)
United States Offering................................. 10,000,000 shares
International Offering................................. 2,500,000 shares
Total.......................................... 12,500,000 shares
Common Stock to be outstanding after the Offerings....... 56,605,000 shares(1)(2)
NYSE symbol.............................................. "PIN"
Use of proceeds by the Company........................... To repay indebtedness. See
"Use of Proceeds".
</TABLE>
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(1) Assumes that the Underwriters' over-allotment options are not exercised. See
"Underwriting".
(2) Does not include outstanding Stock Options (as hereinafter defined) to
acquire 1,798,000 shares of Common Stock or outstanding Warrants (as
hereinafter defined) to acquire 870,000 shares of Common Stock.
RISK FACTORS
Prospective purchasers of the Common Stock should carefully consider the
factors set forth under "Risk Factors" starting on page 13 as well as the other
information set forth in this Prospectus. The risks of investing in the Common
Stock include the following factors: the Company's ability to implement growth
strategies, characteristics of the bowling industry, seasonality and market
development cycles, the Company's indebtedness, recent net losses, the holding
company structure, dependence on key personnel, control by GSCP, the Company's
international operations, anti-takeover effects of certain certificate of
incorporation and by-law provisions, absence of prior public market and possible
volatility of stock price, shares eligible for future sale, absence of dividends
and dilution.
RECENT DEVELOPMENTS
On October 24, 1997, the Company reported its results of operations for the
quarter and nine months ended September 30, 1997 compared to the results of
operations for the quarter ended September 30, 1996 and the pro forma results of
operations for the nine months ended September 30, 1996. Revenue increased 42.3%
to $187.5 million for the third quarter of 1997 as compared to $131.8 million
for the third quarter of 1996. EBITDA increased 27.0% to $40.9 million for the
third quarter of 1997 as compared to $32.2 million for the third quarter of
1996. Net loss was $10.3 million for the third quarter of 1997 as compared to a
net loss of $5.2 million for the third quarter of 1996.
Revenue increased 36.9% to $505.6 million for the first nine months of 1997
as compared to $369.3 million for the first nine months of 1996. EBITDA
increased 29.3% to $126.7 million for the first nine months of 1997 as compared
to $98.0 million for the first nine months of 1996. Net loss for the first nine
months of 1997 was $22.4 million as compared to a net loss of $17.4 million for
the first nine months of 1996.
Both revenue and EBITDA for the third quarter of 1997 reflect the inclusion
of results of 160 bowling centers acquired and one new bowling center built
since May 1996 through September 30,
9
<PAGE> 10
1997, and increased levels of NCP shipments to several international regions.
Net loss for the third quarter of 1997 reflects incremental depreciation and
interest expense related to increased levels of assets and indebtedness under
the Credit Agreement as a result of bowling center acquisitions.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -----------------
1997 1996 1997 1996(1)
------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Operating revenues................................... $187.5 $131.8 $505.6 $369.3
Net loss............................................. (10.3) (5.2) (22.4) (17.4)
Selected Data:
EBITDA.......................................... $ 40.9 $ 32.2 $126.7 $ 98.0
</TABLE>
- ---------------
(1) The information presented with respect to the nine months ended September
30, 1996 is presented on a pro forma basis.
On October 20, 1997, the Company acquired Michael Jordan Golf Company,
Inc., a company formed to build and operate golf practice ranges in select U.S.
locations. In addition, Michael Jordan agreed to become a spokesperson for and
endorser of AMF bowling centers and bowling products under a personal services
contract which grants the Company rights to use Mr. Jordan's image and name in
advertising and marketing campaigns.
10
<PAGE> 11
SUMMARY FINANCIAL DATA
The summary financial data set forth below for the fiscal years indicated
were derived from the consolidated pro forma results of AMF Bowling for the year
ended December 31, 1996, and the Predecessor Company's audited combined
financial statements for the years ended December 31, 1995, 1994, 1993, and
unaudited combined financial statements for the year ended December 31, 1992.
The summary financial data include results for the six months ended June 30,
1997, compared to pro forma results for the six months ended June 30, 1996. The
pro forma results set forth below are presented as if the Acquisition had
occurred on January 1, 1996, and are based on the Predecessor Company's
statement of income for the period ending April 30, 1996, AMF Bowling's
statement of income from its inception through the relevant reporting date and
adjustments giving effect to the Acquisition under the purchase method of
accounting. See "Note 3. Pro Forma Results of Operations" in the Notes to
Consolidated Financial Statements and the Notes to Condensed Consolidated
Financial Statements of AMF Bowling. The data should be read in conjunction with
AMF Bowling's Consolidated Financial Statements and Condensed Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations", which appear elsewhere herein.
The summary financial data include operating results expressed in terms of
EBITDA, which represents earnings before net interest expense, income taxes,
depreciation and amortization, and other income and expenses. EBITDA information
is included because the Company understands that such information is a standard
measure commonly reported and widely used by certain investors and analysts.
EBITDA is not intended to represent and should not be considered more meaningful
than, or an alternative to, other measures of performance determined in
accordance with GAAP.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
YEAR ENDED DECEMBER 31, --------------------------------
-------------------------------------------------------------
PRO FORMA PRO FORMA
AMF AMF AMF
PREDECESSOR COMPANY BOWLING, INC. BOWLING, INC. BOWLING, INC.
------------------------------------------- ------------- ------------- -------------
1992 1993 1994(a) 1995 1996(b) 1996(c) 1997
------ ------ ------- ------ ------------- ------------- -------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenue.......... $391.2 $427.6 $517.8 $564.9 $ 548.9 $ 237.5 $ 318.1
------ ------ ------ ------ ------ ------ ------
Cost of goods sold......... 132.1 153.2 196.0 184.1 173.6 66.5 86.1
Bowling center operating
expenses.................. 103.1 108.5 115.2 166.5 178.8 82.5 116.0
Selling, general and
administrative expenses... 43.2 41.9 57.1 50.8 51.0 22.7 30.2
Depreciation and
amortization.............. 25.5 21.4 24.8 39.1 73.5 34.9 43.4
------ ------ ------ ------ ------ ------ ------
Operating income........... 87.3 102.6 124.7 124.4 72.0 30.9 42.4
Interest expense, gross.... 7.9 5.0 7.4 15.7 106.2 52.2 57.5
Other income (expense),
net....................... 0.1 (0.1) (1.5) 0.2 3.8 3.4 (1.3)
------ ------ ------ ------ ------ ------ ------
Income (loss) before income
taxes..................... 79.5 97.5 115.8 108.9 (30.4) (17.9) (16.4)
Provision (benefit) for
income taxes.............. 15.4 15.1 16.5 12.1 (8.9) (4.4) (4.2)
------ ------ ------ ------ ------ ------ ------
Net income (loss).......... $ 64.1 $ 82.4 $ 99.3 $ 96.8 $ (21.5) $ (13.5) $ (12.2)
====== ====== ====== ====== ====== ====== ======
Net loss per share......... $ (0.55) $ (0.35) $ (0.29)
Supplementary pro forma net
loss per share(d)......... $ (0.14) $ (0.13) $ (0.08)
SELECTED DATA:
EBITDA..................... $112.8 $124.0 $149.5 $163.5 $ 145.5 $ 65.8 $ 85.8
EBITDA margin.............. 28.8% 29.0% 28.9 % 28.9% 26.5% 27.7% 27.0%
Revenue:(e)
Bowling Centers........... $204.5 $192.6 $225.4 $292.3 $ 307.3 $ 147.2 $ 201.1
Bowling Products.......... 195.4 243.6 301.7 286.5 252.1 96.8 124.7
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
YEAR ENDED DECEMBER 31, -------------------------------
----------------------------------------------------
PRO FORMA PRO FORMA
AMF AMF AMF
PREDECESSOR COMPANY BOWLING, INC. BOWLING, INC. BOWLING, INC.
----------------------------------- ------------- ------------- -------------
1992 1993 1994(a) 1995 1996(b) 1996(c) 1997
----- ----- ----- ----- ------------- ------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDA:(f)
Bowling Centers................ $65.2 $54.5 $65.8 $86.8 $ 95.6 $48.3 $ 63.0
Bowling Products............... 48.7 71.1 84.6 79.3 62.6 22.9 31.3
New Center Packages sold......... 2,210 3,577 4,941 4,437 3,029 1,152 1,933
New Center Packages backlog, end
of period(g)................... N/A N/A 2,078 940 1,426 1,144 2,182
Number of centers, end of
period......................... 197 190 293 286 341 284 408
Number of lanes, end of period... 5,988 5,896 9,586 9,430 11,782 9,386 14,206
Capital Expenditures:
Routine modernization and
maintenance(h)............... $ 8.3 $ 9.0 $11.4 $13.1 $ 14.5 $ 6.9 $ 12.2
Expansion and acquisition
capital(i)................... 3.8 5.7 6.4 16.9 117.4 3.3 135.6
------ ------ ------ ------ ------ ------ ------
Total.......................... $12.1 $14.7 $17.8 $30.0 $ 131.9 $10.2 $ 147.8
====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF JUNE
DECEMBER 31, 1996 30, 1997
----------------------- -------------
AMF AMF
BOWLING, INC. BOWLING, INC.
----------------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................ $ 7.8 $ (23.3)
Goodwill, net.......................................................... 771.1 766.7
Total assets........................................................... 1,594.0 1,715.6
Total debt............................................................. 1,091.3 1,221.3
Stockholders' equity................................................... 408.8 391.1
Total capitalization................................................... $ 1,500.1 $ 1,612.4
</TABLE>
- ---------------
(a) Includes results of Fair Lanes, Inc., a bowling center operator ("Fair
Lanes"), which operated 106 centers and was acquired on September 29, 1994.
(b) Represents results of operations from January 1, 1996 through December 31,
1996 on a pro forma basis. See "Note 3. Pro Forma Results of Operations" in
the Notes to Consolidated Financial Statements of AMF Bowling as of December
31, 1996.
(c) Represents results of operations from January 1, 1996 through June 30, 1996,
on a pro forma basis. See "Note 3. Pro Forma Results of Operations" in the
Notes to Condensed Consolidated Financial Statements of AMF Bowling as of
June 30, 1997.
(d) Supplementary pro forma net loss per share (i) assumes 12,500,000 shares of
Common Stock issued at $19.50 per share pursuant to the Offerings and (ii)
reflects pro forma interest expense reductions due to an assumed $100
million reduction in the amount of senior indebtedness and $112.9 million
reduction in the amount of subordinated indebtedness which would have been
outstanding if the Offerings had occurred on January 1, 1996.
(e) Before intersegment eliminations.
(f) Before intersegment eliminations and corporate general and administrative
expenses.
(g) Orders of New Center Packages included in the backlog are subject to
cancellation by customers in the normal course of business. Accordingly, the
Company has experienced, and expects to continue to experience, the
cancellation of a portion of such orders. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Backlog; Recent
NCP Sales". Data is not provided for 1992 and 1993 because the Company does
not maintain this data for such periods.
(h) Defined as capital expenditures for existing product lines and manufacturing
operations and capital expenditures for modernizing and refurbishing bowling
centers.
(i) Includes (i) the construction of centers and (ii) the acquisition of centers
since May 1, 1996. Excludes the acquisition of Fair Lanes and all other
acquisitions prior to May 1, 1996.
12
<PAGE> 13
RISK FACTORS
ABILITY TO IMPLEMENT GROWTH STRATEGIES
The Company's Bowling Centers business has grown, and the Company
anticipates that it will continue to grow, through acquisitions of centers and
improvements at existing centers. There can be no assurance that the Company
will continue to be successful in acquiring centers and improving operations of
acquired and existing centers.
Historically, the Company has financed acquisitions through issuances of
Common Stock, cash on hand and borrowings. The Company anticipates that it will
finance future acquisitions in the same manner. The Credit Agreement (as
hereinafter defined) and Note Indentures (as hereinafter defined) restrict the
Company's ability to incur indebtedness and make certain investments and as a
result may limit the number of centers acquired by the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity", "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Capital Resources", "Business -- Business
Strategy" and "Description of Certain Indebtedness". There can be no assurance
that the Company will generate cash or obtain debt or equity financing on
acceptable terms in amounts sufficient to fund its growth strategies.
The Company also seeks to grow through increased sales of NCPs and
Modernization and Consumer Products. Integral to such increased sales is the
Company's strategy of exploiting increased demand for bowling products in
developed as well as in emerging bowling markets. There can be no assurance that
such increased demand will materialize or that the Company will be able to
successfully exploit such demand. See "-- Seasonality and Market Development
Cycles" and "Business -- Business Strategy".
BOWLING INDUSTRY CHARACTERISTICS
BOWLING CENTERS
In the United States, the operation of bowling centers generally has been
characterized by slightly declining lineage (number of games bowled per lane per
day), offset by increasing average price per game. Total lineage, according to
an industry source, has declined despite an average annual increase in the total
number of people bowling since 1987. This trend is largely a result of a decline
in league participation, partially offset by an increase in recreational (i.e.,
non-league) play, resulting in more people bowling, but bowling less frequently.
Bowling center operators have offset the decrease in overall lineage by
increasing prices and creating additional sources of income. Contrary to the
overall lineage trend in the industry, AMF's U.S. lineage has remained
relatively stable over recent years due to its ability to retain existing league
bowlers and attract new recreational bowlers due to, management believes, the
generally higher quality of AMF's centers. Internationally, although trends vary
by country, certain of the markets in which AMF operates have experienced
increasing competition as they have matured, resulting in declining lineage. AMF
has offset these lineage declines through higher prices and additional focus on
food and beverage and other amusement revenue. There can be no assurance that
AMF will be able to continue to maintain lineage or increase prices in the U.S.
or internationally in the future. See "Business -- AMF Bowling Centers".
In addition, bowling, as both a competitive sport and a recreational
activity, faces competition from numerous alternative activities. The continued
success of AMF's bowling operations is subject to consumers' continued interest
in bowling, the availability and cost of other sport, recreational and
entertainment alternatives and the amount of leisure time, as well as various
other social and economic factors over which AMF has no control. There can be no
assurance that bowling will continue to exhibit its current level of popularity
or that AMF will continue to compete effectively in the industry. See
"Business -- Industry Overview".
13
<PAGE> 14
BOWLING PRODUCTS
The Bowling Products industry has been characterized by relatively stable
sales of Modernization and Consumer Products to the installed base of equipment
operators, and more varied results in sales of New Center Packages to newly
constructed bowling centers. While established bowling markets continue to
produce some NCP sales, the primary driver of NCP sales in recent years has been
the rapid growth experienced in new markets as bowling has become popular in
particular countries and the economics of constructing and operating a bowling
center have become attractive to local developers and entrepreneurs. Continued
growth in AMF's sale of NCPs depends, in part, on similar bowling growth
patterns developing in other emerging bowling markets, such as Eastern Europe,
India, Indonesia and South America, and on AMF's ability to successfully exploit
new demand. Sales of NCPs for 1996 declined substantially from 1995, reflecting
the maturing bowling markets in Taiwan and Korea. There can be no assurance that
future international expansion will occur or, if it does occur, that AMF will be
able to successfully compete in such emerging markets. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Backlog; Recent NCP Sales" and "Business -- AMF Bowling Products".
SEASONALITY AND MARKET DEVELOPMENT CYCLES
Financial performance of Bowling Centers is seasonal in nature, with cash
flows typically peaking in the winter months and reaching their lows in the
summer months. The geographic diversity of AMF's Bowling Centers operations
helps to reduce this seasonality as bowling centers in certain countries in
which AMF operates exhibit different seasonal sales patterns. However, as a
result of the growing number of U.S. centers attributable to the Company's
acquisition program, the seasonality of financial performance of AMF's Bowling
Centers business may be accentuated. See "Business -- Business Strategy".
NCP sales experience significant fluctuations due to changes in demand for
NCPs as certain markets experience high growth followed by market maturity, at
which times sales to that market decline, sometimes rapidly. Management believes
market cycles for individual countries have, in the past, spanned several years,
with periods of high demand for several markets (e.g., Japan, Korea, Taiwan)
which, in AMF's experience, last five years or more. These growth patterns do
not seem to be closely tied to general economic cycles. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Seasonality and Market Development Cycles".
SUBSTANTIAL LEVERAGE; INDEBTEDNESS
The Company is, and will continue to be, highly leveraged as a result of
the substantial indebtedness that it incurred in connection with the Acquisition
and intends to incur to finance acquisitions and expand its operations. As of
June 30, 1997, the Company had total indebtedness of $1,221.3 million and
stockholders' equity of $391.1 million, resulting in a ratio of debt to total
capitalization of approximately 75.7%. Although the Company believes it will be
able to meet its debt obligations, there is no assurance that there will be
adequate cash available to make interest payments under the Company's
indebtedness when they become due. The Company intends to incur additional
indebtedness in the future, subject to limitations imposed by the Note
Indentures and the Credit Agreement. Although AMF Bowling intends to repay
certain indebtedness with the proceeds of the Offerings, it also intends to
incur additional indebtedness to finance acquisitions and expand its operations,
and will therefore remain highly leveraged after giving effect to the Offerings.
See "Capitalization". The Credit Agreement requires the maintenance of certain
financial ratios and imposes certain operating and financial restrictions on the
Company which restrict, among other things, the Company's ability to declare
dividends, redeem stock, incur indebtedness, incur obligations under leases,
create liens, consummate mergers, sell assets, and make capital expenditures,
investments and acquisitions. See "Description of Certain Indebtedness".
14
<PAGE> 15
A principal component of the Company's strategy for future growth is the
acquisition of additional bowling centers, which the Company expects to finance
with the Acquisition Facility (as hereinafter defined) under the Credit
Agreement or, following adoption of the Proposed Amendments (as hereinafter
defined), with the Working Capital Facility (as hereinafter defined) thereunder.
As of September 30, 1997, $59.0 million remained available under the Acquisition
Facility. Actual borrowings must meet certain financial tests under the Credit
Agreement and the Note Indentures. The Company's leverage may adversely affect
its ability to meet these tests, and, as a result, to obtain such financing. See
"-- Ability to Implement Growth Strategies" and "Description of Certain
Indebtedness".
NET LOSSES
The Company recorded a net loss of $21.5 million, on a pro forma basis, in
1996 and a net loss of $12.2 million for the first six months of 1997. There can
be no assurance that the Company will not continue to generate net losses. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Recent Developments", "Selected Financial Data" and the
Consolidated Financial Statements and Condensed Consolidated Financial
Statements of AMF Bowling.
EXTRAORDINARY CHARGES
In accordance with GAAP, the Company will incur after-tax extraordinary
charges totalling $21.5 million in the fourth quarter of 1997 arising from the
Third Amended and Restated Credit Agreement (as hereinafter defined) and the
resulting write-off of costs previously incurred to obtain bank financing for
the Acquisition, the premium associated with the portion of the 12 1/4% Senior
Subordinated Discount Notes Due 2006 of Bowling Worldwide (as hereinafter
defined) expected to be redeemed with the proceeds of the Offerings and the
write-off of the portion of deferred financing costs attributable to the Senior
Subordinated Discount Notes expected to be so redeemed.
HOLDING COMPANY STRUCTURE
AMF Bowling conducts all of its business through subsidiaries and has no
operations of its own. AMF Bowling is dependent on the cash flow of its
subsidiaries and distributions thereof from its subsidiaries to AMF Bowling. The
subsidiaries are separate and distinct legal entities and have no obligation,
contingent or otherwise, to make funds available to AMF Bowling, whether in the
form of loans, dividends or otherwise. In addition, the Credit Agreement
effectively prohibits AMF Bowling Worldwide, Inc., the subsidiary through which
all of the Company's operations are held (which was formerly named AMF Group
Inc.) ("Bowling Worldwide"), from paying, and the Note Indentures restrict the
ability of Bowling Worldwide to pay, dividends. The Credit Agreement is secured
by all of the stock of Bowling Worldwide and certain of its present and future
domestic and international subsidiaries and by substantially all of Bowling
Worldwide's and certain of its present and future domestic subsidiaries' present
and future property and assets. In addition, AMF Bowling's subsidiaries may,
subject to limitations contained in the Credit Agreement and the Note
Indentures, become parties to financing arrangements which contain limitations
on the ability of such subsidiaries to pay dividends or to make loans or
advances to AMF Bowling. In the event of any insolvency, bankruptcy or similar
proceedings of a subsidiary, creditors of such subsidiary would generally be
entitled to priority over AMF Bowling with respect to assets of the affected
subsidiary. See "Description of Certain Indebtedness".
DEPENDENCE ON KEY PERSONNEL
The Company's business is managed by certain key executive officers. The
loss of the services of certain of these executives could have a material
adverse impact on AMF. There can be no assurance that the services of such
personnel will continue to be made available to the Company. The Company does
not maintain key-person insurance with respect to its executive officers.
15
<PAGE> 16
CONTROL BY GSCP
Upon completion of the Offerings, GSCP and The Goldman Sachs Group, L.P.
("The Goldman Sachs Group"), which has a 99% interest in Goldman, Sachs & Co.
("Goldman Sachs"), together will beneficially own 53.7% of the Common Stock.
Richard A. Friedman and Terence M. O'Toole, each of whom is a Managing Director
of Goldman Sachs, and Peter M. Sacerdote, who is a limited partner of The
Goldman Sachs Group, are directors of AMF Bowling, and Mr. Friedman is Chairman
of AMF Bowling. See "Principal Stockholders".
As a result of its ownership of a majority of the outstanding Common Stock
and the terms of the Stockholders Agreement (as hereinafter defined), GSCP has
the ability to control the election of a majority of the Board of Directors of
AMF Bowling (the "Board of Directors"), appoint new management and approve or
block any action requiring the approval of AMF Bowling's stockholders, including
adoption of amendments to AMF Bowling's Restated Certificate of Incorporation
(the "Certificate of Incorporation") and approval of mergers or sales of
substantially all of AMF Bowling's assets, in each case, subject to the
restrictions contained in the Stockholders Agreement. The Stockholders Agreement
also provides for three of the investment funds which are stockholders of AMF
Bowling each to nominate a director, subject to GSCP's consent, and for the
formation of the Executive Committee (as hereinafter defined), which consists of
two directors nominated by GSCP. See "Description of Capital Stock" and
"Principal Stockholders -- Stockholders Agreement".
INTERNATIONAL OPERATIONS
The Company's international operations are subject to the usual risks
inherent in operating abroad, including, but not limited to, risks with respect
to currency exchange rates, economic and political destabilization, other
disruption of markets, restrictive laws and actions by foreign governments (such
as restrictions on transfer of funds, import and export duties and quotas,
foreign customs and tariffs, value added taxes ("VATs") and unexpected changes
in regulatory environments), difficulty in obtaining distribution and support,
nationalization, the laws and policies of the United States affecting trade,
international investment and loans, and foreign tax laws. There can be no
assurance that these factors will not have a material adverse impact on the
Company's ability to increase or maintain its international sales or on its
results of operations. For the six months ended June 30, 1997, 26.1% of Bowling
Centers operations revenue was generated by the Company's international centers.
For the year ended December 31, 1996, 33.8% of AMF's Bowling Centers revenue was
generated by the Company's international centers. For the six months ended June
30, 1997, 59.2% of Bowling Products sales were international sales. For the year
ended December 31, 1996, approximately 62.7% of Bowling Products sales were
international sales. See "Selected Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- International
Operations" and "-- Backlog; Recent NCP Sales".
ANTI-TAKEOVER EFFECTS OF CERTAIN CERTIFICATE OF INCORPORATION AND BY-LAWS
PROVISIONS
Certain provisions of the Certificate of Incorporation and the By-Laws of
AMF Bowling (the "By-Laws") may have the effect of delaying, deterring or
preventing a sale or change in control of the Company. Such provisions may also
render the removal of directors and management more difficult. Specifically, the
By-Laws provide for restrictions on who may call a special meeting of
stockholders. In addition, the Certificate of Incorporation authorizes the
issuance of preferred stock, par value $.01 per share ("Preferred Stock"), and
of rights or options entitling holders thereof to purchase from AMF Bowling
securities of AMF Bowling or any other corporation ("Purchase Rights"), in any
case without stockholder approval and upon such terms as the Board of Directors
may determine. The issuance of Preferred Stock or Purchase Rights may have the
effect of delaying, deterring or preventing a sale or change in control of the
Company. The rights of the holders of Common Stock will be subject to, and may
be adversely affected by, the rights of holders
16
<PAGE> 17
of Preferred Stock that may be issued in the future. See "-- Control by GSCP"
and "Description of Capital Stock".
ABSENCE OF PRIOR PUBLIC MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF
STOCK PRICE
Prior to the Offerings, there has been no public market for the Common
Stock. Although the Common Stock has been approved for listing on the NYSE,
subject to official notice of issuance, there can be no assurance that an active
trading market for the Common Stock will develop or be sustained following the
Offerings or that the market price of the Common Stock will not decline below
the initial public offering price. The initial public offering price will be
determined by negotiation between AMF Bowling and the representatives of the
Underwriters based upon several factors and may not be indicative of future
market prices. The price at which the Common Stock will trade will depend upon a
number of factors, some of which are beyond the Company's control. Such factors
include, but are not limited to, the Company's historical and anticipated
operating results, general market and economic conditions, quarterly
fluctuations in the Company's financial and operating results, announcements by
the Company or others and developments affecting the Company, the markets in
which it competes or the bowling industry generally. In addition, the stock
market has from time to time experienced extreme price and volume fluctuations.
These broad market fluctuations may have an adverse effect on the market price
of the Common Stock. See "Underwriting".
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock by existing stockholders under Rule 144 ("Rule
144") of the Securities Act or otherwise could have an adverse effect on the
price of the Common Stock. The shares of Common Stock sold in the Offerings will
be eligible for immediate resale, except to the extent acquired by "affiliates"
of the Company, as such term is defined in Rule 144. Additionally, 42,225,000
shares of Common Stock will be eligible for sale in the public market pursuant
to Rule 144, or otherwise, 180 days after the effective date of the Registration
Statement of which this Prospectus is a part, upon expiration of lock-up
agreements with the Underwriters. Sales of such shares in the public market, or
the perception that such sales may occur, could adversely affect the market
price of the Common Stock or impair the Company's ability to raise additional
capital in the future through the sale of equity securities. Any additional
shares outstanding upon completion of the Offerings will be eligible for sale
pursuant to Rule 144 upon the expiration of the applicable holding period. See
"Principal Stockholders -- Registration Rights Agreement" and "Shares Eligible
for Future Sale".
ABSENCE OF DIVIDENDS
AMF Bowling has never paid cash dividends on the Common Stock and does not
anticipate paying such dividends in the foreseeable future. See "Dividend
Policy".
DILUTION
Investors purchasing shares of Common Stock in the Offerings will incur
substantial and immediate dilution in the amount of approximately $22.34 in net
tangible book value per share of the Common Stock from the initial public
offering price. See "Dilution".
17
<PAGE> 18
USE OF PROCEEDS
The net proceeds of the Offerings, estimated to be $226.7 million after
deducting the underwriting discount and expenses payable by the Company, will be
used to repay $100 million of senior bank indebtedness and, assuming receipt of
consent to the Proposed Amendments from the lenders under the Credit Agreement,
the remainder is expected to be used to redeem a portion of Bowling Worldwide's
12 1/4% Senior Subordinated Discount Notes Due 2006 at a price of 112.25% of the
accreted value. However, the Company may elect to apply some or all of the
remainder to redemption of a portion of Bowling Worldwide's 10 7/8% Senior
Subordinated Notes Due 2006 at a price of 110.875% of the principal amount
and/or additional repayment of senior bank indebtedness. The Senior Subordinated
Discount Notes do not accrue cash interest prior to March 15, 2001, while
interest on the Senior Subordinated Notes is currently payable in cash. As a
result of the Proposed Amendments, the senior bank indebtedness to be repaid
would remain available for reborrowing and would mature in 2002, and at
September 30, 1997 would have borne interest at a weighted average rate of
8.68%.
DIVIDEND POLICY
AMF Bowling has never paid cash dividends on the Common Stock and does not
anticipate paying such dividends in the foreseeable future. As a holding
company, the ability of AMF Bowling to pay dividends is dependent upon the
ability of its subsidiaries to pay cash dividends or to make other
distributions. See "Risk Factors -- Holding Company Structure". The Credit
Agreement effectively prohibits Bowling Worldwide from paying, and the Note
Indentures restrict the ability of Bowling Worldwide to pay, dividends, and,
accordingly, will limit the ability of AMF Bowling to pay cash dividends to its
stockholders. See "Description of Certain Indebtedness". Any determination to
pay cash dividends in the future will be at the discretion of the Board of
Directors and will depend upon the Company's results of operations, financial
condition, contractual restrictions and other factors deemed relevant at that
time by the Board of Directors. See "Risk Factors -- Absence of Dividends" and
"Risk Factors -- Holding Company Structure".
18
<PAGE> 19
CAPITALIZATION
The following table sets forth the consolidated capitalization of AMF
Bowling at June 30, 1997 and as adjusted as of such date to give effect to (i)
after-tax extraordinary charges totalling $21.5 million arising from the Third
Amended and Restated Credit Agreement and the resulting write-off of costs
previously incurred to obtain bank financing for the Acquisition, the premium
associated with the portion of the Senior Subordinated Discount Notes expected
to be redeemed with the proceeds of the Offerings and the write-off of the
portion of deferred financing costs attributable to the Senior Subordinated
Discount Notes expected to be so redeemed, (ii) the issuance and sale of Common
Stock in September 1997 pursuant to the "overcall" provisions of the
Stockholders Agreement and the Offerings (after deducting the underwriting
discount and estimated expenses of the Offerings) and the application of the net
proceeds therefrom and the issuance and sale of 100,000 shares of Common Stock
in October 1997 to Michael Jordan for $10 per share (the "Jordan Sale
Transaction") in connection with his agreeing to become a spokesperson for and
endorser of AMF bowling centers and bowling products and (iii) the Offerings and
the application of the net proceeds therefrom. See "Use of Proceeds". This table
should be read in conjunction with the Consolidated Financial Statements of AMF
Bowling as of December 31, 1996, and Notes thereto, the unaudited Condensed
Consolidated Financial Statements of AMF Bowling as of June 30, 1997, and Notes
thereto and the other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------
PRO FORMA
AFTER
ACTUAL OFFERINGS
--------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Short-term borrowings:
Current maturities, long-term debt.................................. $ 44.9 $ 44.9
Working capital facility............................................ 30.0 30.0
-------- --------
Total short-term borrowings................................. 74.9 74.9
Long-term debt:
Senior bank debt.................................................... 603.0 503.0
Senior subordinated notes........................................... 250.0 250.0
Senior subordinated discount notes.................................. 291.4 178.5
Mortgage and equipment notes........................................ 2.0 2.0
-------- --------
Total debt.................................................. 1,221.3 1,008.4
Stockholders' equity:
Preferred stock, par value $.01, no shares authorized, no shares
issued or outstanding prior to the Offerings, and 50,000,000
shares authorized, no shares issued and outstanding after the
Offerings........................................................ N/A --
Common stock, par value $.01, 60,000,000 shares authorized,
42,225,000 shares issued and outstanding prior to the Offerings,
and 200,000,000 shares authorized, 56,605,000 shares issued and
outstanding after the Offerings.................................. 0.4 0.5
Paid-in capital..................................................... 428.5 691.7
Retained deficit.................................................... (31.6) (53.1)
Equity adjustment from foreign currency translation................. (6.2) (6.2)
-------- --------
Total stockholders' equity.................................. 391.1 632.9
-------- --------
Total capitalization........................................ $ 1,612.4 $1,641.3
======== ========
</TABLE>
19
<PAGE> 20
DILUTION
The negative net tangible book value of the Company at June 30, 1997, as
adjusted for the issuance and sale of Common Stock in September 1997 pursuant to
the "overcall" provisions of the Stockholders Agreement (see "Principal
Stockholders -- Stockholders Agreement") and pursuant to the Jordan Sale
Transaction in October 1997, was approximately $(387.7) million, or $(8.79) per
share. Negative net tangible book value per share represents the amount of total
tangible assets less total liabilities, divided by the number of shares of
Common Stock then outstanding. Without taking into account any changes in net
tangible book value attributable to operations after June 30, 1997, after giving
effect to the sale of the Common Stock offered in the Offerings at an initial
public offering price of $19.50 per share, the application of the net proceeds
therefrom as described under "Use of Proceeds" and the after-tax extraordinary
charges totalling $21.5 million described under "Capitalization", the pro forma
negative net tangible book value at June 30, 1997 would have been $(161.0)
million, or $(2.84) per share of Common Stock. This represents an immediate
increase in pro forma net tangible book value of $5.95 per share of Common Stock
to existing stockholders and an immediate dilution of $22.34 per share of Common
Stock to purchasers of Common Stock in the Offerings. The following table
illustrates such per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share................................. $19.50
Negative net tangible book value per share before the Offerings....... $ (8.79)
Increase per share attributable to the Offerings...................... 5.95
------
Pro forma negative net tangible book value per share after the
Offerings............................................................. (2.84)
------
Net tangible book value dilution per share to new investors(1).......... $22.34
======
</TABLE>
- ---------------
(1) Dilution is determined by subtracting pro forma net tangible book value per
share after the Offerings from the estimated initial public offering price
per share of Common Stock of $19.50.
The following table compares, on a pro forma basis, giving effect to the
issuance and sale of Common Stock pursuant to the "overcall" provisions of the
Stockholders Agreement in September 1997 and pursuant to the Jordan Sale
Transaction in October 1997 and assuming an initial public offering price per
share of $19.50, as of June 30, 1997, the number of shares of Common Stock
purchased and the total consideration paid by the existing stockholders with the
number of shares of Common Stock purchased and the total consideration paid by
the new investors in the Offerings:
<TABLE>
<CAPTION>
TOTAL CONSIDERATION
SHARES PURCHASED ------------------------- AVERAGE
---------------------- AMOUNT PRICE PER
NUMBER PERCENT (IN MILLIONS) PERCENT SHARE
---------- ------- ------------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 44,105,000 77.9% $ 458.8 65.3% $ 10.40
New investors....................... 12,500,000 22.1 243.8 34.7 19.50
--------- --- ------ ---
Total............................... 56,605,000 100.0% $ 702.6 100.0%
========= === ====== ===
</TABLE>
The foregoing tables do not assume the exercise of any of the Warrants or
Stock Options. After giving effect to the exercise of the Warrants and Stock
Options, there will be further dilution in the aggregate to new investors. See
"Certain Transactions" and "Note 1. Organization" and "Note 18. Related Parties"
in the Notes to Consolidated Financial Statements of AMF Bowling as of December
31, 1996.
20
<PAGE> 21
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following pro forma statement of income of AMF Bowling is presented for
the twelve months ended December 31, 1996, as if the Acquisition had occurred on
January 1, 1996. AMF Bowling's pro forma statement of income for the twelve
months ended December 31, 1996, is based on the Predecessor Company's statement
of income for the four-month period ending April 30, 1996, which appears
elsewhere herein, AMF Bowling's statement of income for the period ended
December 31, 1996, and adjustments giving effect to the Acquisition under the
purchase method of accounting.
The Pro Forma Statement of Income and the accompanying notes should be read
in conjunction with the Consolidated Financial Statements of AMF Bowling as of
December 31, 1996, and accompanying notes, which appear elsewhere in this
Prospectus.
The Pro Forma Statement of Income does not purport to be indicative of AMF
Bowling's results that actually would have been obtained had the Acquisition
been consummated as of January 1, 1996 and for the period presented, nor are
they indicative of AMF Bowling's results of operations or financial condition
for any future period or date.
PRO FORMA STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PREDECESSOR PRO FORMA
HISTORICAL COMPANY AMF BOWLING, INC.
AMF BOWLING, INC. FOUR MONTHS TWELVE MONTHS
PERIOD ENDED ENDED PRO FORMA ENDED
12/31/96(a) 4/30/96 ADJUSTMENTS 12/31/96
----------------- ----------- ----------- -------------------
<S> <C> <C> <C> <C>
Operating revenue................. $ 384.8 $ 164.9 $ (0.8)(b) $ 548.9
------ ------ ------ ------
Operating expenses:
Cost of goods sold.............. 130.5 43.1 -- 173.6
Bowling center operating
expenses...................... 123.7 80.2 (25.1)(b)(c) 178.8
Selling, general and
administrative expenses....... 35.1 35.5 (19.6)(b)(c) 51.0
Depreciation and amortization... 49.4 15.1 9.0(d) 73.5
------ ------ ------ ------
Total operating expenses...... 338.7 173.9 (35.7) 476.9
------ ------ ------ ------
Operating income (loss)....... 46.1 (9.0) 34.9 72.0
Nonoperating expenses:
Interest expense................ 78.0 4.5 23.7(e) 106.2
Other expenses, net............. 1.9 0.7 -- 2.6
Interest income................. (5.8) (0.6) -- (6.4)
------ ------ ------ ------
Income (loss) before income
taxes........................... (28.0) (13.6) 11.2 (30.4)
Provision (benefit) for income
taxes........................... (8.5) (1.7) 1.3(f) (8.9)
------ ------ ------ ------
Net income (loss)............. $ (19.5) $ (11.9) $ 9.9 $ (21.5)
====== ====== ====== ======
</TABLE>
- ---------------
(a) For the period from the inception date of January 12, 1996 through December
31, 1996, which includes results of operations of the acquired business from
May 1, 1996 through December 31, 1996.
(b) To reflect the impact of AMF Bowling not acquiring in the Acquisition the
operations of one bowling center in Switzerland and one bowling center in
Spain.
(c) To eliminate a one-time charge of $44.0 million for special bonuses and
payments made by the owners of the Predecessor Company in April 1996.
(d) To reflect the increase in depreciation and amortization expense resulting
from the allocation of the purchase price to fixed assets and goodwill and a
change in the method of depreciation of fixed assets. The Predecessor
Company principally used the double declining balance method. The amount of
the pro forma adjustment for depreciation was determined using the
straight-line method over the estimated lives of the assets acquired.
Goodwill is being amortized over 40 years.
(e) To reflect the incremental interest expense associated with the issuance of
debt which partially funded the Acquisition.
(f) To give effect to the change in status of the U.S. and international
subsidiaries of AMF Bowling from S corporations to taxable corporations
under the U.S. federal tax laws upon consummation of the Acquisition.
21
<PAGE> 22
SELECTED FINANCIAL DATA
The selected financial data set forth below for the fiscal years indicated
were derived from AMF Bowling's audited consolidated financial statements for
the period ended December 31, 1996, and the Predecessor Company's audited
combined financial statements for the four months ended April 30, 1996, and the
years ended December 31, 1995, 1994, 1993, and its unaudited combined financial
statements for the year ended December 31, 1992. The selected financial data
include results for the six months ended June 30, 1997, compared to pro forma
results for the six months ended June 30, 1996. The consolidated pro forma
results set forth below are presented as if the Acquisition had occurred on
January 1, 1996, and are based on the Predecessor Company's statement of income
for the period ending April 30, 1996, AMF Bowling's statement of income from its
inception through the relevant reporting date and adjustments giving effect to
the Acquisition under the purchase method of accounting. See "Note 3. Pro Forma
Results of Operations" in the Notes to Consolidated Financial Statements and the
Notes to Condensed Consolidated Financial Statements of AMF Bowling. The data
should be read in conjunction with AMF Bowling's Consolidated Financial
Statements and Condensed Consolidated Financial Statements, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" that
appear elsewhere herein.
The selected financial data include operating results expressed in terms of
EBITDA, which represents earnings before net interest expense, income taxes,
depreciation and amortization, and other income and expenses. EBITDA information
is included because the Company understands that such information is a standard
measure commonly reported and widely used by certain investors and analysts.
EBITDA is not intended to represent and should not be considered more meaningful
than, or an alternative to, other measures of performance determined in
accordance with GAAP.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, FOUR MONTHS
YEAR ENDED DECEMBER 31, --------------------- ENDED
-------------------------------------------------------------- APRIL 30,
PRO FORMA PRO FORMA -----------
AMF AMF AMF AMF
BOWLING, BOWLING, BOWLING, BOWLING, PREDECESSOR
PREDECESSOR COMPANY INC. INC. INC. INC. COMPANY
---------------------------------------- --------- ------- ---------- ------- -----------
1992 1993 1994(a) 1995 1996(b) 1996(c) 1996(e) 1997 1996(d)
------- ------- ------- ------- --------- ------- ---------- ------- -----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenue.......... $ 391.2 $ 427.6 $517.8 $ 564.9 $ 548.9 $384.8 $ 237.5 $318.1 $ 164.9
----- ----- ----- ----- ------ ----- ----- ----- -----
Cost of goods sold......... 132.1 153.2 196.0 184.1 173.6 130.5 66.5 86.1 43.1
Bowling center operating
expenses.................. 103.1 108.5 115.2 166.5 178.8 123.7 82.5 116.0 80.2
Selling, general and
administrative expenses... 43.2 41.9 57.1 50.8 51.0 35.1 22.7 30.2 35.5
Depreciation and
amortization.............. 25.5 21.4 24.8 39.1 73.5 49.4 34.9 43.4 15.1
----- ----- ----- ----- ------ ----- ----- ----- -----
Operating income (loss).... 87.3 102.6 124.7 124.4 72.0 46.1 30.9 42.4 (9.0)
Interest expense, gross.... 7.9 5.0 7.4 15.7 106.2 78.0 52.2 57.5 4.5
Other income (expense),
net....................... 0.1 (0.1) (1.5) 0.2 3.8 3.9 3.4 (1.3) (0.1)
----- ----- ----- ----- ------ ----- ----- ----- -----
Income (loss) before income
taxes..................... 79.5 97.5 115.8 108.9 (30.4) (28.0) (17.9) (16.4) (13.6)
Provision (benefit) for
income taxes.............. 15.4 15.1 16.5 12.1 (8.9) (8.5) (4.4) (4.2) (1.7)
----- ----- ----- ----- ------ ----- ----- ----- -----
Net income (loss).......... $ 64.1 $ 82.4 $ 99.3 $ 96.8 $ (21.5) $(19.5) $ (13.5) $(12.2) $ (11.9)
===== ===== ===== ===== ====== ===== ===== ===== =====
Net loss per share......... $ (0.55) $(0.49) $ (0.35) $(0.29)
Supplementary pro forma net
loss per share(f)......... $ (0.14) $(0.10) $ (0.13) $(0.08)
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, FOUR MONTHS
YEAR ENDED DECEMBER 31, ------------------- ENDED APRIL
------------------------------------------------------------ 30,
PRO FORMA PRO FORMA -----------
AMF AMF AMF AMF
BOWLING, BOWLING, BOWLING, BOWLING, PREDECESSOR
PREDECESSOR COMPANY INC. INC. INC. INC. COMPANY
------------------------------------- --------- ------- --------- ------- -----------
1992 1993 1994(a) 1995 1996(b) 1996(c) 1996(e) 1997 1996(d)
------ ------ ------- ------ --------- ------- --------- ------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED DATA:
EBITDA......................... $112.8 $124.0 $149.5 $163.5 $ 145.5 $95.5 $ 65.8 $ 85.8 $ 6.1
EBITDA margin.................. 28.8% 29.0% 28.9 % 28.9% 26.5% 24.8% 27.7% 27.0 % 3.7%
Revenue: (g)
Bowling Centers............... $204.5 $192.6 $225.4 $292.3 $ 307.3 $ 147.2 $201.1
Bowling Products.............. 195.4 243.6 301.7 286.5 252.1 96.8 124.7
EBITDA: (h)
Bowling Centers............... $ 65.2 $ 54.5 $ 65.8 $ 86.8 $ 95.6 $ 48.3 $ 63.0
Bowling Products.............. 48.7 71.1 84.6 79.3 62.6 22.9 31.3
New Center Packages sold....... 2,210 3,577 4,941 4,437 3,029 1,152 1,933
New Center Packages backlog,
end of period(i).............. N/A N/A 2,078 940 1,426 1,144 2,182
Number of centers, end of
period........................ 197 190 293 286 341 284 408
Number of lanes, end of
period........................ 5,988 5,896 9,586 9,430 11,782 9,386 14,206
Capital Expenditures:
Routine modernization and
maintenance(j).............. $ 8.3 $ 9.0 $ 11.4 $ 13.1 $ 14.5 $ 6.9 $ 12.2
Expansion and acquisition
capital(k).................. 3.8 5.7 6.4 16.9 117.4 3.3 135.6
----- ----- ----- ----- ------ ----- -----
Total......................... $ 12.1 $ 14.7 $ 17.8 $ 30.0 $ 131.9 $ 10.2 $147.8
===== ===== ===== ===== ====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF JUNE 30,
DECEMBER 31, ------------
----------------------------------------------------
AMF AMF
BOWLING, BOWLING,
PREDECESSOR COMPANY INC. INC.
------------------------------------ ------------ ------------
1992 1993 1994(a) 1995 1996 1997
------ ------ ------ ------ ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital(l)................................... $ 15.6 $ 18.9 $ 16.9 $ 29.2 $ 7.8 $ (23.3)
Goodwill, net........................................ -- -- -- -- 771.1 766.7
Total assets......................................... 231.1 228.2 410.2 400.4 1,594.0 1,715.6
Total debt........................................... 98.0 75.7 186.1 167.4 1,091.3 1,221.3
Stockholders' equity................................. 75.8 88.6 132.4 161.5 408.8 391.1
Total capitalization................................. 173.8 164.3 318.5 328.9 1,500.1 1,612.4
</TABLE>
- ---------------
(a) Includes results of Fair Lanes, which operated 106 centers and was acquired
on September 29, 1994.
(b) Represents results of operations from January 1, 1996 through December 31,
1996 on a pro forma basis. See "Note 3. Pro Forma Results of Operations" in
the Notes to Consolidated Financial Statements of AMF Bowling as of December
31, 1996.
(c) For the period from the inception date of January 12, 1996 through December
31, 1996, which includes results of operations of the acquired business from
May 1, 1996 through December 31, 1996.
(d) Represents results of operations from January 1, 1996 through April 30,
1996.
(e) Represents results of operations from January 1, 1996 through June 30, 1996,
on a pro forma basis. See "Note 3. Pro Forma Results of Operations" in the
Notes to Condensed Consolidated Financial Statements of AMF Bowling as of
June 30, 1997.
(f) Supplementary pro forma net loss per share (i) assumes 12,500,000 shares of
Common Stock issued at $19.50 per share pursuant to the Offerings and (ii)
reflects pro forma interest expense reductions due to an assumed $100
million reduction in the amount of senior indebtedness and $112.9 million
reduction in the amount of subordinated indebtedness which would have been
outstanding if the Offerings had occurred on January 1, 1996.
(g) Before intersegment eliminations.
(h) Before intersegment eliminations and corporate, general and administrative
expenses.
(i) Orders of New Center Packages included in the backlog are subject to
cancellation by customers in the normal course of business. Accordingly, the
Company has experienced, and expects to continue to experience, the
cancellation of a portion of such orders. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Backlog; Recent
NCP Sales". Data is not provided for 1992 and 1993 because the Company does
not maintain this data for such periods.
(j) Defined as capital expenditures for existing product lines and manufacturing
operations and capital expenditures for modernizing and refurbishing bowling
centers.
(k) Includes (i) the construction of centers and (ii) the acquisition of centers
since May 1, 1996. Excludes the acquisition of Fair Lanes and all other
acquisitions prior to May 1, 1996.
(l) Predecessor Company amounts reflect elimination of affiliates receivables
and payables.
23
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BACKGROUND
This discussion should be read in conjunction with the information
contained under "Selected Financial Data" and in AMF Bowling's Consolidated
Financial Statements and Condensed Consolidated Financial Statements included
elsewhere herein.
Management believes that a comparison of the results of operations for the
six months ended June 30, 1997 and 1996, and the years ended December 31, 1996
and 1995, on a pro forma basis, is more meaningful than a comparison on an
historical basis. This is due primarily to significant changes in depreciation
and amortization that result from the application of the purchase method of
accounting for the Acquisition and from the increased interest expense due to
the debt incurred related to the Acquisition. Discussion of the results of
Predecessor Company operations for the years ended December 31, 1995 and 1994,
are on an historical basis. See "Note 3. Pro Forma Results of Operations" in the
Notes to Consolidated Financial Statements of AMF Bowling as of December 31,
1996 and the Notes to Condensed Consolidated Financial Statements as of June 30,
1997.
To facilitate a meaningful comparison, in addition to discussing the
consolidated results of the Company, certain portions of this Management's
Discussion and Analysis of Financial Condition and Results of Operations discuss
results of Bowling Centers and Bowling Products separately.
The results of Bowling Centers, Bowling Products and the consolidated group
of companies are set forth below. The two European centers that were not
acquired by the Company as part of the Acquisition, as discussed in "Note 1.
Organization" in the Notes to Consolidated Financial Statements of AMF Bowling
as of December 31, 1996, are included in the 1996 actual Predecessor Company
results and excluded from 1996 pro forma results. The two centers have no
material impact on the Company's financial statements or on the information
presented in this section.
For 1995, Bowling Centers adopted a calendar year end; accordingly, the
Bowling Centers results of operations for the year ended December 31, 1995
include the results of U.S. operations for the period from December 26, 1994
through December 31, 1995. Total revenue for the period from December 26, 1994
through December 31, 1994 was approximately $2.0 million.
The business segment results presented below are before intersegment
eliminations since the Company's management believes that this will provide a
more accurate comparison of performance by segment from year to year. The
intersegment eliminations are not material. Interest expense is presented on a
gross basis.
RECENT DEVELOPMENTS
On October 24, 1997, the Company reported its results of operations for the
quarter and nine months ended September 30, 1997 compared to the results of
operations for the quarter ended September 30, 1996 and the pro forma results of
operations for the nine months ended September 30, 1996. Revenue increased 42.3%
to $187.5 million for the third quarter of 1997 as compared to $131.8 million
for the third quarter of 1996. EBITDA increased 27.0% to $40.9 million for the
third quarter of 1997 as compared to $32.2 million for the third quarter of
1996. Net loss was $10.3 million for the third quarter of 1997 as compared to a
net loss of $5.2 million for the third quarter of 1996.
Revenue increased 36.9% to $505.6 million for the first nine months of 1997
as compared to $369.3 million for the first nine months of 1996. EBITDA
increased 29.3% to $126.7 million for the first nine months of 1997 as compared
to $98.0 million for the first nine months of 1996. Net loss for the first nine
months of 1997 was $22.4 million as compared to a net loss of $17.4 million for
the first nine months of 1996.
24
<PAGE> 25
Both revenue and EBITDA for the third quarter of 1997 reflect the inclusion
of results of 160 bowling centers acquired and one new bowling center built
since May 1996 through September 30, 1997, and increased levels of NCP shipments
to several international regions. Net loss for the third quarter of 1997
reflects incremental depreciation and interest expense related to increased
levels of assets and indebtedness under the Credit Agreement as a result of
bowling center acquisitions.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -----------------
1997 1996 1997 1996(1)
------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Operating revenues................................... $187.5 $131.8 $505.6 $369.3
Net loss............................................. (10.3) (5.2) (22.4) (17.4)
Selected Data:
EBITDA.......................................... $ 40.9 $ 32.2 $126.7 $ 98.0
</TABLE>
- ---------------
(1) The information presented with respect to the nine months ended September
30, 1996 is presented on a pro forma basis.
On October 20, 1997, the Company acquired Michael Jordan Golf Company,
Inc., a company formed to build and operate golf practice ranges in select U.S.
locations. In addition, Michael Jordan agreed to become a spokesperson for and
endorser of AMF bowling centers and bowling products under a personal services
contract which grants the Company rights to use Mr. Jordan's image and name in
advertising and marketing campaigns.
PERFORMANCE BY BUSINESS SEGMENT
BOWLING CENTERS
Bowling Centers derives its revenue and profits from three principal
sources: (i) bowling, (ii) food and beverage and (iii) other sources, such as
shoe rental, amusement games, billiards and pro shops. In 1996, bowling, food
and beverage and other revenue represented 62%, 24% and 14% of total Bowling
Centers revenue, respectively.
25
<PAGE> 26
The results shown below reflect both U.S. and international Bowling Centers
operations.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
YEAR ENDED DECEMBER 31, ---------------------------
---------------------------------
PRO FORMA PRO FORMA
PREDECESSOR AMF AMF AMF
COMPANY BOWLING, INC BOWLING, INC BOWLING, INC
------------------ ------------ ------------ ------------
1994 1995 1996(A) 1996(B) 1997
------ ------ ------------ ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BOWLING CENTERS (before
intersegment eliminations):
Operating revenue............... $225.4 $292.3 $ 307.3 $ 147.2 $ 201.1
Cost of goods sold.............. 22.3 26.3 27.5 12.6 18.3
Bowling center operating
expenses...................... 120.3 168.7 177.2 83.3 116.6
Selling, general and
administrative expenses....... 17.0 10.5 7.0 3.0 3.2
Depreciation and amortization... 21.8 36.6 56.2 26.1 34.3
------ ------ ------ ------ ------
Operating income................ $ 44.0 $ 50.2 $ 39.4 $ 22.2 $ 28.7
====== ====== ====== ====== ======
SELECTED DATA:
EBITDA.......................... $ 65.8 $ 86.8 $ 95.6 $ 48.3 $ 63.0
EBITDA margin................... 29.2% 29.7% 31.1% 32.8% 31.3%
Number of centers, end of
period........................ 293 286 341 284 408
Number of lanes, end of
period........................ 9,586 9,430 11,782 9,386 14,206
</TABLE>
- ---------------
(a) Represents pro forma results of operations from January 1, 1996 through
December 31, 1996. See "Note 3. Pro Forma Results of Operations" in the
Notes to Consolidated Financial Statements of AMF Bowling as of December 31,
1996. The pro forma 1996 amount of selling, general and administrative
expenses has been adjusted to reflect a reallocation to corporate of certain
general and administrative expenses previously allocated to the Bowling
Centers segment. The 1995 and 1994 amounts have not been restated to reflect
this change.
(b) Represents results of operations from January 1, 1996 through June 30, 1996,
on a pro forma basis. See "Note 3. Pro Forma Results of Operations" in the
Notes to Condensed Consolidated Financial Statements of AMF Bowling as of
June 30, 1997.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30,
1996. Of the $53.9 million, or 36.6%, increase in operating revenue, $52.5
million was attributable to new centers, of which $48.8 million was from U.S.
centers, and $3.7 million was from international centers. An increase of $2.8
million, or 1.9%, in constant centers (centers in operation for at least one
full fiscal year) revenue was primarily a result of an increase in revenue in
the Northeast region of the U.S., a region in which the Company has a large
number of centers and which experienced severe weather conditions during the
first quarter of 1996. The increase in constant centers revenue in the first six
months of 1997 compared to the same period in 1996 was net of $1.0 million
additional revenue in 1996 due to leap year, and a $1.6 million decrease in
revenue from the Japanese centers in 1997 which was primarily caused by recent
poor economic conditions in Japan. The overall increase was also offset in part
by a $1.4 million decrease attributable to seven U.S. centers which were closed
since May 1996.
Cost of goods sold increased $5.7 million, or 45.2%, primarily as a result
of new centers, partially offset by savings associated with closed centers.
Of the increase of $33.3 million, or 40.0%, in operating expenses,
approximately $31.4 million was attributable to new centers, of which $29.4
million was attributable to U.S. centers and $2.0 million was attributable to
international centers. As a percentage of its revenue, Bowling Centers operating
expenses were 56.6% for the six months ended June 30, 1996, on a pro forma
basis, versus 58.0% for the six months ended June 30, 1997.
26
<PAGE> 27
The increase of $0.2 million, or 6.7%, in selling, general and
administrative expenses was attributable to new centers, partially offset by
savings associated with closed centers.
The increase of $14.7 million, or 30.4%, in EBITDA was attributable to new
centers. EBITDA margin decreased from 32.8% for the six months ended June 30,
1996, on a pro forma basis, to 31.3% for the six months ended June 30, 1997.
EBITDA margin for the six-month period ended June 30, 1997 was affected, as
expected, by the increasing proportion of U.S. centers purchased. U.S. centers
typically have lower margins in the second quarter compared with international
centers and compared with U.S. margins in the first and fourth quarters of the
year, primarily because revenue declines in the second quarter as fall leagues
finish the season. See" -- Seasonality and Market Development Cycles".
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31,
1995. Operating revenue increased $15.0 million, or 5.1%. Increases of $19.0
million attributable to the addition of 57 new centers purchased during the last
two quarters of 1996 and $0.5 million attributable to increases at constant
centers were offset by decreases of $2.2 million attributable to the two bowling
centers which were not acquired as part of the Acquisition and $2.3 million
attributable to the closure of seven of the 106 bowling centers originally
purchased by the Predecessor Company from Fair Lanes. The constant center
revenue increase was attributable to an increase in international revenue of
$2.4 million, offset by a decrease in U.S. constant centers revenue of $1.9
million. The decrease in U.S. constant centers revenue was largely a result of a
decrease in revenue due to the severe weather conditions in the Northeast, a
region in which the Company has a large number of centers, during the first
quarter of 1996. An increase in bowling prices in the U.S. during 1996 was
partially offset by a decrease in U.S. lineage. The increase in international
revenue was primarily a result of an increase in average price per game and
increased food and beverage revenue.
Cost of goods sold increased $1.2 million, or 4.6%, primarily as a result
of new centers.
Bowling Centers operating expenses increased by $8.5 million, or 5.0%. An
increase of $10.0 million attributable to new centers and a net increase of $2.2
million attributable to constant centers were offset by a decrease of $3.7
million primarily attributable to the two centers not acquired in the
Acquisition and the closure of seven Fair Lanes centers. The net increase in
constant centers operating expenses was a result of an increase of $4.1 million
in international centers due to increased rents and payroll expenses, and a
decrease of $1.9 million in U.S. centers resulting from the implementation of
cost reduction plans developed by management after assessing the impact of the
severe weather conditions during the first quarter of 1996. As a percentage of
total revenue, Bowling Centers operating expenses remained constant at 57.7%
during 1996 and 1995.
Of the $3.5 million decrease in selling, general and administrative
expenses, $3.6 million is due to a reallocation to corporate of certain selling,
general and administrative expenses previously allocated to the Bowling Centers
segment.
An increase of $8.8 million, or 10.1%, in EBITDA was attributable to new
centers. EBITDA margin in 1996 was 31.1% compared to 29.7% in 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31,
1994. Operating revenue increased by $66.9 million, or 29.7%. U.S. centers
revenue (excluding centers purchased from Fair Lanes) increased $3.6 million, or
3.7%, over 1994 revenue of $96.2 million, primarily as a result of an increase
in average price per game and lineage, and an increase of $67.2 million was
attributable to the Fair Lanes centers. These increases were offset by a
decrease of $3.9 million in international revenue which resulted primarily from
a weakening of the Mexican peso.
The increase of $4.0 million, or 17.9%, in cost of goods sold was primarily
attributable to the acquisition of the Fair Lanes centers in September, 1994.
Bowling Centers total operating expenses increased by $48.4 million, or
40.2%, of which an increase of $44.0 million was attributable to Fair Lanes
centers operations, an increase of $2.3
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<PAGE> 28
million was attributable to non-recurring costs which resulted from integrating
Fair Lanes centers into the Company's risk management program and the closure of
seven centers, and an increase of $2.1 million was primarily attributable to
non-recurring costs related to changes in management personnel implemented in
1995. As a percent of Bowling Centers operating revenue, operating expenses
increased from 53.4% in 1994, to 57.7% in 1995, primarily as a result of the
non-recurring costs described above.
The decrease of $6.5 million, or 38.2%, in Bowling Centers selling, general
and administrative expenses was primarily attributable to the Fair Lanes centers
integration into Bowling Centers operations.
EBITDA increased $21.0 million, or 31.9%. An increase of $22.6 million
attributable to the Fair Lanes centers was offset by a decrease of $1.6 million
which was primarily attributable to centers in Mexico impacted by the weakening
of the peso. EBITDA margin increased from 29.2% in 1994 to 29.7% in 1995
primarily because the Fair Lanes centers EBITDA margin improved from 12.6% for
the fourth quarter in 1994 to 27.8% for the full year in 1995.
BOWLING PRODUCTS
The results shown below reflect Bowling Products operations.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
YEAR ENDED DECEMBER 31, -------------------------------
-----------------------------------
PRO FORMA PRO FORMA
PREDECESSOR AMF AMF AMF
COMPANY BOWLING, INC. BOWLING, INC. BOWLING, INC.
----------------- ------------- ------------- -------------
1994 1995 1996(A) 1996(B) 1997
------ ------ ------------- ------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BOWLING PRODUCTS (before
intersegment eliminations):
Operating revenue............... $301.7 $286.5 $ 252.1 $96.8 $ 124.7
Cost of goods sold.............. 178.9 166.9 153.3 58.2 74.7
------ ------ ------ ------ ------
Gross profit.................... 122.8 119.6 98.8 38.6 50.0
Selling, general and
administrative expenses....... 38.2 40.3 36.2 15.7 18.7
Depreciation and amortization... 3.7 3.6 18.5 9.4 9.9
------ ------ ------ ------ ------
Operating income................ $ 80.9 $ 75.7 $ 44.1 $13.5 $ 21.4
====== ====== ====== ====== ======
SELECTED DATA:
Gross profit margin............. 40.7% 41.7% 39.2% 39.9% 40.1%
EBITDA.......................... $ 84.6 $ 79.3 $ 62.6 $22.9 $ 31.3
EBITDA margin................... 28.0% 27.7% 24.8% 23.7% 25.1%
New Center Packages sold........ 4,941 4,437 3,029 1,152 1,933
New Center Packages backlog
end of period(c).............. 2,078 940 1,426 1,144 2,182
</TABLE>
- ---------------
(a) Represents results of operations from January 1, 1996 through December 31,
1996 on a pro forma basis. See "Note 3. Pro Forma Results of Operations" in
the Notes to Consolidated Financial Statements of AMF Bowling as of December
31, 1996. The pro forma 1996 amount of selling, general and administrative
expenses has been adjusted to reflect a reallocation to corporate of certain
overhead expenses previously allocated to the Bowling Products segment. The
1995 and 1994 amounts have not been restated to reflect this change.
(b) Represents results of operations from January 1, 1996 through June 30, 1996,
on a pro forma basis. See "Note 3. Pro Forma Results of Operations" in the
Notes to Condensed Consolidated Financial Statements of AMF Bowling as of
June 30, 1997.
(c) Orders of NCPs included in the backlog are subject to cancellation by
customers in the normal course of business. Accordingly, the Company has
experienced, and expects to continue to experience, the cancellation of a
portion of such orders. See "-- Backlog; Recent NCP Sales". Data is not
provided for 1992 and 1993 because the Company does not maintain this data
for such periods.
Bowling Products' long-standing customer relationships, Bowling Centers'
and third-party centers' predictable demand for Modernization and Consumer
Products, a steadily increasing
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<PAGE> 29
installed base of NCPs and Bowling Products' ability to supply a full product
line have historically made the Modernization and Consumer Products category a
stable and recurring base of revenue and EBITDA. Revenue growth from 1991 to
1994 for the NCP category resulted primarily from increased unit sales to Taiwan
and Korea, and since 1995 to China and to emerging bowling markets, where the
popularity of bowling and consequent demand for new bowling centers increased
dramatically. During 1995 and 1996, NCP revenue declined primarily because the
markets in Taiwan and Korea had matured. The decline was partially offset by
continued demand in China and in certain emerging bowling markets. During the
first six months of 1997, NCP revenue increased due to continued demand in China
and other international markets, such as Japan and Malaysia.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30,
1996. Bowling Products total operating revenue increased $27.9 million, or
28.8%, primarily due to an increase of $25.3 million, or 67.5%, in NCP revenue,
and an increase of $2.0 million, or 3.4%, in Modernization and Consumer Products
revenue. The increase in NCP revenue was due to an overall increase in NCP sales
of 781 units which occurred primarily in China, Malaysia, the Americas and
Japan. See "Risk Factors -- Seasonality and Market Development Cycles" and
"-- Seasonality and Market Development Cycles".
Total gross profit from Bowling Products increased by $11.4 million, or
29.5%, primarily as a result of increased NCP sales. Gross profit margin was
39.9% and 40.1% for the six months ended June 30, 1996 and 1997, respectively.
Bowling Products selling, general and administrative expenses increased by
$3.0 million, or 19.1%, primarily as a result of a $2.4 million increase
attributable to payroll and facilities expenses related to staffing the
Company's international sales and service offices, and an increase of $1.5
million attributable to advertising and promotion expenses in the U.S.
locations. These increases were offset by a decrease of $0.9 million in payroll,
facilities and related expenses at the U.S. locations.
EBITDA increased from $22.9 million to $31.3 million, resulting in an
increase in EBITDA margin from 23.7% to 25.1%, primarily due to the increased
NCP revenue, offset in part by the increased expenses discussed above.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995. Operating
revenue decreased by $34.4 million, or 12.0%, primarily due to a decrease of
$35.3 million, or 22.7%, in NCP revenue offset by an increase of $0.9 million,
or 0.7%, in Modernization and Consumer Products revenue. The drop in NCP revenue
was due to an overall decrease in NCP sales by 1,408 units in 1996 compared to
1995, particularly for maturing markets including Korea and Taiwan, offset by an
increase in NCP revenue from sales to China. From 1995 to 1996, total NCP sales
to Korea decreased by 1,165 units and to Taiwan decreased by 1,323 units.
Additionally, there was a moderate increase in NCP units sold in the Americas
and southern Europe during 1996. The increase in sales to China occurred during
the last six months of 1996. See "Risk Factors -- Seasonality and Market
Development Cycles" and "-- Seasonality and Market Development Cycles". The
increase in Modernization and Consumer Products revenue was due in part to
increased sales of synthetic lanes and automatic scoring in the United States.
Gross profit decreased by $20.8 million, or 17.4%. Gross profit margin was
41.7% in 1995 and 39.2% in 1996. Of this 2.5% decrease, 0.8% was attributable to
an increase in certain inventory and warranty reserves in the Modernization and
Consumer Products categories of $2.1 million, and 1.7% was attributable to the
lower margins on decreased revenues, particularly in Japan, due to price cuts
implemented by the Company's management in response to stiffer competition in
the Modernization and Consumer Products category.
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<PAGE> 30
Of the $4.1 million decrease in selling, general and administrative
expenses, $4.2 million was due to a reallocation to corporate of certain
overhead expenses previously allocated to the Bowling Products segment.
EBITDA decreased $16.7 million, or 21.1%, and EBITDA margin decreased from
27.7% in 1995, to 24.8% in 1996, primarily due to the decreased NCP revenue and
gross profit discussed above.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO DECEMBER 31, 1994. Operating
revenue decreased $15.2 million, or 5.0%, as a result of a decrease of $15.1
million, or 8.8%, in NCP revenue, and a less than 1.0% decrease of $0.1 million
in Modernization and Consumer Products revenue.
A significant portion of the decrease in NCP revenue was attributable to a
decrease in sales to Taiwan and Korea during November and December 1995, which
had significantly lower sales than the comparable period in 1994. Management
believes that the sales to Taiwan and Korea peaked during 1994. Additionally,
NCP sales in Japan were significantly affected by uncertain economic conditions
following the Kobe earthquake and the subway gas attacks, which resulted in
delayed investments in recreational activities.
Gross profit decreased by $3.2 million, or 2.6%, and the gross profit
margin of 40.7% in 1994 increased to 41.7% in 1995. Decreases of $3.8 million
caused by the decrease in NCPs sold and $1.7 million primarily attributable to
start up expenses incurred in pool cue, bumper, and automatic scoring systems
manufacturing were offset by a $2.3 million increase which resulted from
decreased warranty costs.
The increase of $2.1 million, or 5.5%, in selling, general and
administrative expenses was primarily attributable to non-recurring costs of
$2.9 million in 1995, offset by $0.8 million which was primarily due to net
reversals of reserves.
EBITDA decreased $5.3 million, or 6.3%, and EBITDA margin decreased from
28.0% in 1994 to 27.7% in 1995, primarily due to the decreased revenue and
increased selling, general and administrative expenses discussed above. The 1995
EBITDA was depressed by the non-recurring selling, general and administrative
costs of $2.9 million described above.
CONSOLIDATED ITEMS
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased by $8.5 million, or 24.4%, in the
six months ended June 30, 1997 compared with the same period in 1996, primarily
due to depreciation of property and equipment of centers acquired since May 1996
and incremental depreciation expense incurred as a result of capital
expenditures.
For the year ended December 31, 1996, depreciation and amortization
increased by $34.4 million, or 88.0%, over the same period in 1995, primarily as
a result of recording fixed assets at fair market value and goodwill in
accordance with the purchase accounting method applied to the Acquisition.
For the year ended December 31, 1995, depreciation and amortization
increased by $14.3 million, or 57.7%, over the same period in 1994, primarily
due to the inclusion of Fair Lanes centers for the entire 12 months of 1995, as
compared with three months during 1994.
INTEREST EXPENSE
Gross interest expense increased by $5.3 million, or 10.2%, in the six
months ended June 30, 1997 compared with the same period in 1996, primarily due
to interest paid on increased levels of bank debt as a result of the center
acquisitions described under "Business -- AMF Bowling Centers -- Recent
Acquisitions and Joint Ventures". See "-- Liquidity" and "-- Capital Re-
30
<PAGE> 31
sources". Cash interest paid by the Company for the six months ended June 30,
1997 totaled $39.8 million, while non-cash bond interest amortization totaled
$16.8 million.
For the year ended December 31, 1996, gross interest expense increased by
$90.5 million, or 576.4%, compared with the same period in 1995 due to interest
paid on debt incurred to finance the Acquisition and interest on the Acquisition
Facility. Cash interest paid by the Company for the year ended December 31, 1996
totaled $44.5 million, while non-cash bond interest amortization totaled $24.7
million.
Gross interest expense increased by $8.3 million, or 112.2%, for the year
ended December 31, 1995, compared with the same period in 1994 as a result of
additional debt incurred in connection with the acquisition of the Fair Lanes
centers on September 29, 1994. This debt was paid in full by the prior owners of
the Predecessor Company before the Acquisition.
NET INCOME (LOSS). Net loss decreased $1.3 million, or 9.6%, for the six
months ended June 30, 1997 compared with the same period in 1996, as a result of
the increases in EBITDA discussed above on a segment basis, offset by increases
in depreciation and amortization expense, interest expense and the current tax
provision for the Company.
The decline of $118.3 million, or 122.2%, in net income from $96.8 million
in 1995 to a net loss of $(21.5) million in 1996, on a pro forma basis, was
primarily attributable to a decrease in Bowling Products EBITDA resulting from
the decline in NCP revenue and higher depreciation and amortization and interest
expense resulting from the Acquisition after allowing for an $8.9 million tax
benefit.
Net income decreased $2.5 million, or 2.5%, for the year ended December 31,
1995, compared with the same period in 1994 as a result of higher depreciation
and amortization and interest expense incurred in 1995 as a result of the
full-year impact of the acquisition of the Fair Lanes centers which occurred in
the fourth quarter of 1994.
The Company will incur after-tax extraordinary charges totalling $21.5
million in the fourth quarter of 1997 arising from the Third Amended and
Restated Credit Agreement and the resulting write-off of costs previously
incurred to obtain bank financing for the Acquisition, the premium associated
with the portion of the Senior Subordinated Discount Notes expected to be
redeemed with the proceeds of the Offering and the write-off of the portion of
deferred financing costs attributable to the Senior Subordinated Discount Notes
expected to be so redeemed. See "Description of Certain Indebtedness -- Credit
Agreement".
INCOME TAXES. Prior to the Acquisition, certain of the companies within
the Predecessor Company elected S corporation status under the Internal Revenue
Code of 1986, as amended (the "Code"). Upon consummation of the Acquisition,
those companies became taxable corporations under the Code.
Pursuant to the Stock Purchase Agreement, the two principal companies
within the affiliated group elected under Section 338(h)(10) of the Code, to
treat the stock purchase as a deemed asset acquisition for the purposes of U.S.
income taxes. These elections permitted both of the affiliated companies to
revalue their assets to fair market value and to treat any amortizable goodwill
as tax deductible over fifteen years.
As of June 30, 1997, the Company had net operating losses of approximately
$38.0 million and foreign tax credits of $9.6 million which will carry over to
future years to offset U.S. taxes. The foreign tax credits will begin to expire
in the year 2001 and the net operating losses will begin to expire in the year
2010. The Company has not booked a valuation reserve as of June 30, 1997 because
the Company expects to utilize these net operating losses prior to expiration.
31
<PAGE> 32
LIQUIDITY
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
The following discussion compares AMF Bowling's results for the period
ended June 30, 1997 with the period ended June 30, 1996, on an historical basis.
The Company's primary source of liquidity is cash provided by operations
and credit facilities as described below. Working capital on December 31, 1996
was $7.8 million compared with a negative $23.3 million as of June 30, 1997, a
decrease of $31.1 million. Cash decreased $27.0 million primarily as a result of
payments on debt under the Credit Agreement and internal funding of certain
bowling center acquisitions, and the note payable under the Credit Agreement
increased $30.0 million as a result of borrowings under the Working Capital
Facility under the Credit Agreement which was used to fund increases in working
capital. Accounts receivable increased $14.5 million primarily as a result of
increased NCP revenue, and inventory increased $15.5 million in advance of
future shipments. These increases in working capital were partially offset by a
decrease of $4.1 million caused by changes in other current assets and
liabilities.
Net cash flows used in operating activities were $28.0 million for the six
months ended June 30, 1996 compared with net cash provided of $8.2 million for
the six months ended June 30, 1997, a difference of $36.2 million. Net cash
provided resulted from a decrease of $0.1 million in net loss, an increase of
$31.7 million in depreciation and amortization primarily as a result of
application of the purchase method of accounting for the Acquisition, an
increase of $8.0 million in amortization of the discount related to the bonds
used to partially fund the Acquisition, a net loss of $0.1 million on the sale
of property and equipment, a net change of $3.3 million in deferred taxes and
income taxes payable, and a change of $19.8 million in other assets and
liabilities. Net cash used resulted from an increase of $14.3 million in
accounts receivable primarily resulting from the increased levels of NCP sales
compared with the same period in 1996, and an increase of $12.5 million in
inventory primarily reflecting the increased backlog of NCP orders to be shipped
after June 30, 1997.
Net cash flows used in investing activities were $1,336.3 million for the
six months ended June 30, 1996 compared with net cash flows used of $147.5
million for the six months ended June 30, 1997. During the six months ended June
30, 1996, cash flows used for the Acquisition totaled $1,333.1 million, capital
spending was $3.3 million and other investing cash flows provided were $0.1
million. During the six months ended June 30, 1997, acquisitions of bowling
centers totaled $122.2 million, capital spending was $25.6 million, and other
cash flows provided by investing activities were $0.3 million. See "Note 9.
Acquisitions" in the Notes to Condensed Consolidated Financial Statements of AMF
Bowling as of June 30, 1997 and "-- Capital Expenditures".
Net cash provided by financing activities was $1,409.8 million for the six
months ended June 30, 1996 compared with net cash provided of $112.4 million for
the six months ended June 30, 1997. During the six months ended June 30, 1996,
cash flows were primarily provided by $1,029.9 million of proceeds of long-term
debt and $380.3 million from a capital contribution, both of which were used to
fund the Acquisition. During the six months ended June 30, 1997, cash flows were
primarily provided by drawing down $103.5 million and $30.0 million from
available borrowings under the Acquisition Facility and the Working Capital
Facility, respectively, to fund the acquisitions of centers and increases in
working capital. During 1997, funds were used primarily for the payment of long-
term debt totaling $20.3 million, and $0.5 million was used for the repurchase
of an officer's shares in connection with the termination of his employment with
the Company. See "Note 13. Employee Benefit Plans" in the Notes to Consolidated
Financial Statements of AMF Bowling as of December 31, 1996.
As a result of the aforementioned, cash increased by $45.1 million for the
six months ended June 30, 1996 compared to a decrease of $26.9 million for the
six months ended June 30, 1997.
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<PAGE> 33
YEAR ENDED DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995
The following discussion compares AMF Bowling's results for the period
ended December 31, 1996, with the Predecessor Company's results for the year
ended December 31, 1995, on an historical basis.
Net cash flows from operating activities decreased $51.0 million from
$124.8 million for the year ended December 31, 1995 to $73.8 million for the
period ended December 31, 1996. This decrease was primarily due to the decrease
in net income from $96.8 million for the year ended December 31, 1995 to a net
loss of $(19.5) million for the period ended December 31, 1996 and higher
depreciation, amortization and interest expenses as a result of the Acquisition.
Net cash flows used in investing activities were $28.3 million for the year
ended December 31, 1995 compared with net cash flows used of $1,467.1 million
for the period ended December 31, 1996. The change was due primarily to the
Acquisition. During the year ended December 31, 1995, capital spending was $30.0
million and other investing cash flows provided were $1.7 million. During the
period ended December 31, 1996, acquisitions of operating units, net of cash
acquired, including the Acquisition, totaled $1,450.9 million, capital spending
was $16.9 million, and other cash flows provided by investing activities were
$0.7 million.
Net cash used for financing activities was $94.7 million for the year ended
December 31, 1995 compared with net cash provided of $1,438.3 million for the
period ended December 31, 1996. This change primarily resulted from the issuance
of debt and capital contributions related to the Acquisition. During 1995, the
Predecessor Company made distributions to its owners of $71.9 million, net
payments on notes payable to its owners of $3.8 million, net payments on credit
note agreements and long-term debt of $21.3 million and a payment for redemption
of stock of $4.0 million. Additionally, cash of $8.3 million was received as
capital contributions by stockholders.
During the period ended December 31, 1996, the Company had borrowings, net
of deferred financing costs, of $1,059.3 million from debt incurred to finance
the Acquisition and from the Acquisition Facility, and made payments of $38.9
million on this debt. Additionally, a total of $420.8 million was received as
capital contributions by the institutional stockholders of AMF Bowling and
certain of its officers and directors. Of the total capital contributed, $380.8
million was for the initial capitalization of the Company and the Acquisition,
and $40.0 million was received as additional capital contributions in connection
with the acquisition of centers from Charan Industries, Inc. ("Charan"). See
"Business -- AMF Bowling Centers -- Recent Acquisitions and Joint Ventures".
As a result of the aforementioned, cash increased by $1.6 million for the
year ended December 31, 1995 compared with an increase of $43.6 million for the
period ended December 31, 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO DECEMBER 31, 1994
Net cash flow from operating activities increased from $119.7 million for
the year ended December 31, 1994 to $124.8 million for the year ended December
31, 1995. This increase was primarily a result of the fact that although net
income decreased from $99.3 million to $96.8 million and assets and liabilities
changes occurred which reflected a net use of cash of $5.3 million and $10.9
million for the year ended December 31, 1994 and for the year ended December 31,
1995, respectively, depreciation and amortization increased by $14.3 million,
from $24.8 million for the year ended December 31, 1994 to $39.1 million for the
fiscal year ended December 31, 1995.
Net cash used for investing activities decreased from $32.6 million for the
year ended December 31, 1994 to $28.3 million for the year ended December 31,
1995. During 1994, cash of $17.3 million was used for the acquisition of
centers, primarily Fair Lanes centers. Capital spending was $17.8 million for
the year ended December 31, 1994 compared with $30.0 million for the year ended
December 31, 1995.
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<PAGE> 34
Net cash used for financing activities increased from $89.6 million for the
year ended December 31, 1994 to $94.7 million for the year ended December 31,
1995. During 1994, the Predecessor Company made distributions to its owners of
$78.2 million, net payments on notes payable to its owners of $8.6 million and
net payments on credit note agreements and long-term debt of $4.8 million.
Additionally, cash of $2.1 million was received as capital contributions by its
owners. During 1995, the Predecessor Company made distributions to its owners of
$71.9 million, net payments on notes payable to its owners of $3.8 million, net
payments on credit note agreements and long-term debt of $21.3 million and a
payment for redemption of stock of $4.0 million. Additionally, cash of $8.3
million was received as capital contributions by its owners.
As a result of the aforementioned, cash increased by $0.2 million for the
year ended December 31, 1994 compared to an increase of $1.6 million for the
year ended December 31, 1995.
CAPITAL RESOURCES
As a result of the Acquisition, the Company's total indebtedness has
increased substantially. At June 30, 1997, the Company's debt structure
consisted of senior debt of $679.9 million, senior subordinated notes of $250.0
million and senior subordinated discount notes of $291.4 million. At June 30,
1997, the Company was also capitalized with equity of $391.1 million. The
Company also has the ability to borrow for general corporate purposes pursuant
to the $50.0 million Working Capital Facility and for acquisitions pursuant to
the $230.0 million Acquisition Facility, subject to certain conditions. At June
30, 1997, $112.0 million and $30.0 million was outstanding under the Acquisition
Facility and the Working Capital Facility, respectively. Between June 30, 1997
and October 24, 1997, additional borrowings under the Acquisition Facility
totaled $59.0 million and were used to fund the acquisitions of centers. See
"Business -- AMF Bowling Centers -- Recent Acquisitions and Joint Ventures". In
addition, the Company borrowed an additional $17.5 million under the Working
Capital Facility to fund increases in working capital. At October 24, 1997,
$171.0 million and $47.5 million was outstanding under the Acquisition Facility
and the Working Capital Facility, respectively.
In September 1997, certain current stockholders of AMF Bowling purchased an
aggregate of 1,780,000 shares of Common Stock for $20.00 per share pursuant to
the "overcall" provisions of the Stockholders Agreement. The aggregate $35.6
million capital contribution was used to fund acquisitions, including 15 centers
from Conbow Corporation ("Conbow"), and for other permitted purposes. See
"Business -- AMF Bowling Centers -- Recent Acquisitions and Joint Ventures" and
"Principal Stockholders -- Stockholders Agreement".
The Company funds its cash needs through cash flow from operations,
existing cash balances and the Working Capital Facility and Acquisition
Facility. A substantial portion of the Company's available cash will be applied
to service outstanding indebtedness. For the period beginning January 12, 1996
and ending December 31, 1996, the Company incurred cash interest expense of
$53.0 million, representing 55.5% of EBITDA of $95.5 million for the period. For
the six months ended June 30, 1997, the Company incurred cash interest expense
of $39.8 million, representing 46.4% of EBITDA of $85.8 million for the six
month period.
The Note Indentures and the Credit Agreement contain financial and
operating covenants and significant restrictions on the ability of the Company
to pay dividends, incur indebtedness, make investments and take certain other
corporate actions. See "Risk Factors -- Substantial Leverage; Indebtedness",
"Risk Factors -- Holding Company Structure", "Risk Factors -- Net Losses",
"Description of Certain Indebtedness" and "Note 9. Long-Term Debt" in the Notes
to Consolidated Financial Statements of AMF Bowling as of December 31, 1996.
The Company's ability to make scheduled payments of principal of, or to pay
interest on, or to refinance its indebtedness depends on its future performance,
which, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors beyond its control. Based
upon the current level of operations and anticipated growth, management believes
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<PAGE> 35
that available cash flow, together with available borrowings under the Credit
Agreement and other sources of liquidity, will be adequate to meet the Company's
anticipated future requirements for working capital, capital expenditures,
scheduled payments of principal of, and interest on, its senior debt, and
interest on the Notes. There can be no assurance, however, that the Company's
business will generate sufficient cash flow from operations or that future
borrowings will be available in an amount sufficient to enable the Company to
service its indebtedness or that any refinancing would be available on
commercially reasonable terms or at all. See "Risk Factors -- Substantial
Leverage; Indebtedness" and "Risk Factors -- Net Losses".
The Company and the lenders under the Credit Agreement have agreed in
principle to the Proposed Amendments, pursuant to which the Credit Agreement
will be amended and restated as the Third Amended and Restated Credit Agreement,
the Acquisition Facility and a portion of the Term Facilities under the Credit
Agreement will be converted into a non-amortizing revolving Working Capital
Facility the aggregate size of which will be increased to $355.0 million, and a
portion of such revolving credit indebtedness will be repaid with proceeds of
the Offerings. Borrowings under the amended Working Capital Facility will
provide the Company the ability to finance acquisitions or new center
construction. At October 24, 1997, $161.5 million would have been available
under such Working Capital Facility, assuming the Proposed Amendments were
effective at such time and $100.0 million of the proceeds of the Offerings was
used to repay indebtedness under the Credit Agreement. See "Use of Proceeds" and
"Description of Certain Indebtedness".
CAPITAL EXPENDITURES
For the six months ended June 30, 1997, the Company's actual capital
expenditures were $25.6 million compared with $10.2 million for the six months
ended June 30, 1996, on a pro forma basis (capital expenditures of the acquired
business from January 1, 1996 through June 30, 1996). The increase was primarily
due to an ongoing modernization program in Bowling Centers, a new point-of-sale
information system in U.S. Bowling Centers, new Company-wide information
systems, and construction of a new 40 lane, state-of-the-art bowling and family
entertainment center at Chelsea Piers in New York City.
For the period ended December 31, 1996, the Company's capital expenditures
were $16.9 million. For the year ended December 31, 1997, the Company's capital
expenditures are expected to be approximately $50.0 million. For the year ended
December 31, 1995, the Company's capital expenditures were $30.0 million,
including $9.7 million for the construction of three new centers. In 1994, the
Company's capital expenditures were $17.8 million. The 1996 expenditures level
was lower than the 1995 level in part because in 1995 three new bowling centers
were constructed at a cost of approximately $9.7 million.
The Company conducts an ongoing modernization and maintenance program that
results in its centers having upgraded physical plants and generally attractive
appearances. Management believes that its historical spending level of 3.7% of
Bowling Centers revenue is fully adequate to cover all modernization and
maintenance capital expenditures. Management estimates that approximately 2.0%
of Bowling Centers revenue is required for maintenance capital expenditures
alone.
Bowling Products has relatively modest capital investment requirements, and
the Company has followed a relatively conservative approach to capital
investment. Maintenance and replacement investments have been made when clearly
needed, but as close to the end of the useful lives of assets as possible.
Investment in production machinery and equipment has received the highest
investment priority and has focused on projects with projected payback periods
of one to three years. Management is not planning significant changes in the
policy for non-strategic projects.
The Company has the opportunity to acquire and build additional bowling
centers, both in the U.S. and internationally. The Company is prepared to
acquire or build additional bowling centers as appropriate opportunities arise
and is engaged in ongoing evaluations of and discussions with third parties
regarding possible acquisitions. See "Business -- Business Strategy". Management
plans to acquire centers with funding provided under the Credit Agreement to the
extent available. Under
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<PAGE> 36
the Acquisition Facility, as of October 24, 1997, the Company had the ability to
borrow up to an additional $59.0 million (or $161.5 million, assuming the
Proposed Amendments were effective at such time and $100.0 million of the
proceeds of the Offerings was used to repay indebtedness under the Credit
Agreement) for acquisitions or to refinance new center construction, subject to
certain conditions. Management's plans to expand the Bowling Centers operations
are subject to the continuation of favorable economic and financial conditions,
which are generally not within the Company's control. Currently, the Company has
entered into purchase agreements to acquire eighteen centers from several
unrelated sellers. The aggregate purchase price for such centers is expected to
be approximately $38.5 million and is expected to be funded with borrowings
under the Acquisition Facility (or, under the Proposed Amendments, the Working
Capital Facility) and cash generated from operations.
The Company has funded its capital expenditures from cash generated by
operations and, with respect to the construction and acquisition of new centers,
internally generated cash, the Acquisition Facility, and issuances of common
equity. See "Note 9. Acquisitions" in the Notes to Condensed Consolidated
Financial Statements of AMF Bowling as of June 30, 1997, "-- Liquidity" and
"-- Capital Resources".
SEASONALITY AND MARKET DEVELOPMENT CYCLES
The following table sets forth AMF's U.S. constant centers revenue for the
last four quarters:
<TABLE>
<CAPTION>
QUARTER ENDING
---------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1996 1996 1997 1997
------------- ------------ --------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Total Revenue............ $38.7 $ 50.5 $58.1 $ 41.1
% of Total............... 20.6% 26.8% 30.8% 21.8%
</TABLE>
On a consolidated basis, revenue and EBITDA of the Company's businesses are
neither highly seasonal nor highly cyclical. The geographic diversity of the
Company's bowling centers, which operate across different regions of the U.S.
and across nine other countries, along with the bowling industry's historic
relative insulation from recessions, has provided stability to the Company's
annual cash flows. Although financial performance of Bowling Centers operations
is seasonal in nature in many countries, with cash flows typically peaking in
the winter months and reaching their lows in the summer months, the geographic
diversity of the Company's bowling centers has helped reduce this seasonality as
bowling centers in certain countries in which AMF operates exhibit different
seasonal sales patterns. As a result of the growing number of U.S. centers
attributable to the Company's acquisition program, the seasonality described
above may be accentuated. In Australia, where AMF has its largest number of
international centers, the reversal of seasons relative to the U.S. helps
mitigate the seasonality in worldwide operations. AMF's cash flows are further
stabilized by the location of many centers in regions where the climates have
high average temperatures and high humidity. In the U.S., during the summer
months when league bowling is generally less active, bowling centers in the
southern U.S. continue to show strong performance. Similarly, in regions with
warm summer climates such as Hong Kong and Mexico, where bowling in
air-conditioned centers may be more attractive than outdoor activities, bowling
centers show strong performance. See "Business -- Business Strategy" and "Note
10. Business Segments" in the Notes to Condensed Consolidated Financial
Statements of AMF Bowling as of June 30, 1997.
Modernization and Consumer Products sales display significant seasonality.
The U.S. market, which is the largest market for Modernization and Consumer
Products, is driven by the beginning of leagues in the fall of each year.
Operators typically sign purchase orders, particularly for replacement
equipment, during the first four months of the year, after they receive winter
league revenue indications. Equipment is shipped and installed during the summer
months, when leagues are generally less active. Sales of modernization
equipment, such as automatic scoring and synthetic
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<PAGE> 37
lane overlays, are less predictable and fluctuate more than the replacement
equipment because of the four to ten year life cycles of these major products.
The NCP category of bowling products experiences significant fluctuations
due to changes in demand for NCPs as certain markets experience high growth
followed by market maturity, at which time sales to that market decline,
sometimes rapidly. Market cycles for individual countries have, in the past,
spanned several years, with periods of high demand for several markets (e.g.,
Korea and Taiwan) which, in the Company's experience, last five years or more.
These growth patterns do not seem to be closely tied to general economic cycles.
INTERNATIONAL OPERATIONS
For the six months ended June 30, 1997, 26.1% of Bowling Centers revenue
was generated by its international centers. For the year ended December 31,
1996, 33.8% of the Bowling Centers revenue was generated by international
centers. Historically, the Company has not engaged in any significant currency
hedging activities.
The Company's international operations are subject to the usual risks
inherent in operating abroad, including, but not limited to, risks with respect
to currency exchange rates, economic and political destabilization, other
disruption of markets, restrictive laws and actions by foreign governments (such
as restrictions on transfer of funds, import and export duties and quotas,
foreign customs, tariffs and VATs and unexpected changes in regulatory
environments), difficulty in obtaining distribution and support,
nationalization, the laws and policies of the United States affecting trade,
international investment and loans, and foreign tax laws.
For the six months ended June 30, 1997, 59.2% of Bowling Products sales
were international sales. For the year ended December 31, 1996, approximately
62.7% of Bowling Products sales were made in international markets. To minimize
credit and international exchange risk, equipment is sold primarily using
letters of credit denominated in U.S. dollars. Letters of credit are usually
received before shipments leave U.S. ports. International sales offices sell
some products in local currency, but adjust pricing, to the extent that market
conditions permit, with changes in exchange rates. This policy enables the
Bowling Products operations generally to avoid any material adverse effect from
exchange rate fluctuations. Management believes that this policy should continue
to protect the Company from material adverse consequences of exchange rate
fluctuations, except in the event of severe international exchange rate
volatility. See "Risk Factors -- International Operations".
BACKLOG; RECENT NCP SALES
The total backlog of NCPs (which include all of the equipment necessary to
outfit one new bowling lane) as of October 19, 1997 was 2,059 units, which is an
approximately 44% increase over the December 31, 1996 backlog of 1,426 units.
The increased backlog was directly attributable to strong NCP orders generated
throughout the world as a result of an aggressive program to increase sales in
early stage and developed markets. The backlog as of October 19, 1997 reflects a
significant number of orders from customers in China, Malaysia, North and South
America, Japan and Europe. Orders of NCPs included in the backlog are subject to
cancellation by customers from time to time in the normal course of business.
Accordingly, the Company has experienced, and expects to continue to experience,
the cancellation of a portion of such orders.
NCP sales for the first six months of 1997 totaled $62.8 million, a 67.5%
increase over the same period in 1996. The significant increase was attributable
to the market development and sales programs implemented in mid-1996 which were
designed to maximize NCP sales activity in a variety of marketplaces of the
world. While China currently represents the largest market for the Company's NCP
sales and backlog, other markets such as South America, India, Poland, Russia
and the Middle East are being developed.
The total NCP backlog of approximately 1,426 units as of December 31, 1996
represented an increase of 486 units from the backlog of 940 units at December
31, 1995. This increase was
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<PAGE> 38
primarily composed of increases in the backlogs in China, the United States and
Malaysia, partially offset by decreases in the backlogs in Korea and Taiwan.
Reflecting the decline in orders in the fourth quarter of 1995,
manufacturing revenue from NCP sales declined very substantially during the
first six months of 1996 representing a decrease of over 59.0% compared with NCP
sales during the first six months of 1995. Overall NCP sales in the second half
of 1996 exceeded NCP sales for the first half of 1996, reflecting continued
progress in establishing a direct sales presence in China. The drop in NCP
revenue for the year ended December 31, 1996 was due to a decrease in NCP unit
sales, particularly in Korea and Taiwan. For the full year 1996, total NCP sales
to Korea decreased by 1,165 units and to Taiwan decreased by 1,323 units
compared with the full year 1995. The decrease in sales to Korea and Taiwan
during 1996 was offset in part by an increase in NCP sales to China of 825
units. Management believes that the initial expansion period in both Korea and
Taiwan peaked during 1994. Management believes that the decreased sales to Korea
were also partially attributable to the effect of the Company's decreased
presence in Korea while it was in the process of establishing a direct sales
office to replace its former distributor. As a result of the maturing state of
the markets in Korea and Taiwan, management does not expect NCP sales to these
markets to return to the levels realized in 1994.
IMPACT OF INFLATION
The Company has historically offset the impact of inflation through price
increases and expense reductions. Periods of high inflation could have an
adverse effect on the Company to the extent that increased borrowing costs for
floating rate debt may not be offset by increases in revenue.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state, local and foreign
environmental laws and regulations that impose limitations on the discharge of,
and establish standards for the handling, generation, emission, release,
discharge, treatment, storage and disposal of certain materials, substances and
wastes.
The Company currently and from time to time is subject to environmental
claims. It is the opinion of management that the various asserted claims in
which the Company currently is involved are not likely to have a material
adverse effect on its financial position or results of operations. However, no
assurance can be given as to the ultimate outcome with respect to such claims.
The Company cannot predict with any certainty whether existing conditions
or future events, such as changes in existing laws and regulations, may give
rise to additional environmental costs. Furthermore, actions by federal, state,
local and foreign governments concerning environmental matters could result in
laws or regulations that could increase the cost of producing the Company's
products, or providing its services, or otherwise adversely affect the demand
for its products or services. See "Business -- Environmental Matters".
RECENT ACCOUNTING PRONOUNCEMENTS
Effective for the fiscal year ended December 31, 1997, the Company is
required to adopt Statement of Financial Accounting Standards ("SFAS") No. 128
"Earnings Per Share" and No. 129 "Disclosure of Information About Capital
Structure". Effective for the fiscal year ended December 31, 1998, the Company
is required to adopt SFAS No. 130 "Reporting Comprehensive Income" and SFAS No.
131 "Disclosures About Segments of an Enterprise and Related Information".
The Company does not expect that adoption of these standards will have a
material impact on the Company's financial position or results of operations.
The adoption of SFAS No. 130 will require reporting comprehensive income, which
includes the foreign currency translation adjustment, in an alternative format
prescribed by the standard.
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BUSINESS
GENERAL
AMF is the largest bowling company in the world. The Company operates 439
bowling centers worldwide which generate over 60 million customer visits per
year. AMF is the U.S. market leader with 353 bowling centers, and is also the
largest operator internationally, with 86 bowling centers in nine countries. In
addition, AMF has been a leader in the bowling equipment industry for over 50
years, having revolutionized ten pin bowling with the introduction of the first
automatic pinspotter in 1946. AMF is one of only two bowling equipment
manufacturers that compete on a global basis. Management believes that AMF
bowling equipment accounts for approximately 41% of the world's installed base
of bowling equipment.
The worldwide bowling center and bowling equipment industry generates
approximately $9 billion in annual revenue and includes approximately 13,000
bowling centers in over 80 countries. The U.S. bowling center and bowling
equipment industry generates in excess of $4 billion of revenue annually and
includes approximately 5,900 centers. Over 100 million people participate
annually in bowling worldwide, according to the FIQ, the official organization
of the worldwide bowling industry. The bowling center industry in both the U.S.
and abroad is highly fragmented. In the U.S., the next closest competitor to
AMF's 353 centers has approximately 111 centers. The next three largest
operators collectively account for only approximately 55 of the total 5,900
centers.
An investor group led by GSCP, an affiliate of Goldman Sachs, acquired AMF
in May 1996 for a total purchase price of approximately $1.37 billion. The
investor group appointed a new management team that has aggressively pursued a
three-part strategy:
- consolidate the U.S. bowling center industry,
- build a nationally recognized brand of superior bowling and
entertainment centers, and
- capitalize on the demand for bowling products and centers in certain
international markets.
Management is utilizing the well-recognized AMF name to build the only
national branded network of bowling and entertainment centers in the U.S.
through a series of initiatives. These include introducing innovative new
products, such as bumper bowling and Xtreme(TM) Bowling, upgrading the physical
appearance of centers, and improving the food and beverage offerings. Since May
1996, AMF's management team has grown the number of AMF's U.S. centers from 207
to 353, an increase of approximately 71%, principally through acquisitions.
AMF is also capitalizing on the strong international growth in the demand
for Bowling Products through direct sales of equipment and the building of new
bowling centers abroad. Strong demand for AMF's New Center Packages of bowling
equipment drove AMF's backlog from 1,426 NCP units at December 31, 1996 to 2,059
NCP units at October 19, 1997, an increase of approximately 44%. Over 90% of the
Company's NCP backlog is to international markets such as China, Japan and
Germany. Further, AMF is acting to accelerate the development of bowling in key
potential markets. During 1997, AMF entered into joint ventures to build and
operate bowling centers equipped with AMF bowling products in China and selected
Southeast Asian countries, and in Brazil and Argentina.
INDUSTRY OVERVIEW
BOWLING CENTERS
Bowlers represent a broad cross-section of the population. Several key
reasons for bowling's popularity in the U.S. and abroad are that it is (i) an
indoor, all-weather sport with year-round appeal, (ii) a lifetime sport suitable
for all age groups, and (iii) low in cost relative to other forms of
entertainment, requiring minimal expenditure on equipment to participate.
Approximately 50% of U.S. bowling revenue is derived from league bowlers, who
register in leagues and commit to
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<PAGE> 40
participate on a scheduled basis generally once a week for a period of up to 40
weeks. Management believes that outside the U.S., league revenue generally
comprises a smaller percentage of bowling revenue.
The bowling center industry is highly fragmented, and consists of two
relatively large bowling center operators, AMF (which has 353 U.S. centers as of
October 24, 1997) and Brunswick Corporation ("Brunswick") (which has
approximately 111 U.S. centers), three medium-sized chains, which together
account for 55 bowling centers, and over 5,300 bowling centers owned by
single-center and small-chain operators, which typically own four or fewer
centers. The top five operators (including AMF) account for less than 9% of the
total number of U.S. bowling centers.
The international bowling center industry is also highly fragmented. There
are typically few chain operators in any one country and a large number of
single-center operators. AMF generally enjoys a relative size advantage (i.e., a
larger number of lanes per center), and is competitively well positioned in
markets such as the United Kingdom and Australia.
In the United States, the operation of bowling centers is a mature industry
characterized by slightly decreasing lineage (games per lane per day) offset by
increasing average price per game and creating additional sources of income.
Management believes that AMF's U.S. lineage has remained relatively stable in
recent years due to AMF's ability to better maintain existing league bowlers and
attract new recreational bowlers.
U.S. BOWLING CENTER INDUSTRY(a)
<TABLE>
<CAPTION>
NUMBER OF
OPERATOR LOCATIONS % OF TOTAL
- ---------------------------------------------------------------------- --------- ----------
<S> <C> <C>
AMF................................................................... 353 6.0%
Brunswick............................................................. 111 1.9
Bowl America.......................................................... 23 0.4
Active West........................................................... 17 0.3
Bowl New England...................................................... 15 0.2
----- -----
Subtotal............................................................ 519 8.8
----- -----
Single-center and small-chain operators............................... 5,381 91.2
----- -----
Total....................................................... 5,900 100.0%
===== =====
</TABLE>
- ---------------
(a) AMF estimate at October 24, 1997.
BOWLING PRODUCTS
The Bowling Products business consists of two categories: (i) New Center
Packages (all of the equipment necessary to outfit a new bowling center or
expand an existing bowling center); and (ii) Modernization and Consumer Products
(which includes modernization equipment which upgrades an existing center, spare
parts, supplies and consumable products). AMF and Brunswick are the only bowling
center equipment manufacturers that compete on a global basis. Management
believes that AMF's bowling equipment accounts for approximately 41% of the
world's installed base of bowling equipment. Other competitors are typically
smaller companies that tend to offer a narrower range of products and are often
regionally focused. See "-- AMF Bowling Products -- Competition".
New Center Package sales follow the trends in the growth of bowling. As
bowling is introduced and becomes popular in new markets, the economics of
constructing and operating bowling centers become attractive to local market
developers and entrepreneurs. Consequently, they build new bowling centers,
which need to be outfitted with equipment, driving demand for NCPs. For at least
the last 15 years, the vast majority of NCP sales have been to international
markets. This
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<PAGE> 41
international trend has been fueled by the growth of bowling in several
countries, particularly China, Taiwan and Korea.
Sales of Modernization and Consumer Products to bowling center operators
who manage the growing installed base of bowling equipment provide a stable base
of recurring revenue. These products include both proprietary and standard spare
parts for existing equipment and other products including pins, shoes, supplies
and modernization equipment. Some of these products, such as bowling pins,
should be replaced on approximately an annual basis to maintain a center, while
certain less frequent investments in other equipment are necessary to modernize
a center and are often required to maintain a customer base.
In the U.S. and Korea, which are mature bowling markets, the population per
lane in 1996 was approximately 2,000 and 3,600, respectively. (These figures are
calculated by dividing total population by number of lanes: total population is
obtained from the Population Reference Bureau; lane numbers are estimates
received from AMF regional sales representatives.) In developing markets, the
population per lane is significantly higher, suggesting the opportunity for
additional growth, although there can be no assurance that these markets will
develop to the same extent as the U.S. or Korea, as only a small number of
markets have achieved this level of development. For example, India has over 25
million people per lane of installed bowling equipment, Poland has over 2
million people per lane, Indonesia has over 650,000 people per lane and Brazil
has over 450,000 people per lane.
BUSINESS STRATEGY
AMF believes that its future growth will depend on the continued success of
its three-part strategy to consolidate the U.S. bowling center industry, build a
nationally recognized AMF brand of superior bowling and entertainment centers,
and capitalize on the demand for bowling products and centers in certain
international markets. The key elements of the strategy are:
CONSOLIDATE THE FRAGMENTED U.S. BOWLING CENTER INDUSTRY
In addition to the 152 centers that AMF has acquired since May 1996, the
Company's dedicated acquisition team has identified approximately 2,000
potential center acquisition candidates in the United States. The Company
employs a regional clustering strategy for its U.S. centers and focuses on
acquiring centers that either fit into existing geographic clusters or could be
the base for forming new clusters. Management believes that none of the
Company's competitors in the U.S. bowling industry is pursuing such an active
acquisition strategy.
IMPROVE ACQUIRED CENTERS' PROFITABILITY
The Company believes that its EBITDA margins are among the highest of
operators of U.S. bowling center chains. This belief is based on publicly
available information and on the Company's knowledge of the industry, due to the
Company's experience in operating the largest U.S. bowling center chain, in
participating in various industry trade associations and in evaluating many U.S.
bowling centers and chains for possible acquisition. Following an acquisition,
management acts to increase profitability by cutting costs and introducing
programs to increase revenue. Specifically, the Company improves marketing
programs, reduces overhead, optimizes staffing, implements improved financial
controls, centralizes management and maintenance of equipment, and centralizes
purchasing. The Company often makes immediate capital and other improvements to
upgrade the centers it acquires which are designed to generate increased revenue
and to further AMF's goal of creating a nationally recognized brand of superior
bowling and entertainment centers.
BUILD A NATIONALLY RECOGNIZED BRAND OF SUPERIOR BOWLING AND ENTERTAINMENT
CENTERS
AMF believes it offers a superior bowling and entertainment experience
utilizing innovative products such as Xtreme(TM) Bowling, which uses
glow-in-the-dark pins and equipment, black lighting
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<PAGE> 42
and music; bumper bowling for children, in which bumpers prevent balls from
rolling into the gutter; computerized, automatic and color scoring; and time
period discounts for certain groups, such as seniors and children. The Company
is also increasing concourse space in certain of its centers for amusement
games, billiards and other activities. AMF is selectively introducing the
"Family Fun Fest" bowling center, which offers expanded state-of-the-art arcade
and video games. The Company also seeks to increase its profile through the
sponsorship of Special Olympics International and by hosting professional
bowling tournaments.
BUILD NEW CENTERS
The Company has built new bowling centers in attractive markets to enhance
its Bowling Centers business and also to serve as a showcase for the products
manufactured by its Bowling Products business. These centers utilize
state-of-the-art equipment and present bowling as part of a family entertainment
experience and are an integral part of AMF's efforts to build a nationally
branded network of superior bowling and entertainment centers. For instance, in
August 1997, the Company opened a new 40-lane bowling center at Chelsea Piers in
New York, the first new bowling center in Manhattan in 30 years.
IMPROVE FOOD AND BEVERAGE REVENUES
The Company estimates that it has over 60 million customer visits per year
in its bowling centers. The Company is expanding and improving the food and
beverage product offerings at many of its centers to take better advantage of
its significant customer traffic. AMF also capitalizes on purchasing economies
of scale. The Company is one of the nation's leading on-premise accounts for
both Anheuser Busch Companies, Inc. and The Coca-Cola Company.
CAPITALIZE ON GROWING GLOBAL DEMAND FOR BOWLING PRODUCTS
Management believes that AMF's well-established global brand name, the
quality of its products, and its comprehensive service and strong direct sales
force and distribution network will enable it to take advantage of growing NCP
demand worldwide. The Company is focused on sales of NCPs (which comprised 48%
of AMF's Bowling Products sales in 1996) into selected countries with
demonstrated strong demand for bowling products. AMF's backlog of NCPs increased
by approximately 44% from 1,426 units at December 31, 1996 to 2,059 units at
October 19, 1997. Customers outside the U.S. comprise over 90% of the current
NCP backlog total, with the largest portion going to markets such as China,
Japan and Germany. In addition, AMF will continue to acquire and to build
international bowling centers on a selective basis, either to enhance the growth
of bowling in countries which present attractive opportunities for the sale of
bowling products or to enhance AMF's competitive position in a particular
country's bowling center industry.
ACCELERATE THE DEVELOPMENT OF BOWLING IN SELECTED INTERNATIONAL MARKETS
In addition to the international markets that currently have a high demand
for bowling products, management believes that selected international markets
which are in the early development stage have the potential for high growth.
Examples of such early stage markets are India which has over 25 million people
per lane of installed bowling equipment, Poland which has over 2 million people
per lane, Indonesia which has over 650,000 people per lane, and Brazil which has
450,000 people per lane. By contrast, mature markets, such as the U.S. and
Korea, have populations per lane of 2,000 and 3,600, respectively. There can be
no assurance that early stage markets will develop to the same extent as the
United States or Korea, as only a small number of markets have achieved this
level of development. AMF seeks to accelerate the industry's growth in early
stage markets by building showcase centers and conducting promotional programs.
As bowling becomes more popular, local developers and entrepreneurs build new
bowling centers, which are outfitted with equipment, and drive demand for NCPs.
To capitalize on this development cycle, AMF has entered into joint ventures to
build, own and operate up to 20 bowling centers in China and Southeast Asia
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<PAGE> 43
and 39 bowling centers in Brazil and Argentina. The Company is also developing a
center in India and pursuing opportunities in Russia and Poland.
PROVIDE INNOVATIVE AND QUALITY PRODUCTS
AMF expects to continue to maintain its leadership position in
manufacturing by setting industry standards for quality and innovation.
Management believes that AMF has the fastest pinspotters, the highest scoring
lanes and the most durable pins. Since the development of the first automatic
pinspotter over fifty years ago, AMF has been an innovator in the advancement of
such products as automatic scoring, bumpers, and Xtreme(TM) Bowling. AMF
positions its products as high quality and technologically advanced, allowing it
generally to command premium prices. Management believes that AMF uses its
position as an integrated bowling centers operator and bowling products
manufacturer to AMF's advantage in testing and developing product innovations.
INCREASE MODERNIZATION AND CONSUMER PRODUCT SALES
Management expects AMF to benefit as the worldwide base of bowling centers
grows due to the increased popularity of bowling. AMF's brand name, the large
installed base of AMF bowling equipment, AMF's established direct sales force
and distribution network and its quality products will position AMF to increase
sales of Modernization and Consumer Products. These products, which include
modernization equipment, supplies, spare parts and consumable products,
comprised 52% of AMF's Bowling Products sales in 1996. Furthermore, when AMF
acquires or constructs a center and installs state-of-the-art equipment in that
center, management believes that competing centers may purchase Modernization
and Consumer Products, often from AMF, to remain viable competitors to the AMF
center.
RECENT FINANCIAL PERFORMANCE
AMF's management has significantly improved financial results since the May
1996 acquisition. Revenue and EBITDA increased by 33.9% to $318.1 million and by
30.4% to $85.8 million, respectively, for the first six months of 1997 as
compared to the pro forma results for the first six months of 1996. Net loss for
the first six months of 1997 was $12.2 million compared to a pro forma net loss
of $13.5 million for the first six months of 1996. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Recent
Developments" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Consolidated Items -- Net Income (Loss)".
Management believes that AMF's Bowling Centers and Bowling Products businesses
have been characterized by high EBITDA margins and attractive returns on
investment. Management believes that the Company is well-positioned, due to its
long established industry leadership position, the AMF brand, the Company's
large installed base and its strategy, to develop and capitalize on the growth
potential of bowling worldwide.
AMF BOWLING CENTERS
In the United States, AMF is the largest operator of bowling centers, with
(as of October 24, 1997) 353 bowling centers in 36 states and Puerto Rico.
Outside the United States, AMF is also the largest operator of bowling centers,
with (as of October 24, 1997) 86 bowling centers in nine countries: Australia
(38), the United Kingdom (22), Mexico (9), Japan (4), China (including Hong
Kong) (6), France (3), Spain (2), Switzerland (1), and Canada (1). Of the U.S.
centers, 207 were acquired as part of the Acquisition (seven of which were
subsequently closed), 152 were acquired thereafter and one was constructed. Of
the international centers, 78 were acquired as part of the Acquisition, nine
were acquired thereafter, including seven in the United Kingdom and two in
Australia, and one in Japan was closed.
The Company's number of U.S. centers, regional clustering for U.S. centers
(53 clusters) and average size (an average of 37 lanes per U.S. center versus an
industry average of 21 lanes per U.S. center) provide both additional revenue
opportunities and economies of scale. These revenue opportunities include (i)
scheduling flexibility, which improves lane utilization, (ii) the ability to
support an expanded food and beverage operation and (iii) more concourse space
for food and
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<PAGE> 44
beverage offerings, amusement games, billiards and pro shops. Cost savings
resulting from the economies of scale include (a) the ability to distribute
operating and corporate overhead costs (including marketing and advertising
costs) over a larger revenue base and (b) attractive terms from certain of the
Company's suppliers.
Internationally, AMF's centers also are, on average, larger than those of
its competitors. As with its U.S. operations, the number of centers, geographic
clustering and size result in additional revenue opportunities and economies of
scale. The Company is particularly well positioned in the United Kingdom and
Australia.
The geographic diversity of AMF's Bowling Centers operations across
different regions of the U.S. and across nine other countries, along with the
bowling centers industry's historic relative insulation from recessions, has
provided stability to AMF's annual cash flows. See "Risk Factors -- Seasonality
and Market Development Cycles" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Seasonality and Market
Development Cycles".
The Company has an ongoing modernization program that results in its
bowling centers having more upgraded physical plants and attractive appearances
than those of other operators. Management believes that its historical spending
level of approximately 3.7% of Bowling Centers revenue is adequate to cover
routine capital expenditures. Management estimates that only 2% of Bowling
Centers revenue is required for nondiscretionary capital expenditures alone. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Capital Expenditures".
The Bowling Centers business derives its revenue and profits from three
principal sources: (i) bowling, (ii) food and beverage and (iii) other sources,
such as shoe rental, amusement games, billiards and pro shops. In 1996, bowling,
food and beverage and other revenue represented 62%, 24% and 14% of total
Bowling Centers revenue, respectively.
Bowling revenue, the largest portion of a bowling center's revenue and
profitability, is derived from league play, tournament play and recreational
play. Food and beverage sales occur primarily through snack bars that offer
snack foods, soft drinks and, at many centers, alcoholic beverages. AMF has
acquired several centers with large sports bars that provide a large portion of
such centers' revenue. Other revenue is derived from shoe rental and the
operation of amusement games, billiards and pro shops. The shoe rental business
is driven primarily by recreational bowlers who usually do not own a pair of
bowling shoes. Recreational bowlers and non-bowling customers are also the
primary users of amusement games and billiards tables.
RECENT ACQUISITIONS AND JOINT VENTURES
On October 10, 1996, AMF completed the acquisition of 50 bowling centers
and certain related assets and liabilities from Charan. The purchase price of
the Charan acquisition was approximately $106.5 million, subject to certain
adjustments. The Charan acquisition was funded with approximately $40 million
from the sale of equity by AMF Bowling to its existing institutional
stockholders and one of its directors, and with approximately $66.5 million
borrowed under the Acquisition Facility.
On April 24, 1997, AMF completed the acquisition of American Recreation
Centers, Inc. ("ARC"), which operated 43 bowling centers in six states. The
aggregate price of the ARC acquisition was approximately $70.0 million,
including repayment of certain debt and the purchase of related joint venture
interests, and was funded with borrowings under the Acquisition Facility.
In addition, between May 1, 1996 and October 24, 1997, the Company acquired
44 centers in the United States, seven centers in the U.K. and two centers in
Australia from various single-center and small chain operators, and one chain of
15 bowling centers from Conbow. The aggregate purchase price for such
acquisitions was approximately $130.3 million, and was funded with borrowings
under the Acquisition Facility.
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<PAGE> 45
As a result of the foregoing acquisitions and after giving effect to the
construction of one center and the closing of eight centers since the
Acquisition, the Company operated 353 U.S. bowling centers and 86 international
bowling centers as of October 24, 1997.
As of October 24, 1997, after giving effect to such acquisitions, $59.0
million remained available under the Acquisition Facility, of which a portion is
expected to partially fund acquisitions that are scheduled to close by the end
of January 1998.
The Company has entered into purchase agreements to acquire eighteen U.S.
centers from several unrelated sellers. The aggregate purchase price for such
centers is expected to be approximately $38.5 million and is expected to be
funded with borrowings under the Acquisition Facility (or, under the Proposed
Amendments, the Working Capital Facility) and internally generated cash. See
"Management's Discussion and Analysis of Financial Statements and Results of
Operation -- Capital Resources".
In April 1997, the Company entered into a joint venture arrangement with
Hong Leong Corporation Limited, a Singapore based conglomerate ("Hong Leong").
Pursuant to the arrangement, the joint venture, to be owned 50% by the Company
and 50% by Hong Leong, is expected to build and operate up to 20 bowling centers
during the next three years. These bowling centers, the first of which is
expected to open during 1997 in Tianjin, China, will be located in China,
Indonesia, Malaysia, the Philippines, Thailand and Vietnam.
In August 1997, the Company entered into a joint venture arrangement with
Playcenter S.A., a Sao Paulo based amusement and entertainment company
("Playcenter"). Pursuant to the arrangement, the joint venture, owned 50% by the
Company and 50% by Playcenter, is expected to build or assume ownership of, and
operate, up to 39 bowling centers in Brazil and Argentina during the next four
years.
The Company expects its total investments in the joint ventures with Hong
Leong and Playcenter to be approximately $12 million and $14 million,
respectively, and expects each joint venture to finance the construction and
acquisition of bowling centers with financing that is non-recourse to the
Company.
On October 20, 1997, the Company acquired Michael Jordan Golf Company,
Inc., a company formed to build and operate golf practice ranges in select U.S.
locations. In connection with such acquisition, the Company agreed to build two
golf practice ranges by the end of 1999.
COMPETITION (BOWLING CENTERS)
Bowling, both as a competitive sport and a recreational activity, faces
competition from numerous alternative activities. The ongoing success of the
Company's Bowling Centers operations is subject to the level of interest in
bowling, the availability and relative cost of other sport, recreational and
entertainment alternatives, the amount of leisure time enjoyed by potential
players, as well as various other social and economic factors over which AMF has
no control. There can be no assurance that bowling will continue to be popular
or that the Company will continue to compete effectively in the industry. See
"Risk Factors -- Bowling Industry Characteristics", "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Performance by
Business Segment -- Bowling Centers" and "-- Business Strategy".
The Company's centers also compete with other bowling centers. See
"-- Industry Overview". The Company competes primarily through the quality,
appearance and location of its facilities and through the range of amenities and
service level offered.
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<PAGE> 46
FACILITIES (BOWLING CENTERS)
As of October 24, 1997, AMF operated 353 centers in the United States and
86 centers in nine other countries. A regional list of these facilities is set
forth below:
U.S. CENTERS*
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF OWNED/
CLUSTERS CENTERS LEASED
--------- --------- -------
<S> <C> <C> <C>
REGION
Pacific........................................... 8 54 24/30
Great Lakes....................................... 7 51 39/12
Baltimore/Washington.............................. 3 24 15/9
Northeast......................................... 7 52 28/24
Southern.......................................... 10 58 42/16
Mid-Atlantic...................................... 6 40 25/15
Midwest........................................... 6 37 27/10
Texas............................................. 6 35 28/7
--
--- -------
Total........................................... 53 351 228/123
== === =======
</TABLE>
- ---------------
* AMF operates two centers for an unrelated party. The two managed centers are
neither owned nor leased by AMF and, therefore, are not included in the
foregoing table.
INTERNATIONAL CENTERS
<TABLE>
<CAPTION>
NUMBER OF OWNED/
LOCATIONS LEASED
--------- ------
<S> <C> <C>
COUNTRY
Australia....................................................... 38 23/15
United Kingdom.................................................. 22 3/19
Mexico.......................................................... 9 5/4
China (including Hong Kong)..................................... 6 0/6
Japan........................................................... 4 0/4
France.......................................................... 3 0/3
Spain........................................................... 2 0/2
Switzerland..................................................... 1 0/1
Canada.......................................................... 1 1/0
--
-----
Total......................................................... 86 32/54
== =====
</TABLE>
AMF's leases are subject to periodic renewal. Thirty-five of the U.S.
Bowling Centers have leases which expire during the next three years. Twenty-two
of such leases have renewal options. Nineteen of the international Bowling
Centers have leases which expire during the next three years. Twelve of such
leases have renewal options. AMF generally does not have difficulty renewing
leases.
EMPLOYEES (BOWLING CENTERS)
As of July 31, 1997, Bowling Centers operations had approximately 12,882
full- and part-time employees. The Company believes that its relations with its
Bowling Centers employees are satisfactory.
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<PAGE> 47
NUMBER OF EMPLOYEES
<TABLE>
<CAPTION>
NUMBER OF
EMPLOYEES
----------
<S> <C>
COUNTRY
United States................................................ 10,624
------
International:
Australia................................................. 1,144
United Kingdom............................................ 550
Mexico.................................................... 220
China (including Hong Kong)............................... 122
Japan..................................................... 48
France.................................................... 77
Spain..................................................... 33
Switzerland............................................... 13
Canada.................................................... 51
------
Total International.................................. 2,258
------
Total Worldwide...................................... 12,882
======
</TABLE>
AMF BOWLING PRODUCTS
AMF is one of only two bowling center equipment manufacturers that compete
on a global basis. Management believes that AMF bowling equipment accounts for
approximately 41% of the world's installed base of bowling center equipment and
has supplied or is supplying equipment to an estimated 10,000 bowling centers in
over 50 countries. The Company manufactures and sells bowling center equipment,
including automatic pinspotters, automatic scoring equipment, bowling pins,
lanes, ball returns, and certain spare and modernization parts, and resale
products, such as bowling balls, bags, shoes and other bowlers' aids, sold
primarily through pro shops.
The bowling products business consists of two categories: (i) New Center
Packages (all of the equipment necessary to outfit a new bowling center or
expand an existing bowling center); and (ii) Modernization and Consumer Products
(which includes modernization equipment, spare parts, supplies and consumable
products).
AMF positions its products as high quality, technologically advanced
products, allowing AMF generally to command premium prices. AMF's long history
of bowling equipment innovation began over 50 years ago when AMF revolutionized
ten pin bowling with the introduction of the automatic pinspotter. Today, AMF
manufactures 8800 Gold (the fastest pinspotter for play conducted under
conditions specified by the American Bowling Congress) and 8290 pinspotters,
and, management believes, the highest-scoring lanes and the most durable pins.
The superior speed of AMF's pinspotter directly influences the amount of bowling
revenue a bowling center can generate, and the reliability and ease of repair is
an important marketing tool against sellers of refurbished equipment. AMF's HPL
synthetic lanes, introduced in 1988, are the performance leaders. In the annual
American Bowling Congress tournament, where AMF and Brunswick supply the
equipment in alternating years, every major scoring record has been set on AMF's
synthetic lanes. Internal tests demonstrate that AMF pins are more durable under
stress conditions and are less likely to break. In general, AMF's products are
developed through internal research and development efforts. AMF holds over 40
U.S. patents for its various proprietary products and technologies.
MODERNIZATION AND CONSUMER PRODUCTS
The potential customers for Modernization and Consumer Products include all
bowling centers in operation today, and the number of these potential customers
will continue to grow as the number
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<PAGE> 48
of centers increases. In order for a bowling center to remain competitive and to
satisfy its customers, the center operator must make certain periodic
investments in the center's equipment. Some of these investments, such as
replacing pins, must be made on approximately an annual basis. These annual
investments represent relatively modest expenditures necessary to maintain the
center. Other equipment, such as automatic scoring systems, replacement lanes
and upgraded automated lane maintenance equipment, require less frequent but
more significant investments by center operators. Management believes that many
of these modernizations are necessary for a center to maintain its existing
customer base.
NEW CENTER PACKAGES
New Center Packages include the equipment necessary to outfit new or expand
existing bowling centers, such as lanes, pinspotters, automatic scoring, bowler
seating, ball returns, masking units and bumpers. AMF is focused on sales of
NCPs into selected countries with demonstrated strong demand for bowling
products, such as China, Japan and Germany. In addition, AMF believes that
markets, such as Argentina, Brazil, Indonesia, India, Poland and other selected
markets in Asia, Eastern Europe and South America, hold the potential for high
growth over the next several years, but are currently in the early stages of the
industry's development. As bowling is introduced in a market and becomes more
popular, local developers and entrepreneurs build new bowling centers, which are
outfitted with equipment, and drive demand for NCPs. To capitalize on this
development cycle, AMF has entered into the joint ventures with Hong Leong and
Playcenter described under "-- AMF Bowling Centers -- Recent Acquisitions and
Joint Ventures". See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Backlog; Recent NCP Sales".
BILLIARDS
In addition to bowling equipment and supplies, AMF manufactures and sells
PlayMaster billiards tables. PlayMaster sells an extensive line of home
billiards tables and a limited line of commercial billiards tables. For the six
months ended June 30, 1997, PlayMaster had revenue of $3.8 million.
COMPETITION (BOWLING PRODUCTS)
AMF is one of the largest manufacturers of bowling center equipment in the
world. Management estimates that AMF accounts for approximately 41% of the
worldwide installed base of bowling center equipment.
AMF and Brunswick are the two largest manufacturers of bowling center
equipment, and are the only full-line manufacturers of NCPs and Modernization
and Consumer Products that compete on a global basis. The Company also competes
with smaller, often regionally focused companies in certain product lines. For
example, DACOS, a Korean-based manufacturer, competes with the Company in the
Asia-Pacific region, primarily in China and Korea.
Because of bowling equipment's relatively long useful life, used equipment
can be refurbished and sold, often to builders of new centers. The Company
actively purchases and resells used equipment in new, high growth markets in
order to compete with refurbishers who often are U.S. based.
PROPERTIES (BOWLING PRODUCTS)
As of October 24, 1997, AMF owned or leased facilities at five locations in
the U.S., four of which are used for its Bowling Products business and one of
which is used for its billiards business. AMF also leased facilities at 28
international locations, which are used as offices or warehouses. These
facilities are listed below.
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<PAGE> 49
U.S. FACILITIES
<TABLE>
<CAPTION>
APPROXIMATE OWNED/
LOCATION PRODUCTS SQUARE FOOTAGE LEASED
- ----------------------- -------------------------------------------- -------------- -------
<S> <C> <C> <C>
Richmond, VA........... World headquarters,
pinspotters, automatic scoring, synthetic
lanes, other capital equipment, 360,000 Owned
consumer products, used pinspotters 54,000 Leased
Lowville, NY........... Pins and wood lanes 121,000 Owned
50,000 Owned
Golden, CO............. Lane maintenance equipment (Century) 50,000 Leased
Bland, MO.............. Billiard tables (PlayMaster) 37,210 Owned
33,373 Leased
32,000 Owned
24,000 Owned
16,000 Owned
11,000 Leased
Miami, FL.............. Office 200 Leased
</TABLE>
INTERNATIONAL FACILITIES
<TABLE>
<CAPTION>
APPROXIMATE OWNED/
LOCATION FUNCTIONS SQUARE FOOTAGE LEASED
- ---------------------------------------------------- ---------- -------------- -------
<S> <C> <C> <C>
Emu Plains, Australia............................... Office 400 Leased
Warehouse 10,100 Leased
Brussels, Belgium................................... Office 1,000 Leased
Ontario, Canada..................................... Office 400 Leased
Beijing, China...................................... Office 390 Leased
Guangzhou, China.................................... Office 380 Leased
Warehouse 1,650 Leased
Hong Kong........................................... Office 2,500 Leased
Office 1,125 Leased
Shanghai, China..................................... Office 400 Leased
Levallois-Perret, France............................ Office 984 Leased
Warehouse 1,470 Leased
Mainz-Kastel, Germany............................... Office 656 Leased
Warehouse 1,650 Leased
Bangalore, India.................................... Office 1,050 Leased
New Delhi, India.................................... Office 2,000 Leased
Yokohama, Japan..................................... Office 4,626 Leased
Warehouse 8,880 Leased
Service
Center 1,634 Leased
Seoul, Korea........................................ Office 5,119 Leased
Warehouse 7,472 Leased
Mexico City, Mexico................................. Office 1,300 Leased
Warehouse 11,431 Leased
Warsaw, Poland...................................... Office 209 Leased
Granna, Sweden...................................... Office 4,515 Leased
Warehouse 12,705 Leased
Hemel Hempstead, United Kingdom..................... Office 11,500 Leased
Warehouse 11,770 Leased
</TABLE>
49
<PAGE> 50
EMPLOYEES (BOWLING PRODUCTS)
As of July 31, 1997, the Bowling Products business had approximately 995
full-time employees. The Company believes that its relations with its Bowling
Products employees are satisfactory. Employees are divided along functional
lines as shown in the table below.
EMPLOYEES
<TABLE>
<CAPTION>
SEGMENT NUMBER OF EMPLOYEES
--------------------------------------------------------- -------------------
<S> <C>
Manufacturing............................................ 653
---
Sales
Australia.............................................. 8
Americas............................................... 48
Europe................................................. 53
Asia-Pacific........................................... 192
Japan.................................................. 41
---
Total Sales......................................... 342
---
Total Worldwide................................ 995
===
</TABLE>
EMPLOYEES (CORPORATE)
As of July 31, 1997, the Company had approximately 142 full-time corporate
employees. The Company believes that its relations with its corporate employees
are satisfactory.
LEGAL PROCEEDINGS
The Company currently and from time to time is subject to claims and suits
arising in the ordinary course of its business, including employment
discrimination claims, workers' compensation claims, and personal injury claims
from customers of Bowling Centers. In certain such actions, plaintiffs request
punitive or other damages that may not be covered by insurance. In the opinion
of management, the various asserted claims and litigation in which the Company
currently is involved will not have a material adverse effect on its financial
position or results of operations. However, no assurance can be given as to the
ultimate outcome with respect to such claims and litigation.
On March 5, 1996, the defendant in an action entitled Northland Bowl and
Sports Center, Inc. and Recreation Association, II v. Golden Giant, Inc., d/b/a
Golden Giant Building Systems, Court of Common Pleas, Centre County,
Pennsylvania, asserted a third-party claim against AMF Bowling Products, Inc.
(formerly named AMF Bowling, Inc.), a wholly owned, indirect subsidiary of AMF
Bowling ("AMF Bowling Products"), and other parties. Defendant, Golden Giant,
Inc. ("Golden Giant"), a construction company, was originally named as the sole
defendant by a bowling center (not owned or operated by the Company) in
connection with the collapse of such center's roof in early 1994. Golden Giant
named AMF Bowling Products as an additional defendant, charging it with
negligence and breach of implied warranty for installing scoring monitors (four
years before the roof collapsed) on a portion of the building that allegedly
could not adequately support the additional weight of the equipment. The bowling
center plaintiff claims total damages in amounts exceeding $3.5 million, and
Golden Giant asserts that, if the plaintiff is entitled to any recovery, it
should be in whole or part against AMF Bowling Products. On March 25, 1997, an
order was entered dismissing AMF Bowling Products from the lawsuit, which
continues against the other defendants. The plaintiff has appealed the order
dismissing AMF Bowling Products, and in October 1997, the appellate court denied
the plaintiff permission to appeal.
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<PAGE> 51
REGULATORY MATTERS
There are no unique federal or state regulations applicable to bowling
center operations or equipment manufacturing. State and local governments
require establishments to hold permits to sell alcoholic beverages, and,
although regulations vary from state to state, once permits are issued, they
generally remain in place indefinitely (except for routine renewals) without
burdensome reporting or supervision other than revenue tax reports. See "Risk
Factors -- International Operations".
ENVIRONMENTAL MATTERS
AMF's operations are subject to federal, state, local and foreign
environmental laws and regulations that impose limitations on the discharge of,
and establish standards for the handling, generation, emission, release,
discharge, treatment, storage and disposal of, certain materials, substances and
wastes. AMF believes that its operations are in material compliance with the
terms of all applicable environmental laws and regulations as currently
interpreted.
The Company currently and from time to time is subject to environmental
claims. It is the opinion of management that the various asserted claims in
which the Company currently is involved are not likely to have a material
adverse effect on its financial position or results of operations. However, no
assurance can be given as to the ultimate outcome with respect to such claims.
AMF has received notices of potential liability under CERCLA or analogous
state statutes at eight off-site disposal facilities. AMF believes that the
entity involved was a de minimis contributor of waste at each of these sites. In
addition, in connection with the Acquisition, AMF Reece Inc., which is owned by
certain of the prior owners of AMF, will be required to indemnify AMF for the
liability at three of these sites under an indemnity agreement which certain of
the prior owners of AMF were required by such agreement to procure. AMF does not
believe that CERCLA liabilities for these eight sites in the aggregate will have
a material adverse effect on AMF's business or financial condition taken as a
whole.
AMF cannot predict with any certainty whether existing conditions or future
events, such as changes in existing laws and regulations, may give rise to
additional environmental costs. Furthermore, actions by federal, state, local
and foreign governments concerning environmental matters could result in laws or
regulations that could increase the cost of producing AMF's products, or
providing its services, or otherwise adversely affect the demand for its
products or services. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Environmental Matters".
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<PAGE> 52
MANAGEMENT
OFFICERS AND DIRECTORS
The following table sets forth information concerning the individuals who
are the executive officers and directors of AMF Bowling and certain other
officers of AMF:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- -------------------------------------------------
<S> <C> <C>
Richard A. Friedman................ 39 Director and Chairman
Douglas J. Stanard................. 50 Director; President and Chief Executive Officer
Stephen E. Hare.................... 44 Director; Executive Vice President; Chief
Financial Officer and Treasurer
Michael P. Bardaro................. 46 Vice President; Secretary and Corporate
Controller
Paul D. Barkley.................... 41 Vice President, U.S. Operations of AMF Bowling
Centers
Stephen C. Mackie.................. 48 Vice President, International Operations of AMF
Bowling Centers
Steven H. Buckley.................. 48 Vice President, Food and Beverage of AMF Bowling
Centers
Lawrence C. Kind................... 45 Vice President of AMF Bowling Products
J. Randolph V. Daniel, IV.......... 37 Vice President, New Center/Modernization Products
of AMF Bowling Products
J. Simon Shearer................... 41 Vice President, Worldwide Quality Management of
AMF Bowling Products
Merrell C. Wreden.................. 48 Vice President, Marketing
Charles G. Moss.................... 36 Director of Corporate Development
Daniel M. McCormack................ 52 Vice President and General Counsel
Terence M. O'Toole................. 39 Director
Peter M. Sacerdote................. 59 Director
Charles M. Diker................... 62 Director
Paul B. Edgerley................... 41 Director
Howard A. Lipson................... 33 Director
Thomas R. Wall IV.................. 39 Director
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS OF AMF BOWLING
RICHARD A. FRIEDMAN is a Managing Director of Goldman Sachs where he is the
head of the Principal Investment Area. He joined Goldman Sachs in 1981. Mr.
Friedman is on the Advisory Committees or Boards of Directors of Diamond Cable
Communications PLC, Marcus Cable Company, L.P., and Polo Ralph Lauren
Corporation. He received an A.B. from Brown University and an M.B.A. from The
University of Chicago.
DOUGLAS J. STANARD is the President and Chief Executive Officer of AMF
Bowling. He served as President of AMF Worldwide Bowling Centers from 1993 to
1995 and President of AMF U.S. Bowling Centers in 1992. He joined AMF in 1992
after having been President of Stewart Foods, Inc. from 1989 to 1992 and
President of Beatrice International Food (Europe) S.A. from 1984 to 1988. Mr.
Stanard received a B.S. from Northern Illinois University and a J.D. from The
College of William and Mary.
STEPHEN E. HARE is the Executive Vice President and Chief Financial Officer
of AMF Bowling and has been Executive Vice President and Chief Financial Officer
of Bowling Worldwide since he joined AMF in May 1996. Prior to joining AMF, Mr.
Hare was Senior Vice President and Chief Financial Officer of James River
Corporation of Virginia, beginning in 1992. Before joining James River
Corporation, he was Senior Vice President of Investment Banking at Kidder,
Peabody & Co. in New
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<PAGE> 53
York. Mr. Hare holds a Certified Public Accountant license. He received a B.B.A.
from the University of Notre Dame and an M.B.A. from the Harvard Graduate School
of Business Administration.
MICHAEL P. BARDARO is a Vice President, Secretary and Corporate Controller
of AMF Bowling. He joined AMF in 1994 after having been Controller at General
Medical Manufacturing Co. in Richmond, Virginia between 1989 and 1994 and Vice
President/Controller at Virginia Linen Service, Inc. between 1986 and 1989. Mr.
Bardaro holds a Certified Public Accountant License in Virginia. He received a
B.S. in Accounting from the University of Cincinnati.
TERENCE M. O'TOOLE is a Managing Director of Goldman Sachs in the Principal
Investment Area. He joined Goldman Sachs in 1983. Mr. O'Toole serves on the
Boards of Directors of Concentric Network Corporation, Insilco Corporation,
21(st) Century Newspapers, Inc. and Western Wireless Corporation. He holds a
B.S. degree from Villanova University and an M.B.A. from the Stanford University
Graduate School of Business.
PETER M. SACERDOTE is a limited partner in The Goldman Sachs Group. He
joined Goldman Sachs in 1964 and served as a general partner from 1973 to 1990.
Mr. Sacerdote is Chairman of Goldman, Sachs & Co. Principal Investment
Committee. Mr. Sacerdote serves on the Boards of Directors of Franklin
Resources, Inc. and QUALCOMM Incorporated. Mr. Sacerdote has a B.E.E. from
Cornell University and an M.B.A. from the Harvard Graduate School of Business
Administration.
CHARLES M. DIKER has been a non-managing principal of Weiss, Peck & Greer,
an investment management firm, since 1975. He has been Chairman of the Board of
Cantel Industries since 1986. Mr. Diker serves as a director of BeautiControl
Cosmetics, International Specialty Products, Data Broadcasting and Chyron
Corporation. He received an A.B. from Harvard College and an M.B.A. from the
Harvard Graduate School of Business Administration.
PAUL B. EDGERLEY has been Managing Director of Bain Capital, Inc., an
investment firm, since 1993. From 1990 to 1993 he was a General Partner of Bain
Venture Capital, and from 1988 to 1990 he was a principal of Bain Capital
Partners. He serves on the Boards of Directors of Steel Dynamics, Inc. and GS
Industries, Inc. Mr. Edgerley received a B.S. from Kansas State University and
an M.B.A. with distinction from the Harvard Graduate School of Business
Administration.
HOWARD A. LIPSON is Senior Managing Director of The Blackstone Group, and
has been involved in the firm's principal activities since 1988. He serves on
the Boards of Directors of Allied Waste Industries, Inc., Rose Hills Company,
Prime Succession, Inc., Volume Services, Inc. and Ritvik Holdings, Inc. Mr.
Lipson received a B.S. in Economics from the Wharton School of The University of
Pennsylvania.
THOMAS R. WALL IV joined Kelso in 1983 and has served as a Managing
Director since 1990. Mr. Wall is a director of CCA Holdings Corp., CCT Holdings
Corp., Charter Communications Long Beach, Inc., Consolidated Vision Group, Inc.,
Cygnus Publishing, Inc., IXL Holdings, Inc., Mitchell Supreme Fuel Company,
Mosler Inc., Peebles, Inc., TransDigm Inc., 21(st) Century Newspapers, Inc.,
Hillside Broadcasting of North Carolina, Inc. and Tyler Refrigeration
Corporation.
OTHER OFFICERS OF AMF
PAUL D. BARKLEY has served as Vice President, U.S. Operations of AMF
Bowling Centers since February 1997. Mr. Barkley served as Vice President of
U.S. Operations, Western U.S. of AMF Bowling Centers in 1996 and as a region
manager in 1995. In 1993 and 1994, Mr. Barkley served as a Region Manager for
Fair Lanes. Mr. Barkley has a degree in accounting from Arizona State
University.
STEPHEN C. MACKIE has served as Vice President, International Operations of
AMF Bowling Centers since May 1996. Mr. Mackie has served AMF Bowling Centers in
various other capacities since 1980.
53
<PAGE> 54
STEVEN H. BUCKLEY has served as Vice President, Food and Beverage of AMF
Bowling Centers since February 1997. Prior to joining AMF, Mr. Buckley was a
Vice President at Chock Full O' Nuts Corp. Mr. Buckley received a B.B.A. in
finance from Hofstra University.
LAWRENCE C. KIND has served as Vice President, Bowling Products since
February 1997. Mr. Kind had served as Region Manager of AMF Bowling Centers from
1993 to February 1997. Mr. Kind received a B.A. in Business from Long Island
University.
J. RANDOLPH V. DANIEL, IV was named Vice President, New
Center/Modernization Products for AMF Bowling Products in February 1997. Mr.
Daniel served as General Manager, Capital Equipment Division from 1995 to
February 1997 and as Director of Operations, Capital Equipment Division from
1993 to 1994 for AMF Bowling Products. Mr. Daniel received a B.S. and an M.B.A.
from the University of Virginia.
J. SIMON SHEARER has served as Vice President Worldwide Quality at AMF
Bowling Products since February 1997. Mr. Shearer has served AMF in various
other capacities since 1981. Mr. Shearer attended the University of South
Australia.
MERRELL C. WREDEN has served as Vice President, Marketing since October
1996. Prior to joining AMF, Mr. Wreden was Group Manager Advertising, Promotion
at The Remington Arms Company, Inc. since 1993. Mr. Wreden has a B.A. from the
University of Virginia.
CHARLES G. MOSS has served as Director of Center Development since May
1996. Mr. Moss has served AMF in various other capacities since 1991. Mr. Moss
received a B.A. and an M.B.A. from the University of Virginia.
DANIEL M. MCCORMACK has been a Vice President and General Counsel of AMF
since May 1996. Prior to that time, Mr. McCormack was an attorney with CCA
Industries, Inc., where he had been employed since 1990. Mr. McCormack has a
B.A. and J.D. from University of Richmond.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has three standing committees: an Audit Committee, a
Compensation Committee and an Executive Committee.
The Audit Committee has general responsibility for supervising financial
controls, as well as responsibility for accounting and auditing activities of
the Company. The Audit Committee annually reviews the qualifications of the
Company's independent certified public accountants, makes recommendations to the
Board of Directors as to their selection and reviews the planning, fees and
results of their audit. The Audit Committee will consist solely of independent
directors.
The Compensation Committee is responsible for reviewing and approving the
amount and type of consideration to be paid to senior management and is
authorized to make grants and various other decisions under the AMF Bowling,
Inc. 1996 Stock Incentive Plan (the "Stock Incentive Plan") and to make
determinations as to a number of the terms of awards granted under the Stock
Incentive Plan. See "-- AMF Bowling, Inc. 1996 Stock Incentive Plan".
The Executive Committee may exercise all the powers and authority of the
Board of Directors (subject to any restrictions under Delaware law) except with
respect to those actions requiring a Special Vote (as hereinafter defined) and,
in the case of matters requiring a prior meeting of the Board of Directors, only
after such meeting has occurred. See "Principal Stockholders -- Stockholders
Agreement".
EXECUTIVE COMPENSATION
The following table shows for each of the three years ended December 31,
1994, 1995 and 1996, all annual compensation paid or accrued by AMF and the
Predecessor Company, as applicable, to AMF Bowling's Chief Executive Officer and
its three executive officers (collectively, the "Named Executive Officers").
54
<PAGE> 55
EXECUTIVE COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------
------------------- SECURITIES ALL OTHER
SALARY BONUS UNDERLYING STOCK LTIP COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) OPTIONS(#)(a) ($) ($)(b)
- -------------------------------- ---- ------- ------- ---------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Douglas J. Stanard.............. 1994 180,000 112,500 -- -- --
President/Chief Executive 1995 225,000 204,750 -- -- --
Officer 1996 308,333 229,167 130,000 -- 7,500
Richard A. Friedman(c).......... 1996 -- -- -- -- --
Chairman
Stephen E. Hare................. 1994 N/A N/A N/A N/A N/A
Executive Vice President/ 1995 N/A N/A N/A N/A N/A
Chief Financial Officer/ 1996 178,333(d) 266,667(e) 105,000 N/A --
Treasurer
Robert L. Morin(f).............. 1994 103,000 59,950 -- -- --
Executive Vice President/ 1995 180,286 60,125 -- -- --
Director of Worldwide 1996 228,341 83,325 110,000 860,100(g) 7,500
Market Development
Michael P. Bardaro.............. 1994 44,371(h) 4,500 -- -- --
Vice President/Secretary 1995 95,833 29,958 -- -- 2,327
and Corporate Controller 1996 120,958 40,076 25,000 -- 168,338(i)
</TABLE>
- ---------------
(a) Options to purchase shares of Common Stock.
(b) Unless otherwise indicated, all other compensation represents 401(k) plan
and profit-sharing contributions made by Bowling Worldwide.
(c) Mr. Friedman ceased to hold the positions of Chief Executive Officer and
President of AMF Bowling on July 31, 1997, at which time Mr. Stanard, who
had been and continues to be Chief Executive Officer of AMF's principal
subsidiaries, assumed the additional titles of President and Chief Executive
Officer of AMF Bowling.
(d) Mr. Hare's employment with Bowling Worldwide began on May 28, 1996.
(e) Mr. Hare received two bonuses with respect to 1996, one for $166,667 and one
for $100,000. Mr. Hare used the proceeds of the $166,667 bonus to pay a
portion of the purchase price for 150,000 shares of Common Stock. Further,
the Company loaned Mr. Hare $62,614 to be used to pay taxes associated with
such bonus. In exchange, Mr. Hare gave the Company a full recourse
promissory note secured by the 150,000 shares of Common Stock. See
"-- Employment Agreements".
(f) Mr. Morin's employment terminated, and he resigned all positions with AMF
and its affiliates as of February 28, 1997.
(g) Prior to the Acquisition, Mr. Morin held 10,000 shares of phantom stock in
the Capital Equipment Division ("CED") of the Predecessor Company under a
phantom stock plan (the "Phantom Stock Plan"). Under the Phantom Stock Plan,
the phantom stock was valued at five times the average earnings of CED for
the current and two preceding fiscal years. In connection with the
Acquisition, the shares of phantom stock issued under the Phantom Stock Plan
were exchanged for $86.01 per share and the Phantom Stock Plan was
terminated.
(h) Mr. Bardaro's employment with AMF began on July 5, 1994. On July 31, 1997,
Mr. Bardaro was elected Vice President, Secretary and Corporate Controller
of AMF Bowling.
(i) Includes a "special one-time bonus" in the amount of $161,388 paid by the
Predecessor Company in connection with the Acquisition.
55
<PAGE> 56
OPTION GRANTS
The following table provides information on grants of Stock Options in 1996
to the Named Executive Officers.
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OF TOTAL
SECURITIES STOCK OPTIONS
UNDERLYING GRANTED TO EXERCISE
STOCK OPTIONS EMPLOYEES PRICE GRANT DATE
GRANTED IN FISCAL PER PRESENT
NAME (SHARES)(1)(2)(3) 1996 SHARE EXPIRATION DATE VALUE(4)
- ----------------------- ----------------- ------------- -------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
Douglas J. Stanard..... 130,000 10.6% $ 10.00 May 1, 2006 $ 3.05
Stephen E. Hare........ 105,000 8.6% $ 10.00 May 28, 2006 $ 3.05
Robert L. Morin(5)..... 110,000 9.0% $ 10.00 May 1, 2006 $ 3.05
Michael P. Bardaro..... 25,000 2.0% $ 10.00 August 28, 2006 $ 3.08
</TABLE>
- ---------------
(1) Subsequent to January 1, 1997, Mr. Stanard, Mr. Hare and Mr. Bardaro were
granted Stock Options to purchase 25,000, 15,000, 10,000 shares of Common
Stock, respectively. These options are exercisable at $10 per share and for
a 10-year period expiring on June 11, 2007. All such Stock Options were
granted under the Stock Incentive Plan.
(2) All Stock Options listed in this table other than Mr. Stanard's Stock
Options to purchase 130,000 shares of Common Stock were granted under the
Stock Incentive Plan.
(3) Of the Stock Options granted to each Named Executive Officer listed in this
table and that will remain outstanding, 20% vest on each anniversary of
their grant until all have vested. The first anniversary of Mr. Stanard's
grant was May 1, 1997; the first anniversary of Mr. Hare's grant was May 28,
1997; and the first anniversary of Mr. Bardaro's grant was August 28, 1997.
(4) The present value of the grant at the date of grant is estimated using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for these grants: risk-free rate of return of 6.5%;
expected dividend yield of zero; expected time of exercise of ten years;
expected volatility of zero, due to the lack of a public trading market for
the securities underlying the options at the time of grant, based on the
minimum value method. No adjustments were made to reflect forfeiture risk or
non-transferability.
(5) In connection with the termination of his employment with AMF, Mr. Morin's
Stock Options were cancelled.
OPTION EXERCISES AND YEAR-END VALUES
The following table provides information for the Named Executive Officers
regarding the number and value of all their unexercised Stock Options at
December 31, 1996. No such officers exercised any Stock Options in fiscal year
1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED STOCK OPTIONS AT IN-THE-MONEY STOCK OPTIONS AT
DECEMBER 31, 1996 (SHARES) DECEMBER 31, 1996($)(1)
------------------------------- -----------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------------- ------------------------------- -----------------------------
<S> <C> <C>
Douglas J. Stanard................... 0 / 130,000 $ 0 / 0
Stephen E. Hare...................... 0 / 105,000 $ 0 / 0
Robert L. Morin...................... 0 / 110,000 $ 0 / 0
Michael P. Bardaro................... 0 / 25,000 $ 0 / 0
</TABLE>
- ---------------
(1) The fair market value of Stock Options as of December 31, 1996 was assumed
to be $10.00 per share, equal to the grant price, due to the lack of a
public trading market for the securities underlying the Stock Options.
EMPLOYMENT AGREEMENTS
Mr. Stanard and Mr. Hare each have an employment agreement (collectively,
the "Executive Employment Agreements") with AMF Bowling and Bowling Worldwide.
Mr. Stanard's Executive
56
<PAGE> 57
Employment Agreement is for an employment period ending on May 1, 1999, and Mr.
Hare's is for an employment period ending on May 28, 1999. Each executive
receives compensation consisting of salary and an incentive bonus if certain
operational and financial targets are met. Mr. Stanard's annual base salary is
$400,000 and Mr. Hare's annual base salary is $300,000. Both Executive
Employment Agreements provide for the payment of an annual bonus if certain
operational and financial targets determined by the Board of Directors of
Bowling Worldwide (the "Targets") are attained, and that the executive will earn
a smaller annual bonus if less than 100% but more than 90% of the Targets are
attained. Notwithstanding this provision, Mr. Hare's Executive Employment
Agreement additionally states that his annual bonus would not be less than
$100,000 for the fiscal year ending December 31, 1996 and will not be less than
$50,000 for the fiscal year ending December 31, 1997.
Under their respective Executive Employment Agreements, Mr. Stanard holds
the position of Chief Operating Officer of Bowling Worldwide and Mr. Hare holds
the position of Chief Financial Officer of Bowling Worldwide. In addition, Mr.
Stanard was elected President and Chief Executive Officer of AMF Bowling on July
31, 1997 and is currently serving as President of AMF Bowling Centers Inc., AMF
Bowling Products and certain other related entities. Mr. Hare also serves as
Executive Vice President, Chief Financial Officer and Treasurer of AMF Bowling.
The Executive Employment Agreements provide for payment of accrued
compensation, continuation of certain benefits and payment of a portion of the
executive's bonus (if the applicable Targets are later met) following
termination of employment by Bowling Worldwide under certain circumstances. The
Executive Employment Agreements further provide for a severance payment equal to
the executive's annual base salary if termination by Bowling Worldwide is not
due to death or disability. The executive's employment will be deemed to have
been terminated by Bowling Worldwide if all or substantially all of the stock or
assets of Bowling Worldwide are sold or disposed of to an unaffiliated third
party and the executive is not thereafter employed by AMF Bowling or one of its
continuing affiliates; however, neither AMF Bowling nor Bowling Worldwide will
have any obligations with respect to accrued salary, continuation of benefits,
allocated portion of bonus and, if applicable, severance payments to either Mr.
Stanard or Mr. Hare upon termination of his employment if he is hired by the
purchaser of Bowling Worldwide's stock or assets, or if his employment is
continued by Bowling Worldwide.
Mr. Stanard purchased, pursuant to his Executive Employment Agreement,
150,000 shares of Common Stock (the "Purchased Stock") for $500,000 in cash plus
a non-recourse promissory note for $1,000,000, payable to AMF Bowling and
secured by the Purchased Stock which has been pledged pursuant to a stock pledge
agreement between Mr. Stanard and AMF Bowling. Mr. Hare purchased 150,000 shares
of Common Stock for $500,000 in cash plus a non-recourse promissory note for
$1,000,000, payable to AMF Bowling and secured by the Purchased Stock which has
been pledged pursuant to a stock pledge agreement between Mr. Hare and AMF
Bowling. Mr. Hare received a bonus of $166,667 in connection with his employment
with AMF. Mr. Hare used the proceeds of such bonus to pay a portion of the
purchase price for his Purchased Stock. Further, the Company loaned Mr. Hare
$62,614 to be used to pay taxes associated with such bonus. In exchange, Mr.
Hare gave the Company a full recourse promissory note secured by his Purchased
Stock. In addition, Mr. Stanard and Mr. Hare were granted Stock Options to
purchase 130,000 and 105,000 shares of Common Stock, respectively. Unless sooner
exercised or forfeited as provided, such Stock Options expire on May 1, 2006,
and May 28, 2006, respectively. To the extent not inconsistent with the
Executive Employment Agreements, such Stock Options are governed by the Stock
Incentive Plan. Twenty percent of Mr. Stanard's Stock Options vested on May 1,
1997 and another twenty percent will vest on each May 1 thereafter through the
year 2001; and twenty percent of Mr. Hare's Stock Options vested on May 28, 1997
and another twenty percent will vest on each May 28 thereafter through the year
2001.
The Executive Employment Agreements further provide that, prior to the
consummation of a public offering or offerings by AMF Bowling with gross
proceeds in the aggregate of at least $100
57
<PAGE> 58
million (an "IPO"), AMF Bowling may, upon termination of the executive's
employment for any reason (including death), repurchase all of the shares of
Purchased Stock and any shares of Common Stock issued upon exercise of the Stock
Options (together, "Restricted Stock") held by him for fair market value as of a
specified date. The executive or his legal representative may, prior to such an
IPO, require AMF Bowling to repurchase all of his Restricted Stock at fair
market value (in the case of death or disability) or otherwise at the original
price paid for the shares, if Bowling Worldwide terminates his employment for
any reason. The consummation of the Offerings will constitute an IPO for
purposes of the Executive Employment Agreements and, accordingly, the foregoing
rights will terminate upon consummation of the Offerings. Immediately prior to
certain change in control transactions any unvested Stock Options will vest.
If any successor to AMF Bowling or Bowling Worldwide acquires all or
substantially all of the business and/or assets of AMF Bowling or Bowling
Worldwide, AMF Bowling may purchase all of the Restricted Stock held by the
executive for its fair market value, and any Stock Options then held by him for
the fair market value of the underlying Common Stock less the exercise price of
the Stock Options.
Prior to February 28, 1997, Mr. Morin was employed by AMF Bowling and a
subsidiary thereof pursuant to an employment agreement (the "Morin Employment
Agreement") on terms substantially similar to those of Mr. Stanard's Executive
Employment Agreement as described above. Mr. Morin's annual base salary was
$250,000. Pursuant to the Morin Employment Agreement, Mr. Morin purchased
150,000 shares of Common Stock ("Morin Purchased Stock") for $500,000 in cash
plus a non-recourse promissory note for $1,000,000 (the "Morin Note"), payable
to AMF Bowling and secured by the Morin Purchased Stock. In addition, Mr. Morin
was awarded Stock Options to purchase 110,000 shares of Common Stock.
As of February 28, 1997, Mr. Morin's employment terminated, and he resigned
all positions with AMF and its related entities. Pursuant to the terms of the
Morin Employment Agreement, Mr. Morin received a cash payment of $270,000,
representing severance pay equal to his annual base salary and an allocable
bonus in the amount of $20,000. Mr. Morin is also entitled to receive an amount
equal to the full balance of his 401(k) plan as of the close of business on
February 28, 1997. In addition, AMF Bowling repurchased the Morin Purchased
Stock for $500,000 in cash plus the cancellation of the Morin Note, including
interest thereon. The Stock Options granted to Mr. Morin were cancelled.
AMF BOWLING, INC. 1996 STOCK INCENTIVE PLAN
In connection with the Acquisition, AMF Bowling adopted the Stock Incentive
Plan under which AMF Bowling may grant incentive awards in the form of shares of
Common Stock ("Restricted Stock Awards"), options to purchase shares of Common
Stock ("Stock Options") and stock appreciation rights ("Stock Appreciation
Rights") to certain officers, employees, consultants and non-employee directors
("Participants") of AMF Bowling and its affiliates. The total number of shares
of Common Stock initially reserved and available for grant under the Stock
Incentive Plan is 1,767,151. As of August 31, 1997, Stock Options to purchase
1,418,000 shares of Common Stock were outstanding, at an exercise price of
$10.00 per share. The Compensation Committee is authorized to make grants and
various other decisions under the Stock Incentive Plan and to make
determinations as to a number of the terms of awards granted under the Stock
Incentive Plan. Unless otherwise determined by the Compensation Committee, any
Participant granted an award under the Stock Incentive Plan must become a party
to, and agree to be bound by, the Stockholders Agreement.
Stock Option awards under the Stock Incentive Plan may include incentive
Stock Options, non-qualified Stock Options, or both types of Stock Options, in
each case with or without Stock Appreciation Rights. Stock Options are
nontransferable (except under certain limited circumstances) and, unless
otherwise determined by the Compensation Committee, have a term of ten
58
<PAGE> 59
years. Upon a Participant's death or when the Participant's employment with AMF
Bowling or the applicable affiliate of AMF Bowling is terminated for any reason,
such Participant's previously unvested Stock Options are forfeited and the
Participant or his legal representative may, within three months (if termination
of employment is for any reason other than death) or one year (in the case of
the Participant's death), exercise any previously vested Stock Options.
Stock Appreciation Rights may be granted in conjunction with all or part of
any Stock Option award, and are exercisable, subject to certain limitations,
only in connection with the exercise of the related Stock Option. Upon the
termination or exercise of the related Stock Option, Stock Appreciation Rights
terminate and are no longer exercisable. Stock Appreciation Rights are
transferable only with the related Stock Options.
Unless otherwise provided in the related award agreement or, if applicable,
the Stockholders Agreement, immediately prior to certain change of control
transactions described in the Stock Incentive Plan, all outstanding Stock
Options and Stock Appreciation Rights will, subject to certain limitations,
become fully exercisable and vested and any restrictions and deferral
limitations applicable to any Restricted Stock Awards will lapse.
The Stock Incentive Plan will terminate ten years after its effective date
of May 1, 1996; however, awards outstanding as of such date will not be affected
or impaired by such termination. The Board of Directors and the Compensation
Committee have authority to amend the Stock Incentive Plan and awards granted
thereunder, subject to the terms of the Stock Incentive Plan.
Through October 24, 1997, Stock Options to purchase 1,798,000 shares of
Common Stock were granted (of which Stock Options to purchase 1,668,000 shares
of Common Stock were granted under the Stock Incentive Plan) and remain
outstanding. The exercise price for all such Stock Options is $10.00 per share.
Pursuant to an Option Agreement (the "Diker Option Agreement"), dated May
1, 1996, Mr. Diker, a director of AMF Bowling, AMF Group Holdings and Bowling
Worldwide was granted, pursuant to the Stock Incentive Plan, non-qualified Stock
Options to purchase 100,000 shares of Common Stock at an exercise price of
$10.00 per share. One third of such Stock Options vested on May 1, 1996, one
third vested on May 1, 1997 and the remaining Stock Options vest on May 1, 1998.
The Diker Option Agreement provides that, prior to an IPO, AMF Bowling may, upon
termination of Mr. Diker's service as a director of AMF Bowling for any reason
(including death but excluding disability), repurchase all of the shares of
Restricted Stock held by him for fair market value as of a specified date. Mr.
Diker or his legal representative may, prior to an IPO, require AMF Bowling to
repurchase all of his Restricted Stock at fair market value (in the case of
death or disability) or otherwise at the original price paid for the shares if
AMF Bowling terminates his service as a director of AMF Bowling for any reason.
If any successor to AMF Bowling acquires all or substantially all of the
business and/or assets of AMF Bowling, AMF Bowling may purchase all of the Stock
Options then held by Mr. Diker for the fair market value of the underlying
Common Stock less the exercise price of the Stock Options. Mr. Diker is a party
to the Stockholders Agreement and any shares of Common Stock held by Mr. Diker
will be subject to the terms of the Stockholders Agreement in addition to the
terms of his Option Agreement.
59
<PAGE> 60
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock, as of October 24, 1997 and as adjusted to reflect
the sale of the shares of Common Stock offered by AMF Bowling in the Offerings,
by (i) each stockholder who is known by AMF Bowling to own beneficially more
than 5% of the outstanding Common Stock prior to the Offerings, (ii) each
director of AMF Bowling, (iii) each Named Executive Officer of AMF Bowling and
(iv) all directors and executive officers of AMF Bowling as a group. Except as
set forth in the footnotes to the table, each stockholder listed below has
informed AMF that such stockholder has (a) sole voting and investment power with
respect to such stockholder's shares of Common Stock and (b) record and
beneficial ownership with respect to such stockholder's shares of Common Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
PRIOR TO THE SHARES BENEFICIALLY OWNED
OFFERINGS(1)(2) AFTER THE OFFERINGS(1)(2)(3)
NAME AND ADDRESS OF BENEFICIAL ------------------------- ------------------------------
OWNER NUMBER PERCENTAGE NUMBER PERCENTAGE
- ----------------------------------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
The Goldman Sachs Group(4)......... 30,836,593 68.6% 30,836,593 53.7%
Blackstone Group (as hereinafter
defined)(5)...................... 5,762,805 13.1% 5,762,805 10.2%
Kelso (as hereinafter
defined)(6)...................... 5,762,805 13.1% 5,762,805 10.2%
Richard A. Friedman(7)............. -- -- -- --
Terence M. O'Toole(8).............. -- -- -- --
Peter M. Sacerdote(9).............. -- -- -- --
Charles M. Diker................... 204,850(10) * 204,850(10) *
Paul B. Edgerley(11)............... -- -- -- --
Howard A. Lipson(12)............... -- -- -- --
Thomas R. Wall, IV(13)............. -- -- -- --
Douglas J. Stanard................. 176,000(14) * 176,000(14) *
Stephen E. Hare.................... 171,000(15) * 171,000(15) *
Michael P. Bardaro................. 5,000(16) * 5,000(16) *
All directors and executive
officers as a group (10
persons)......................... 556,850 1.3% 556,850 1.0%
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. In computing the number of shares beneficially owned by a
person and the percentage ownership of that person, shares of Common Stock
subject to options and warrants held by that person that are currently
exercisable or exercisable within 60 days of the date of this Prospectus
are deemed outstanding. Such shares, however, are not deemed outstanding
for the purposes of computing the percentage ownership of any other person.
(2) Based on 44,105,000 shares of Common Stock outstanding prior to the
Offerings, 56,605,000 shares of Common Stock outstanding after the
Offerings, and Warrants to purchase 870,000 shares of Common Stock
outstanding prior to and after the Offerings.
(3) Assumes no exercise of the Underwriters' over-allotment option.
(4) Of the total number of shares beneficially owned by The Goldman Sachs
Group, 870,000 shares are owned by The Goldman Sachs Group, 19,317,476 are
owned by GS Capital Partners II, L.P., 7,679,488 shares are owned by GS
Capital Partners II Offshore, L.P., 712,530 shares are owned by Goldman,
Sachs & Co. Verwaltungs GmbH, as nominee for GS Capital Partners II
(Germany) Civil Limited Partnership, 451,922 shares are owned by Stone
Street Fund 1995, L.P., 772,645 shares are owned by Stone Street Fund 1996,
L.P., 508,546 shares are owned by Bridge Street Fund 1995, L.P. and 523,986
shares are owned by Bridge Street Fund 1996, L.P. The 870,000 shares
beneficially owned by The Goldman Sachs Group represent Warrants to
purchase 870,000 shares of Common Stock, which were issued upon the closing
of the Acquisition. GS Capital Partners II, L.P., GS Capital Partners II
Offshore, L.P., GS Capital Partners II Germany, C.L.P., Stone Street Fund
1995, L.P., Stone Street Fund 1996, L.P., Bridge Street Fund 1995, L.P. and
Bridge Street Fund 1996, L.P., are investment partnerships. Affiliates of
The Goldman Sachs Group are the general, managing general or managing
partners of all of such partner-
60
<PAGE> 61
ships and have full voting and investment power with respect to the holdings of
such partnerships. The address of The Goldman Sachs Group is 85 Broad Street,
New York, New York 10004.
(5) Of the total number of shares beneficially owned by Blackstone Group,
4,141,761 shares are owned by Blackstone Capital Partners II Merchant
Banking Fund L.P., 1,210,342 shares are owned by Blackstone Offshore
Capital Partners II L.P. and 410,702 shares are owned by Blackstone Family
Investment Partnership II L.P. The address of Blackstone Group is 345 Park
Avenue, New York, New York 10154.
(6) Of the total number of shares beneficially owned by Kelso Investment
Associates V, L.P. ("KIA V") and Kelso Equity Partners V, L.P. ("KEP V,"
and together with KIA V, "Kelso"), 5,409,974 shares are owned by KIA V and
352,831 are owned by KEP V. The address of each such stockholder is c/o
Kelso & Company, 320 Park Avenue, 24th Floor, New York, New York 10022. Due
to their common control, KIA V and KEP V could be deemed to beneficially
own each other's shares, but each disclaims such beneficial ownership.
Frank T. Nickell, Thomas R. Wall, IV, George E. Matelich, Michael B.
Goldberg, David I. Wahrhaftig and Frank K. Bynum, Jr. may be deemed to
share beneficial ownership of shares beneficially owned of record by KIA V
and KEP V, by virtue of their status as general partners of the general
partner of KIA V and as general partners of KEP V. Messrs. Nickell, Wall,
Matelich, Goldberg, Wahrhaftig and Bynum share investment and voting power
with respect to securities owned by KIA V and KEP V, but disclaim
beneficial ownership of such securities.
(7) Mr. Friedman, who is a managing director of Goldman Sachs, disclaims
beneficial ownership of the shares owned by The Goldman Sachs Group and its
affiliates, except to the extent of his pecuniary interest therein.
(8) Mr. O'Toole, who is a managing director of Goldman Sachs, disclaims
beneficial ownership of the shares owned by The Goldman Sachs Group and its
affiliates, except to the extent of his pecuniary interest therein.
(9) Mr. Sacerdote, who is a limited partner of The Goldman Sachs Group,
disclaims beneficial ownership of the shares owned by The Goldman Sachs
Group and its affiliates, except to the extent of his pecuniary interest
therein.
(10) Includes 66,666 shares which may be acquired upon exercise of Stock Options
within 60 days.
(11) Mr. Edgerley, who is (i) a managing director of the general partner of the
general partner of Bain Capital Fund V, L.P. and Bain Capital Fund V-B,
L.P. and (ii) a general partner of BCIP Associates and BCIP Trust
Associates, L.P., disclaims beneficial ownership of the shares owned by
those entities (collectively, "Bain"). Bain Capital Fund V, L.P. owns
402,002 shares, Bain Capital Fund V-B, L.P. owns 1,055,469 shares, BCIP
Associates owns 193,031 shares and BCIP Trust Associates, L.P. owns 78,340
shares.
(12) Mr. Lipson, who is a member of the limited liability company which acts as
the general partner of Blackstone Capital Partners II Merchant Banking Fund
L.P., Blackstone Offshore Capital Partners II L.P. and Blackstone Family
Investment Partnership II L.P. (collectively, "Blackstone Group"),
disclaims beneficial ownership of the shares owned by Blackstone Group.
(13) Mr. Wall, who is (i) a general partner of Kelso Partners V, L.P., the
general partner of KIA V and (ii) a general partner of KEP V, disclaims
beneficial ownership of the shares owned by KIA V and KEP V.
(14) Includes 26,000 shares which may be acquired upon exercise of Stock Options
within 60 days.
(15) Includes 21,000 shares which may be acquired upon exercise of Stock Options
within 60 days.
(16) Includes 5,000 shares which may be acquired upon exercise of Stock Options
within 60 days.
STOCKHOLDERS AGREEMENT
On April 30, 1996, AMF Bowling, GSCP, Blackstone Group, Kelso, Bain (Bain,
together with Blackstone Group and Kelso, the "Governance Investors"), Citicorp
North America, Inc. ("Citicorp"), Mr. Diker (Mr. Diker, together with Blackstone
Group, Kelso, Bain and Citicorp, the "Investors"), Mr. Morin and Mr. Stanard
(together with Mr. Morin, the "Management Investors", and, with GSCP and the
Investors, the "Stockholders") entered into a stockholders agreement (the
"Stockholders Agreement"), which regulates the relationship among AMF Bowling
and the Stockholders. Subsequently, Mr. Hare and other members of management who
have received Stock Option awards under the Stock Incentive Plan have become
parties to the Stockholders Agreement as additional Management Investors and
Stockholders. The following discussion summarizes the
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terms of the Stockholders Agreement that AMF Bowling believes are material to
holders of Common Stock. This summary is qualified in its entirety by reference
to the full text of the Stockholders Agreement, which is filed as an exhibit to
the Registration Statement of which this Prospectus is a part.
The Stockholders Agreement confers on GSCP the right to increase or
decrease the Board of Directors from its initial size of nine members. GSCP has
the right to nominate five directors and to nominate a majority (not limited to
a simple majority) of the members of the Board of Directors, so long as GSCP and
its Permitted Transferees (as hereinafter defined) hold a majority of the
outstanding shares of Common Stock. Each Governance Investor has the right to
nominate, subject to GSCP consent, one member of the Board of Directors, so long
as the number of shares of Common Stock held by it and certain of its permitted
transferees under the Stockholders Agreement is equal to at least one-half of
the sum of (i) the number of shares initially purchased by it and its Permitted
Transferees plus (ii) the number of additional shares that the Governance
Investor was required to purchase pursuant to the "overcall" provisions of the
Stockholders Agreement described below (in each case, subject to appropriate
adjustments). If a Governance Investor is no longer entitled to nominate a
director, the director is required to resign or be subject to removal by the
Stockholders. Each of GSCP and each Governance Investor has the right to
recommend removal, with or without cause, of any director nominated by it, in
which case such director must resign immediately or be subject to removal by the
Stockholders. In the event of death, removal or resignation of a director
nominated by a Governance Investor, so long as the Governance Investor continues
to have the right to nominate a director for such position, the Governance
Investor has the right to nominate (subject to GSCP consent) a director to fill
the vacancy created. A quorum may be constituted by a majority of the number of
directors then in office, but not less than one-third of the whole Board of
Directors, including at least one GSCP director.
Pursuant to the "overcall" provisions of the Stockholders Agreement, each
of GSCP and the Investors (other than Mr. Diker) agreed, for a period of two
years from April 30, 1996, to purchase additional shares of Common Stock having
an aggregate purchase price of up to 20% of the amount initially invested by
such Investor (i.e., collectively up to a total of $75.6 million) upon the
request of the Board of Directors. Any such additional investments were required
to be made pro rata by the funding Investors. Funds raised through such
additional investments could be used only to finance acquisitions of businesses
or assets, capital expenditures, investments in partnerships or joint ventures
or other investments in the business of AMF Bowling and its subsidiaries, or any
similar transactions or expenditures. In October 1996, in connection with the
acquisition of the Charan centers, GSCP and the funding Investors purchased an
aggregate of 4,000,000 additional shares of Common Stock for $10.00 per share.
In September 1997, GSCP and the funding Investors of AMF Bowling purchased an
aggregate of 1,780,000 shares of Common Stock for $20.00 per share pursuant to
the overcall provisions of the Stockholders Agreement, and the aggregate
proceeds of $35.6 million were used in part to fund acquisitions, including that
of 15 centers from Conbow, and for other corporate purposes. The stockholders
party to the Stockholders Agreement have no further rights or obligations to
make capital contributions under the overcall provisions of the Stockholders
Agreement. See "Business -- AMF Bowling Centers -- Recent Acquisitions and Joint
Ventures" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity".
The Stockholders Agreement provides for the continual existence of an
Executive Committee, consisting of two directors designated by GSCP. The
Executive Committee may exercise all the powers and authority of the Board of
Directors (subject to any restrictions under Delaware law) except with respect
to those actions requiring a Special Vote and, in the case of matters which
under the Stockholders Agreement require a prior meeting of the Board of
Directors, only after such meeting has occurred. A "Special Vote" is required
for (i) the issuance of capital stock below fair market value, (ii) the grant or
issuance of options or warrants exercisable or exchangeable for more than
2,877,151 shares, (iii) entering into certain transactions with affiliates of
GSCP and
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(iv) amendments to the Stockholders Agreement, the Certificate of Incorporation
or By-Laws which amendments would adversely affect the rights and obligations of
Blackstone or Kelso; provided, that any amendment affecting a Stockholder
differently from any other Stockholder requires such Stockholder's approval.
Matters requiring a Special Vote must be approved by a majority of the GSCP
directors who are partners or employees of Goldman Sachs and who are not
employees of AMF Bowling and its subsidiaries, and at least one investor
director nominated by Blackstone or Kelso (if there is one serving at such
time).
Pursuant to the Stockholders Agreement, each of the Stockholders has agreed
(i) to appear in person or by proxy at any stockholder meeting for the purpose
of obtaining a quorum, (ii) to vote its shares of Common Stock at any
stockholder meeting called for the purpose of voting on the election or removal
of directors in favor of the election or removal of directors, as applicable, in
accordance with the provisions described in the third preceding paragraph, (iii)
otherwise to vote its shares of Common Stock at stockholder meetings in a manner
consistent with the Stockholders Agreement, (iv) not to grant any proxy or enter
into any voting trust with respect to the Common Stock it holds or enter into
any stockholder agreement or arrangement inconsistent with the provisions of the
Stockholders Agreement and (v) not to act as a member of a group or in concert
with others in connection with the acquisition, disposition or voting of shares
of Common Stock in any manner inconsistent with the Stockholders Agreement.
Under the Stockholders Agreement, Goldman Sachs have the exclusive right to
perform all consulting, financing, investment banking and similar services for
AMF Bowling and its subsidiaries, for customary compensation and on terms
customary for similar engagements with unaffiliated third parties. Neither AMF
Bowling nor its subsidiaries are allowed to engage any person to perform such
services during the term of the Stockholders Agreement, except to the extent
Goldman Sachs consent thereto or decline, at its sole election, to perform such
services. Pursuant to the terms of the Stockholders Agreement, the provisions
relating to services performed by Goldman Sachs will terminate and be of no
further effect upon consummation of the Offerings.
The Stockholders Agreement provides that in the event a Stockholder
determines to sell its shares of Common Stock (subject to certain exceptions),
such Stockholder must give the other Stockholders notice thereof and such other
Stockholders must have the opportunity to sell a pro rata share of their Common
Stock in such a sale. Moreover, in the event Stockholders owning 51% or more of
the outstanding Common Stock propose to sell all of the Common Stock held by
such Stockholders pursuant to a stock sale, merger, business combination,
recapitalization, consolidation, reorganization, restructuring or similar
transaction, such Stockholders will have the right, under certain circumstances,
to require the other Stockholders to sell the equity securities of the Company
held by such other Stockholders in such sale on the same terms and conditions
and at the same price as the Stockholders proposing to sell.
The foregoing rights and obligations (other than those described in the
second preceding paragraph which will terminate upon consummation of the
Offerings) will terminate after consummation of the Offerings upon the first to
occur of: (i) GSCP, the Investors and their permitted transferees under the
Stockholders Agreement (the "Permitted Transferees") holding in the aggregate
less than 50% of the sum of (a) the number of shares of Common Stock
outstanding, on a fully diluted basis, immediately after giving effect to the
transactions contemplated by the subscription agreement (the "Subscription
Agreement") entered into on the same date and by the same parties as the
Stockholders Agreement, except for the Management Investors, and (b) the number
of additional shares of Common Stock, if any, issued pursuant to the "overcall"
provisions of the Stockholders Agreement and (ii) GSCP, the Investors and their
Permitted Transferees holding in the aggregate less than 40% of the fully
diluted shares of Common Stock then outstanding. Notwithstanding these
provisions, in the event of any merger, recapitalization, consolidation,
reorganization or other restructuring of AMF Bowling as a result of which the
Stockholders and their Permitted Transferees own less than a majority of the
outstanding voting power of the entity surviving such transaction, the
Stockholders Agreement will terminate.
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REGISTRATION RIGHTS AGREEMENT
AMF Bowling and the Stockholders entered into a Registration Rights
Agreement on April 30, 1996 (the "Registration Rights Agreement"). Pursuant to
the Registration Rights Agreement, following consummation of the Offerings, (i)
each of Blackstone (as a group), Kelso (as a group) and Bain (as a group) may
make one demand (subject to certain exceptions) of AMF Bowling to register
shares of Common Stock held by such group and (ii) GSCP may make up to five
demands (subject to certain exceptions) of AMF Bowling to register shares of
Common Stock held by it, in each case, so long as (a) the aggregate offering
price for the shares to be sold is at least $50 million and (b) shares
representing at least 5% of the sum of (1) the number of shares of Common Stock
purchased by GSCP prior to execution of the Subscription Agreement, (2) the
number of shares of Common Stock issued pursuant to the Subscription Agreement
and (3) the number of shares (subject to adjustment) of Common Stock purchased
by the Stockholders pursuant to the "overcall" provisions of the Stockholders
Agreement are being registered. Upon a demand for registration by any of GSCP,
Blackstone, Kelso or Bain, each of the other Stockholders is to be given the
opportunity to participate on a pro rata basis in the registration demanded. The
Registration Rights Agreement also provides the Stockholders with piggyback
registration rights which allow each of them to include all or a portion of
their shares of Common Stock under a registration statement filed by AMF
Bowling, subject to certain exceptions and limitations. The foregoing summary is
qualified in its entirety by reference to the full text of the Registration
Rights Agreement, which is filed as an exhibit to the Registration Statement of
which this Prospectus is a part. The Stockholders have agreed not to exercise
their piggyback registration rights with respect to the Offerings.
CERTAIN TRANSACTIONS
Messrs. Friedman and O'Toole, each of whom is a Managing Director of
Goldman Sachs, and Mr. Sacerdote, who is a limited partner of The Goldman Sachs
Group, are directors of AMF Bowling, AMF Group Holdings and Bowling Worldwide.
Mr. Friedman is also Chairman of AMF Bowling. Goldman Sachs and its affiliates
together currently beneficially own and will, following consummation of the
Offerings, continue to own a majority of the outstanding Common Stock. See
"Principal Stockholders". Goldman Sachs and its affiliates were the initial
purchasers of the debt issued by Bowling Worldwide in connection with the
Acquisition and received an underwriting discount of approximately $19.0 million
in connection with the purchase and resale of certain senior subordinated notes
and senior subordinated discount notes, each issued in March 1996, which were
subsequently exchanged by the holders thereof for the Senior Subordinated Notes
(as hereinafter defined) and the Senior Subordinated Discount Notes (as
hereinafter defined). Goldman Sachs also served as financial advisor to the
owners of the Predecessor Company in connection with the Acquisition and
received a fee in the form of 10-year warrants (the "Warrants") to purchase
870,000 shares of the Common Stock, on a fully diluted basis, at a purchase
price of $.01 per share. The Warrants were valued for accounting purposes at
approximately $8.7 million.
In connection with the Credit Agreement and the amendments thereto, Goldman
Sachs Credit Partners, L.P., an affiliate of Goldman Sachs, acted as Syndication
Agent, Goldman Sachs Credit Partners, L.P. and Citicorp Securities, Inc. acted
as Arrangers, and Citibank, N.A. is acting as Administrative Agent. Total fees
payable to Goldman Sachs Credit Partners, L.P. aggregate approximately $10.0
million, and such entity is reimbursed for expenses in connection with such
services. Goldman Sachs Credit Partners, L.P. is also a lender under the Credit
Agreement. See "Description of Certain Indebtedness -- Credit Agreement".
Goldman Sachs also received a cash fee of $5.0 million from AMF in connection
with the Acquisition and was reimbursed for related expenses. Blackstone
Management Partners L.P., an affiliate of Blackstone Group, and Kelso & Company,
L.P., an affiliate of Kelso, each received an investment banking fee of $1.0
million, and Bain Capital, Inc., an affiliate of Bain, received a fee of
$300,000, each in connection with the Acquisition.
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Bowling Worldwide and Goldman Sachs are parties to an engagement letter
pursuant to which Goldman Sachs are retained as Bowling Worldwide's financial
advisor to provide investment banking and financial advisory services, including
in connection with any acquisitions, dispositions or financings. Pursuant to the
engagement, Bowling Worldwide has agreed to reimburse Goldman Sachs for their
out-of-pocket expenses and indemnify Goldman Sachs in connection with their
services arising under the engagement.
AMF Bowling has also entered into two interest rate cap agreements with
Goldman Sachs Capital Markets, L.P. ("GSCM"), an affiliate of Goldman Sachs,
both of which were executed to hedge the Company's exposure to fluctuations in
the interest rates applicable to borrowings under the Credit Agreement. The
Company paid a fee of $3.6 million to GSCM in 1996 in connection with the
execution of the first of these transactions, which "caps" the interest rate on
$500 million principal amount of debt at 6.5% until April 1998 and at 7.5% from
May 1998 through October 1998. The Company paid a fee of $15,000 to GSCM in
respect of the second transaction executed on July 2, 1997, which caps the rate
applicable to $100 million in debt at 7.0% until March 31, 1998. See "Note 9.
Long-Term Debt" in the Consolidated Financial Statements of AMF Bowling as of
December 31, 1996 and "Note 6. Long-Term Debt" in the Condensed Consolidated
Financial Statements of AMF Bowling as of June 30, 1997.
The Company retained Michael Stanard Design, Inc. ("MSD"), a market
consultant, to provide marketing and related services in 1996 for an aggregate
of $114,000 and in 1997 for an aggregate of $446,000 to date. A majority owner
of MSD is H. Michael Stanard, who is Mr. Stanard's brother. A substantial
portion of such amounts were reimbursement of costs for materials, travel,
printing and other out-of-pocket expenses.
The Company has agreed to pay a fee of $300,000 to Goldman Sachs for their
representation of the Company in connection with the Company's lease of its new
bowling center at Chelsea Piers in New York.
AMF and the Stockholders have entered into the Stockholders Agreement and
the Registration Rights Agreement. See "Principal Stockholders -- Stockholders
Agreement" and "Principal Stockholders -- Registration Rights Agreement".
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company and certain
provisions of the Certificate of Incorporation and By-Laws is a summary and is
qualified in its entirety by the provisions of the Certificate of Incorporation
and By-Laws, copies of which have been filed as exhibits to the Registration
Statement of which this Prospectus is a part.
Upon completion of the Offerings, the authorized capital stock of the
Company will consist of (i) 200,000,000 shares of Common Stock, par value $.01
per share, of which 56,605,000 shares will be outstanding, and (ii) 50,000,000
shares of Preferred Stock, of which no shares will be outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
to be voted on by the stockholders of AMF Bowling and do not have cumulative
voting rights. Accordingly, holders of a majority of the outstanding shares of
Common Stock entitled to vote in any election of directors of AMF Bowling may
elect all of the directors of AMF Bowling standing for election. Following
completion of the Offerings, GSCP will own 53.7% of the outstanding Common
Stock. As a result of such ownership and the terms of the Stockholders
Agreement, GSCP has the ability to control the election of a majority of the
Board of Directors, appoint new management and approve or block any action
requiring the approval of AMF Bowling's stockholders, including adopting
amendments to the Certificate of Incorporation and approving mergers or sales of
substantially all of AMF Bowling's
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assets, in each case, subject to the restrictions contained in the Stockholders
Agreement. The Stockholders Agreement also provides for three of the investment
funds which are stockholders of AMF Bowling each to nominate a director with
each such nominee being subject to GSCP's consent, and for the formation of the
Executive Committee.
Subject to preferences that may be applicable to any Preferred Stock
outstanding at the time, holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of AMF Bowling, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of AMF
Bowling's liabilities and the liquidation preference, if any, of any outstanding
Preferred Stock. Holders of shares of Common Stock have no preemptive,
subscription, redemption or conversion rights. There are no redemption or
sinking fund provisions applicable to the Common Stock. All of the outstanding
shares of Common Stock are, and the shares offered by AMF Bowling in the
Offerings will be, when issued and paid for, fully paid and non-assessable. The
rights, preferences and privileges of holders of Common Stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
series of Preferred Stock which AMF Bowling may designate and issue in the
future.
At present, there is no established trading market for the Common Stock.
The Common Stock has been approved for listing on the NYSE under the symbol
"PIN" subject to official notice of issuance.
PREFERRED STOCK
The Board of Directors is authorized to issue from time to time 50,000,000
shares of Preferred Stock in one or more series, and to fix the rights,
designations, powers, preferences, qualifications, limitations and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting any series, all without stockholder approval. The
ability of the Board of Directors to issue Preferred Stock could have the effect
of making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring or making a proposal to acquire, AMF Bowling or a
majority of the outstanding stock of AMF Bowling. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights of
holders of Preferred Stock that may be issued in the future. See "Risk
Factors -- Anti-Takeover Effects of Certain Certificate of Incorporation and
By-Laws Provisions".
RIGHTS TO PURCHASE SECURITIES AND OTHER PROPERTY
The Certificate of Incorporation authorizes the Board of Directors to
create and issue rights or options entitling the holders thereof to purchase
from AMF Bowling shares of stock or other securities of AMF Bowling or any other
corporation. The times at which and terms upon which such rights or options are
issued may be determined by the Board of Directors and set forth in the
contracts or other instruments that evidence such rights. The authority of the
Board of Directors with respect to such rights or options includes, but is not
limited to, determination of (i) the initial purchase price per share or other
unit of the stock or other securities or property to be purchased upon exercise
of such rights or options, (ii) provisions relating to the times at which and
the circumstances under which such rights or options may be exercised or sold or
otherwise transferred, either together with or separately from any other stock
or other securities of AMF Bowling, (iii) provisions that adjust the number or
exercise price of such rights or options or amount or nature of the stock or
other securities or property receivable upon exercise of such rights or options
in the event of a combination, split or recapitalization of any stock of AMF
Bowling, a change in ownership of AMF Bowling's stock or other securities or a
reorganization, merger, consolidation, sale of assets or other occurrence
relating to AMF Bowling or any stock of AMF Bowling, and provisions restricting
the ability of AMF Bowling to enter into any such transaction absent an
assumption by the other party or parties thereto of the obligations of AMF
Bowling under such rights
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or options, (iv) provisions that deny the holder of a specified percentage of
the outstanding stock or other securities of AMF Bowling the right to exercise
such rights or options and/or cause such rights held by such holder to become
void, (v) provisions that permit AMF Bowling to redeem or exchange such rights
or options and (vi) the appointment of the rights agent with respect to such
rights or options. This provision is intended to confirm the authority of the
Board of Directors to issue share purchase rights or other rights or options to
purchase stock or securities of AMF Bowling or any other corporation. The
affirmative vote of holders of at least 80% of the voting power of the then
outstanding shares of capital stock of AMF Bowling entitled to vote generally in
the election of directors, voting together as a single class, is required to
amend or repeal or adopt any provisions inconsistent with the provisions
described in this section under the caption "Rights to Purchase Securities and
Other Property." The ability of the Board of Directors to issue such securities
could have the effect of making it more difficult for a third party to acquire,
or of discouraging a third party from acquiring or making a proposal to acquire,
AMF Bowling or a majority of the outstanding stock of AMF Bowling.
LIMITATIONS ON DIRECTORS' LIABILITY
The Certificate of Incorporation and By-Laws limit the liability of
directors to the maximum extent permitted by Delaware law. Delaware law
currently permits corporations to provide in their certificates of incorporation
that directors of the corporation will not be personally liable for monetary
damages for breach of their fiduciary duties as directors or officers, except
liability for (i) breach of the directors' and officers' duty of loyalty to the
corporation or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law, (iii)
the unlawful payment of a dividend or unlawful stock purchase or redemption and
(iv) any transaction from which directors or officers derive an improper
personal benefit. Delaware law does not permit a corporation to eliminate a
director's duty of care, and this provision of the certificate of incorporation
has no effect on the availability of equitable remedies, such as injunction or
rescission, based upon a director's breach of the duty of care.
These provisions will not limit liability under federal or state securities
laws. AMF Bowling believes that these provisions will assist AMF Bowling in
attracting and retaining qualified individuals to serve as directors.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
AMF Bowling has elected in the Certificate of Incorporation to not be
subject to the provisions of Section 203 of the Delaware General Corporation
Law, which restricts certain business combinations between a Delaware
corporation and an "interested stockholder" (generally, a holder of 15% or more
of a corporation's voting stock).
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar of the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT AGREEMENT
Bowling Worldwide is party to a Credit Agreement amended and restated as of
June 30, 1997 (and as further amended, modified, renewed, refunded, replaced or
refinanced, in whole or in part, from time to time, the "Credit Agreement") with
Goldman Sachs, their affiliate Goldman Sachs Credit Partners, L.P., Citibank,
N.A. ("Citibank") and its affiliates Citicorp and Citicorp USA, Inc. and certain
other banks, financial institutions and institutional lenders (collectively, the
"Lenders") providing for (i) senior secured term loan facilities aggregating
$580.0 million (the "Term Facilities"), (ii) a senior secured multiple-draw term
facility of $230.0 million (the "Acquisition Facility") and (iii) a senior
secured revolving credit facility of up to $50.0 million (the "Working Capital
Facility", and together with the Term Facilities and the Acquisition Facility,
the "Senior Facilities"). In connection with such financing, Goldman Sachs
Credit Partners, L.P. acted as Syndication Agent, Goldman Sachs Credit Partners,
L.P. and Citicorp Securities, Inc. acted as Arrangers, and Citibank is acting as
Administrative Agent. The initial borrowings under the Credit Agreement were
used to partially fund the Acquisition. In connection with the Offerings,
Bowling Worldwide and the lenders under the Credit Agreement have approved in
principle an amendment to the Credit Agreement that will constitute the Third
Amended and Restated Credit Agreement (the "Proposed Amendments"). The Proposed
Amendments will, among other things, (i) convert the Acquisition Facility and a
portion of the Term Facilities under the Credit Agreement into a non-amortizing
Working Capital Facility which matures in 2002 and the aggregate size of which
will be increased to $355.0 million, (ii) extend the final maturity of the
Working Capital Facility and certain of the Term Facilities, (iii) reduce the
interest rates under the Credit Agreement, (iv) amend certain covenants
contained in the Credit Agreement to provide Bowling Worldwide and its
subsidiaries with additional operating flexibility and (v) permit a portion of
the proceeds of the Offerings to be applied to repayment of the Notes.
The following summary of the material provisions of the Credit Agreement is
qualified in its entirety by reference to the full text of the Credit Agreement.
A copy of the Credit Agreement giving effect to the Proposed Amendments has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part.
THE FACILITIES
The Term Facilities consist of the following three tranches: (i) a Term
Loan Facility of $250.0 million, (ii) an Amortization Extended Loan
("AXELs(SM)") Series A Facility of $190.0 million and (iii) an AXELs(SM) Series
B Facility of $140.0 million. The Term Loan Facility bears interest, at Bowling
Worldwide's option, at Citibank's customary base rate or at Citibank's
Eurodollar rate, in each case plus a margin which varies in accordance with a
performance pricing grid which is based on the Total Debt to EBITDA Ratio (as
defined in the Credit Agreement) for the Rolling Period (as hereinafter defined)
then most recently ended. As of June 30, 1997 pro forma for the Offerings, the
applicable margin for base rate loans was 1.25% and for Eurodollar rate loans
was 2.25%. The AXELs(SM) Series A Facility bears interest, at Bowling
Worldwide's option, at Citibank's customary base rate plus 1.875% or at
Citibank's Eurodollar rate plus 2.875%. The AXELs(SM) Series B Facility bears
interest, at Bowling Worldwide's option, at Citibank's customary base rate plus
2.125% or at Citibank's Eurodollar rate plus 3.125%. The Term Facilities provide
for quarterly amortization until final maturity. The Term Loan Facility has a
term of five years, the AXELs(SM) Series A Facility has a term of seven years
and the AXELs(SM) Series B Facility has a term of eight years. The Proposed
Amendments will (i) reduce the Term Loan Facility to $130.0 million and
substantially increase the Working Capital Facility, as discussed below, (ii)
extend the final maturity of the Working Capital Facility and the Term Loan
Facility to March 31, 2002 and (iii) reduce the applicable interest rates. Based
on the Total Debt to EBITDA Ratio as of June 30, 1997 pro forma for the
Offerings, the Proposed Amendments would result in base rate margins of .75%,
1.00% and 1.25%, and Eurodollar
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<PAGE> 69
rate margins of 1.75%, 2.00% and 2.25%, for the Term Loan Facility, the
AXELs(SM) Series A Facility and the AXELs(SM) Series B Facility, respectively.
Average amounts outstanding and average borrowing rates for the period
ended June 30, 1997, were as follows (dollars in millions):
<TABLE>
<CAPTION>
OUTSTANDING AVERAGE AVERAGE
JUNE 30, AMOUNTS BORROWING
DESCRIPTION MATURITY DATES 1997 OUTSTANDING RATES
- ----------------------------------- --------------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Term Loan Facility................. March 31, 2001 $210,000 $ 232,620 8.15%
AXELs(SM) Series A Facility........ March 31, 2003 $187,750 $ 189,007 8.54%
AXELs(SM) Series B Facility........ March 31, 2004 $138,125 $ 104,759 8.77%
</TABLE>
Under the terms currently in effect, Bowling Worldwide will be required to
make scheduled amortization payments on the Term Facilities as follows (dollars
in millions):
<TABLE>
<CAPTION>
TWELVE MONTHS TERM AXELS(SM) AXELS(SM)
ENDING LOAN SERIES A SERIES B
DECEMBER 31, FACILITY FACILITY FACILITY TOTAL
----------------------------------------- -------- -------- -------- ------
<S> <C> <C> <C> <C>
1997.................................. $ 38.1 $ 2.0 $ 2.3 $ 42.4
1998.................................. 43.1 2.0 2.2 47.3
1999.................................. 51.3 2.0 2.2 55.5
2000.................................. 67.5 2.0 2.3 71.8
2001.................................. 28.1 50.8 2.2 81.1
2002.................................. -- 92.5 2.3 94.8
2003.................................. -- 37.5 78.9 116.4
2004.................................. -- -- 46.8 46.8
------ ------ ------ ------
$228.1 $188.8 $139.2 $556.1
====== ====== ====== ======
</TABLE>
The Proposed Amendments will not affect the scheduled amortization payments
on the AXELs(SM) Series A Facility or the AXELs(SM) Series B Facility, but will
reduce the scheduled amortization payments on the Term Loan Facility to $7.5
million on December 31, 1997 and thereafter as follows (dollars in millions):
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDING
DECEMBER 31,
----------------------------------------------------------------------------
<S> <C>
1998..................................................................... $ 23.1
1999..................................................................... 28.1
2000..................................................................... 30.0
2001..................................................................... 30.0
2002..................................................................... 11.3
------
$122.5
======
</TABLE>
In addition, under the terms currently in effect, Bowling Worldwide will be
required to make prepayments which permanently reduce the availability under the
Senior Facilities under certain circumstances, including upon certain asset
sales, issuances of debt and public issuance of equity securities of AMF
Bowling. Bowling Worldwide will also be required to make prepayments which
permanently reduce the availability under the Senior Facilities in an amount
equal to (i) 75% (to be reduced to 50% for years in which Bowling Worldwide's
Total Debt to EBITDA Ratio for the prior 12 months is less than 4.0 to 1.0) of
Bowling Worldwide's Excess Cash Flow (as defined in the Credit Agreement) or
(ii) during each of the first three years after the closing of the Senior
Facilities, if less than the amount described in clause (i), the amount by which
Bowling Worldwide's Excess Cash
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<PAGE> 70
Flow for such year exceeds $10.0 million (during the first two years after
closing) or $20.0 million (during the third year after closing). The Proposed
Amendments will require for such prepayment based on Excess Cash Flow to
permanently reduce the availability under the Senior Facilities only if the
Total Debt to EBITDA Ratio is greater than or equal to 5.50 to 1.0, and will
reduce the percentage referred to in clause (i) of the preceding sentence from
75% to 50%. The Proposed Amendments will also provide that the first $100
million of the net cash proceeds of the Offerings will be used to repay
borrowings that, under such Proposed Amendments, would constitute a portion of
the expanded Working Capital Facility (and thus would be available for
reborrowing), and the remaining net cash proceeds anticipated from the Offerings
may be used, at Bowling Worldwide's option, to redeem a portion of the Senior
Subordinated Notes and/or the Senior Subordinated Discount Notes and/or to repay
borrowings under the Working Capital Facility. See "Use of Proceeds".
The terms currently in effect also provide for a $50.0 million Working
Capital Facility for general corporate purposes and a $230.0 million Acquisition
Facility to finance acquisitions and to refinance new center construction.
Borrowings under these facilities are subject to Bowling Worldwide meeting
certain pro forma financial covenants and limitations imposed on the amount
borrowed, including that the amount borrowed under the Acquisition Facility may
not exceed 4.5 times the Deemed EBITDA (as defined in the Credit Agreement) of
the business to be acquired or the newly constructed center.
The existing Acquisition Facility has a term of five years and will begin
to amortize in December 1999, with final maturity at March 31, 2001. The
Acquisition Facility bears interest, at Bowling Worldwide's option, at
Citibank's customary base rate or at Citibank's Eurodollar rate, in each case,
plus a margin which varies in accordance with a performance pricing grid which
is based on the Total Debt to EBITDA Ratio for the Rolling Period then most
recently ended. As of June 30, 1997, the applicable margin for base rate loans
was 1.50% and for Eurodollar rate loans was 2.50%. As of October 24, 1997,
$171.0 million was outstanding under the Acquisition Facility.
The Proposed Amendments (i) will convert the entire Acquisition Facility
and a portion of the Term Loan Facility into an amended Working Capital Facility
having an aggregate amount of $355.0 million, of which $193.5 million is
expected to be outstanding after giving effect to the Offerings and the related
repayment of $100.0 million under the Working Capital Facility and (ii) will
eliminate the above described limitation on the amount that may be borrowed for
an acquisition or new construction (although the pro forma compliance with
covenants requirement will remain).
The Working Capital Facility, as currently in effect, matures in 2001, is
fully revolving until its final maturity and bears interest, at Bowling
Worldwide's option, at Citibank's customary base rate or at Citibank's
Eurodollar rate, in each case, plus a margin which varies in accordance with a
performance pricing grid which is based on the Total Debt to EBITDA Ratio for
the four fiscal quarter rolling period then most recently ended. As of June 30,
1997, the applicable margin for base rate loans was 1.50% and for Eurodollar
rate loans was 2.50%. As of October 24, 1997, $47.5 million was outstanding
under the Working Capital Facility. The Proposed Amendments will extend the
maturity of the Working Capital Facility to March 31, 2002 and increase the
amount of the Working Capital Facility to $355.0 million and will decrease the
interest rates thereunder. Based on the Total Debt to EBITDA Ratio as of June
30, 1997, the Proposed Amendments, without giving pro forma effect to the
Offerings, would result in a base rate margin of 0.875% and would result in a
Eurodollar rate margin of 1.875%.
The Senior Facilities are (and following the Proposed Amendments will
continue to be) guaranteed by AMF Group Holdings and by each of Bowling
Worldwide's present and future domestic Subsidiaries (as defined in the Credit
Agreement) and are secured by all of the stock of Bowling Worldwide and Bowling
Worldwide's present and future domestic Subsidiaries and Second-Tier
Subsidiaries (as defined in the Credit Agreement), by 66% of the stock of
Bowling Worldwide's present and future international subsidiaries and by
substantially all of Bowling
70
<PAGE> 71
Worldwide's and its present and future domestic Subsidiaries' present and future
property and assets.
In accordance with GAAP, the Company will incur after-tax extraordinary
charges totalling $21.5 million arising from the Third Amended and Restated
Credit Agreement and the resulting write-off of costs previously incurred to
obtain bank financing for the Acquisition, the premium associated with the
portion of the Senior Subordinated Discount Notes expected to be redeemed with
the proceeds of the Offerings and the write-off of the portion of deferred
financing costs attributable to the Senior Subordinated Discount Notes expected
to be so redeemed. Costs incurred with respect to the Third Amended and Restated
Credit Agreement will be amortized over seven years.
COVENANTS
The Credit Agreement contains certain financial covenants, as well as
additional affirmative and negative covenants, constraining Bowling Worldwide.
Under the terms currently in effect, Bowling Worldwide must maintain a minimum
EBITDA (as defined in the Credit Agreement) of not less than the sum of (i) an
amount ranging from $150 million for the "Rolling Period" (defined as a calendar
quarter together with the three consecutive immediately preceding calendar
quarters) ending June 30, 1997, to $200 million for the Rolling Period ending
March 31, 2004 and thereafter, and (ii) the EBITDA Adjustment Amount (as defined
in the Credit Agreement) for such Rolling Period, which is equal to 80% of the
aggregate amount of the EBITDA of each bowling center acquired or constructed by
Bowling Worldwide or any of its Subsidiaries after May 1, 1996 and acquired or
constructed at least 15 months prior to such time of determination.
Bowling Worldwide must also maintain a Cash Interest Coverage Ratio
(defined in the Credit Agreement as the ratio of (i) consolidated EBITDA of
Bowling Worldwide and its Subsidiaries during a Rolling Period, as modified with
respect to certain bowling centers acquired or constructed after May 1, 1996
("Modified Consolidated EBITDA") to (ii) cash interest payable on all Debt (as
defined in the Credit Agreement) of Bowling Worldwide and its Subsidiaries) at
an amount ranging from not less than 2.00 for the Rolling Period ending June 30,
1997, to not less than 2.50 for the Rolling Period ending September 30, 2004 and
thereafter. Bowling Worldwide is required to maintain a Fixed Charge Coverage
Ratio (defined in the Credit Agreement as the ratio of (i) Modified Consolidated
EBITDA less the sum of (a) cash taxes paid plus (b) Capital Expenditures (as
defined in the Credit Agreement) made by Bowling Worldwide and its Subsidiaries
during such Rolling Period to (ii) the sum of (a) cash interest payable on all
Debt plus (b) principal amounts of all Debt payable by Bowling Worldwide and its
Subsidiaries during such Rolling Period) at an amount ranging from not less than
1.05 for the Rolling Period ending June 30, 1997, to not less than 1.10 for the
Rolling Period ending March 31, 2004 and thereafter. A Senior Debt to EBITDA
Ratio (defined in the Credit Agreement as the ratio of Consolidated Debt, as
defined in the Credit Agreement (other than Subordinated Debt and Hedge
Agreements, as defined in the Credit Agreement), of Bowling Worldwide and its
Subsidiaries to Modified Consolidated EBITDA for that Rolling Period) must be
maintained at levels ranging from not more than 3.75 for the Rolling Period
ending June 30, 1997 to not more than 1.50 for the Rolling Period ending March
31, 2004 and thereafter. A Total Debt to EBITDA Ratio (defined in the Credit
Agreement as the ratio of consolidated total Debt (other than Hedge Agreements)
of Bowling Worldwide and its Subsidiaries to Modified Consolidated EBITDA) must
be maintained at levels ranging from not more than 6.50 for the Rolling Period
ending June 30, 1997 to not more than 4.00 for the Rolling Period ending March
31, 2004 and thereafter. In each case, the above-mentioned ratios are calculated
on a quarterly basis. The Proposed Amendments will change certain of the above
financial ratios and covenants to reflect the capital structure which will
result from the Offerings and the application of the proceeds therefrom.
Negative covenants under the Senior Facilities prohibit Bowling Worldwide
and its Subsidiaries from incurring any liens (except for those created under
the loan documents or otherwise permitted under the Credit Agreement, including
those securing Bowling Worldwide's obligations as borrower
71
<PAGE> 72
on other indebtedness not to exceed $5 million at any time outstanding). Bowling
Worldwide and its Subsidiaries are also prohibited from incurring any debt,
other than (in the case of Bowling Worldwide) debt owed to its Subsidiaries or
in respect of hedge agreements not entered into for speculative purposes or (in
the case of any Subsidiary) debt owed to Bowling Worldwide or any of its wholly
owned Subsidiaries, to the extent permitted under the Credit Agreement or (in
the case of either Bowling Worldwide or its Subsidiaries) debt secured by
permitted liens, capitalized leases not to exceed $10 million at any time
outstanding and any debt existing at the time of the Acquisition, among other
things. Bowling Worldwide and its Subsidiaries may not incur any obligations
under leases having a term of one year or more that would cause their direct and
contingent liabilities for any 12 months to exceed the sum of (i) $25 million,
(ii) the product of (x) $200,000 and (y) the number of leased bowling centers
acquired by Bowling Worldwide or any Subsidiaries after May 1, 1996 and (iii) in
each calendar year after 1996, an amount equal to 4% of the amount permitted by
this provision in the immediately preceding calendar year. Bowling Worldwide is
also prohibited from entering into a merger of which it is not the survivor or
to sell, lease, or otherwise transfer its assets other than in the ordinary
course of business, except as otherwise permitted by the Credit Agreement.
Investments by Bowling Worldwide or its Subsidiaries in any other person are
also limited by formulas set forth in the Credit Agreement. The negative
covenants also relate to the payment of dividends, prepayments of, and
amendments of the terms of, other debt (including the Notes), amendment of
Related Documents (as defined in the Credit Agreement), ownership changes,
negative pledges, partnerships, speculative transactions, capital expenditures
and payment restrictions affecting subsidiaries. Bowling Worldwide is also
subject to certain financial and other reporting requirements. The Proposed
Amendments will not materially affect the foregoing covenants.
Under the Proposed Amendments, Bowling Worldwide is prohibited from making
a material change in the nature of its existing business, except that it may
have up to $50 million invested at any one time in golf driving ranges and other
golf-related activities.
So long as Bowling Worldwide is not in default of the covenants contained
in the Credit Agreement, it may (i) declare and pay dividends in common stock,
(ii) declare and pay cash dividends to the extent necessary to make payments
under certain noncompete agreements with stockholders of the Predecessor
Company, (iii) declare and pay cash dividends for general administrative
expenses not to exceed $0.25 million and (iv) declare and pay cash dividends not
to exceed $2.0 million for the repurchase of Common Stock. As of June 30, 1997,
Bowling Worldwide is in compliance with all of its covenants.
SENIOR SUBORDINATED NOTES
Bowling Worldwide has outstanding $250.0 million in principal amount of
10 7/8% Series B Senior Subordinated Notes due 2006 (the "Senior Subordinated
Notes") and $291.4 million principal amount of 12 1/4% Series B Senior
Subordinated Discount Notes due 2006 (the "Senior Subordinated Discount Notes",
and together with the Senior Subordinated Notes, the "Notes"). The following
description of the Notes and the Note Indentures is a summary and is qualified
in its entirety by the provisions of the Notes and the Note Indentures, copies
of which have been filed as exhibits to the Registration Statement of which this
Prospectus is a part.
The Senior Subordinated Notes will mature on March 15, 2006. Interest
thereon accrues from the date of issuance at an annual rate of 10 7/8% and is
payable in cash semiannually in arrears on March 15 and September 15 of each
year which commenced on September 15, 1996.
The Senior Subordinated Discount Notes will mature on March 15, 2006 at a
fully-accreted value of $452 million. The Senior Subordinated Discount Notes
will result in an effective yield of 12 1/4% per annum, computed on a semiannual
bond equivalent basis. No interest will be payable prior to March 15, 2001.
Commencing March 15, 2001, interest will accrue and be payable in cash
72
<PAGE> 73
semiannually in arrears on March 15 and September 15 of each year beginning with
September 15, 2001.
Bowling Worldwide's payment obligations under the Notes are jointly and
severally guaranteed on a senior subordinated basis by Bowling Worldwide's
direct and indirect domestic subsidiaries and by any other subsidiaries of
Bowling Worldwide that act as guarantors under the Credit Agreement
(collectively, the "Guarantors").
The guarantees of the Notes are subordinated to the guarantees of the
indebtedness under the Credit Agreement and certain other indebtedness
(collectively, the "Senior Debt"). The Notes are general, unsecured obligations
of Bowling Worldwide, are subordinated in right of payment to all Senior Debt of
Bowling Worldwide, and rank pari passu with all existing and future subordinated
debt of Bowling Worldwide. The claims of the holders of the Notes will be
effectively subordinated to all other indebtedness and other liabilities
(including trade payables and capital lease obligations) of Bowling Worldwide's
subsidiaries that are not Guarantors and through which Bowling Worldwide will
conduct a portion of its operations.
Prior to March 15, 1999, up to $100 million in aggregate principal amount
of Senior Subordinated Notes will be redeemable at the option of Bowling
Worldwide, on one or more occasions, from the net proceeds of public or private
sales of common stock of, or contributions to the common equity capital of,
Bowling Worldwide, at a price of 110.875% of the principal amount of the Senior
Subordinated Notes, together with accrued and unpaid interest, if any, to the
date of redemption; so long as at least $150 million in aggregate principal
amount of Senior Subordinated Notes remains outstanding after such redemption.
Similarly, prior to March 15, 1999, the Senior Subordinated Discount Notes will
be redeemable at the option of Bowling Worldwide, on one or more occasions, from
the net proceeds of public or private sales of common stock of, or contributions
to the common equity capital of, Bowling Worldwide, at a price of 112.25% of the
accreted value of the Senior Subordinated Discount Notes; so long as at least
$150 million in accreted value of Senior Subordinated Discount Notes remains
outstanding after such redemption. The Proposed Amendments will enable Bowling
Worldwide to use a portion of the proceeds of the Offerings to redeem Senior
Subordinated Notes and/or Senior Subordinated Discount Notes. See "Use of
Proceeds".
The indenture governing the Senior Subordinated Notes and the indenture
governing the Senior Subordinated Discount Notes (collectively, the "Note
Indentures") contain certain covenants that, among other things, limit the
ability of the Company and its Restricted Subsidiaries (as defined in the
applicable Note Indenture) to incur additional indebtedness and issue
Disqualified Stock (as defined in the applicable Note Indenture), pay dividends
or distributions or make investments or make certain other Restricted Payments
(as defined in the applicable Note Indenture), enter into certain transactions
with affiliates, dispose of certain assets, incur liens securing pari passu and
subordinated indebtedness of Bowling Worldwide and engage in mergers and
consolidations. As of June 30, 1997, Bowling Worldwide is in compliance with all
of its covenants under the Note Indentures.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, assuming no exercise of the Underwriters'
over-allotment options, 56,605,000 shares of Common Stock will be outstanding
(58,480,000 shares if the Underwriters' over-allotment options are exercised in
full). Of these shares, the 12,500,000 shares of Common Stock sold in the
Offerings (14,375,000 shares if the Underwriters' over-allotment options are
exercised in full) will be available for resale in the public market without
restriction or further registration under the Securities Act, unless purchased
by an affiliate of AMF Bowling. The remaining 44,105,000 outstanding shares of
Common Stock are deemed to be "restricted securities" as that term is defined in
Rule 144, all of which are eligible for sale in the public market in compliance
with Rule 144. Certain existing stockholders of AMF Bowling (who in the
aggregate hold 44,005,000 shares of Common Stock) have agreed, subject to
certain exceptions, that they will not
73
<PAGE> 74
offer, sell or otherwise dispose of any of the shares of Common Stock owned by
them for a period of 180 days after the date of this Prospectus without the
prior written consent of the representatives of the Underwriters. Additionally,
AMF Bowling has agreed that, during the period of 180 days from the date of this
Prospectus, subject to certain exceptions, it will not issue, sell, offer or
agree to sell, grant any options for the sale of (other than employee stock
options) or otherwise dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable for Common Stock, other
than pursuant to the Offerings or upon the exercise of outstanding stock
options.
In general, under Rule 144, any person (or persons whose shares are
aggregated) who has beneficially owned shares for at least one year is entitled
to sell, within any three-month period, a number of restricted securities which
does not exceed the greater of 1% of the then-outstanding shares of Common Stock
(566,050 shares immediately after the Offerings) or the average weekly trading
volume of the Common Stock during the four calendar weeks preceding the date on
which notice of the sale is filed with the Commission. Sales under Rule 144 also
may be subject to certain manner of sale provisions, notice requirements and the
availability of current public information about AMF Bowling. Any person (or
persons whose shares are aggregated) who is not deemed to have been an affiliate
of AMF Bowling at any time during the three months preceding a sale, and who has
beneficially owned shares within the definition of "restricted securities" under
Rule 144 for at least two years, is entitled to sell such shares under Rule
144(k) promulgated under the Securities Act without regard to the volume
limitation, manner of sale provisions, public information requirements or notice
requirements.
Prior to the Offerings, there has been no public market for the Common
Stock. No prediction can be made as to the effect, if any, that market sales of
shares of Common Stock that are restricted securities or the availability of
such shares will have on the market price of the Common Stock prevailing from
time to time. Nevertheless, sales of substantial amounts of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing market
prices for the Common Stock and could impair AMF Bowling's future ability to
raise capital through an offering of equity securities.
VALIDITY OF SHARES
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Wachtell, Lipton, Rosen & Katz, New York, New York, and
for the Underwriters by Sullivan & Cromwell, New York, New York.
EXPERTS
The consolidated balance sheet of AMF Bowling and subsidiaries as of
December 31, 1996, and the related consolidated statements of income,
stockholders' equity, and cash flows for the period from inception (January 12,
1996) through December 31, 1996, included in this Prospectus, and the related
financial statement schedule included elsewhere in the Registration Statement of
which this Prospectus is a part, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein, in reliance upon the authority of said firm as
experts in giving said reports.
The combined financial statements of AMF Bowling Group as of April 30, 1996
and December 31, 1995 and for the period from January 1, 1996 through April 30,
1996 and for each of the two years in the period ended December 31, 1995,
included in this Prospectus, have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The consolidated financial statements of Fair Lanes, Inc. as of September
29, 1994 and June 30, 1994 and for the three months ended September 29, 1994,
and year ended June 30, 1994
74
<PAGE> 75
included in this Prospectus, have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
AMF Bowling has agreed to indemnify Price Waterhouse LLP for the payment of
all legal costs and expenses incurred in Price Waterhouse LLP's successful
defense of any legal action or proceeding that arises as a result of inclusion
of Price Waterhouse LLP's audit reports on the combined financial statements of
AMF Bowling Group and the consolidated financial statements of Fair Lanes, Inc.
(Debtor-in-Possession) and Subsidiaries in this Registration Statement.
The consolidated financial statements of Charan as of December 31, 1996 and
for the year then ended, included elsewhere in the Registration Statement of
which this Prospectus is a part, have been audited by Todres & Scheiffer,
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.
75
<PAGE> 76
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AMF BOWLING, INC. AND SUBSIDIARIES -- AUDITED FINANCIAL STATEMENTS
Report of Independent Public Accountants.......................................... F-2
Consolidated Balance Sheet as of December 31, 1996................................ F-3
Consolidated Statement of Income for the Period Ended December 31, 1996........... F-4
Consolidated Statement of Cash Flows for the Period Ended December 31, 1996....... F-5
Consolidated Statement of Stockholders' Equity for the Period Ended December 31,
1996........................................................................... F-6
Notes to Consolidated Financial Statements........................................ F-7
AMF BOWLING, INC. AND SUBSIDIARIES -- INTERIM FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheet as of June 30, 1997.......................... F-33
Condensed Consolidated Statements of Income for the Six Months
Ended June 30, 1997 and 1996................................................... F-34
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30,
1997 and 1996.................................................................. F-35
Notes to Condensed Consolidated Financial Statements.............................. F-36
AMF BOWLING GROUP (PREDECESSOR COMPANY)
Report of Independent Accountants................................................. F-47
Combined Balance Sheets as of April 30, 1996, and December 31, 1995............... F-48
Combined Statements of Operations for the Four Months Ended April 30, 1996, and
the Years Ended December 31, 1995 and 1994..................................... F-49
Combined Statements of Cash Flows for the Four Months Ended April 30, 1996, and
the Years Ended December 31, 1995 and 1994..................................... F-50
Combined Statement of Changes in Stockholders' Equity for the Four Months Ended
April 30, 1996, and the Years Ended December 31, 1995 and 1994................. F-51
Notes to Combined Financial Statements............................................ F-52
SELECTED QUARTERLY DATA (UNAUDITED)................................................. F-86
CONSOLIDATED FINANCIAL STATEMENTS OF FAIR LANES, INC. (DEBTOR-IN-POSSESSION) AND
SUBSIDIARIES
Report of Independent Accountants................................................. F-87
Consolidated Balance Sheets as of September 29, 1994 and June 30, 1994............ F-88
Consolidated Statements of Loss for the Three Months Ended September 29, 1994 and
the Year Ended June 30, 1994................................................... F-89
Consolidated Statements of Cash Flows for the Three Months Ended September 29,
1994 and the Year Ended June 30, 1994.......................................... F-90
Consolidated Statements of Stockholder's Equity for the Three Months Ended
September 29, 1994 and the Year Ended June 30, 1994............................ F-91
Notes to Consolidated Financial Statements........................................ F-92
BCA & AFFILIATES
Report of Independent Auditors.................................................... F-103
Balance Sheet as of August 31, 1996............................................... F-104
Statement of Income for the Year Ended August 31, 1996............................ F-105
Statement of Cash Flows for the Year Ended August 31, 1996........................ F-106
Notes to Financial Statements..................................................... F-107
</TABLE>
F-1
<PAGE> 77
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
AMF Bowling, Inc.:
We have audited the accompanying consolidated balance sheet of AMF Bowling,
Inc. (a Delaware corporation, formerly named AMF Holdings Inc.) and subsidiaries
as of December 31, 1996, and the related consolidated statements of income,
stockholders' equity, and cash flows for the period from inception (January 12,
1996) through 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AMF Bowling, Inc. and
subsidiaries as of December 31, 1996, and the results of their operations and
their cash flows for the period from inception (January 12, 1996) through
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Richmond, Virginia
February 28, 1997
F-2
<PAGE> 78
AMF BOWLING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 43,568
Accounts and notes receivable, net of allowance for doubtful accounts
of $4,492................................................................ 42,625
Inventories................................................................. 41,001
Deferred taxes and other.................................................... 11,178
----------
Total current assets................................................ 138,372
Property and equipment, net................................................... 630,796
Deferred financing costs, net................................................. 40,595
Goodwill, net................................................................. 771,146
Other assets.................................................................. 13,101
----------
Total assets........................................................ $1,594,010
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................ $ 31,563
Accrued expenses............................................................ 54,357
Income taxes payable........................................................ 2,276
Long-term debt, current portion............................................. 42,376
----------
Total current liabilities........................................... 130,572
Long-term debt................................................................ 1,048,877
Other long-term liabilities................................................... 1,851
Deferred income taxes......................................................... 3,895
----------
Total liabilities........................................................... 1,185,195
----------
Commitments and contingencies
Stockholders' equity:
Common stock (par value $.01, 60,000,000 shares authorized, 42,375,000
shares issued and outstanding)........................................... 424
Paid-in capital............................................................. 429,026
Retained deficit............................................................ (19,484)
Equity adjustment from foreign currency translation......................... (1,151)
----------
Total stockholders' equity.......................................... 408,815
----------
Total liabilities and stockholders' equity.......................... $1,594,010
==========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-3
<PAGE> 79
AMF BOWLING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD ENDED DECEMBER 31, 1996 (NOTE 2)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<S> <C>
Operating revenue................................................................ $384,809
--------
Operating expenses:
Cost of goods sold............................................................. 130,542
Bowling center operating expenses.............................................. 123,673
Selling, general, and administrative expenses.................................. 35,070
Depreciation and amortization.................................................. 49,386
--------
Total operating expenses............................................... 338,671
--------
Operating income....................................................... 46,138
Nonoperating expenses:
Interest expense............................................................... 77,990
Other expenses, net............................................................ 1,912
Interest income................................................................ (5,748)
--------
Total nonoperating expenses............................................ 74,154
--------
Loss before income taxes............................................... (28,016)
Benefit for income taxes............................................... (8,532)
--------
Net loss............................................................... $(19,484)
========
Net loss per share............................................................... $ (.49)
========
Weighted average shares outstanding.............................................. 39,713
========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-4
<PAGE> 80
AMF BOWLING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED DECEMBER 31, 1996 (NOTE 2)
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.................................................................... $ (19,484)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization............................................ 49,386
Deferred taxes........................................................... (14,040)
Amortization of bond discount............................................ 24,731
Loss on the sale of property and equipment, net.......................... 408
Changes in assets and liabilities:
Accounts and notes receivable.......................................... (6,504)
Inventories............................................................ 1,862
Other assets........................................................... (4,010)
Accounts payable and accrued expenses.................................. 21,930
Income taxes payable................................................... 417
Other long-term liabilities............................................ 19,135
-----------
Net cash provided by operating activities................................ 73,831
Cash flows from investing activities:
Acquisitions of operating units, net of cash acquired....................... (1,450,928)
Purchases of property and equipment......................................... (16,941)
Proceeds from sales of property and equipment............................... 754
-----------
Net cash used in investing activities.................................... (1,467,115)
Cash flows from financing activities:
Proceeds from long-term debt, net of deferred financing costs............... 1,059,277
Payments on long-term debt.................................................. (38,875)
Capital contributions....................................................... 420,750
Payment of noncompete obligations........................................... (2,892)
-----------
Net cash provided by financing activities................................ 1,438,260
-----------
Effect of exchange rates on cash......................................... (1,408)
-----------
Net increase in cash..................................................... 43,568
Cash and cash equivalents at beginning of period......................... --
-----------
Cash and cash equivalents at end of period............................... $ 43,568
===========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-5
<PAGE> 81
AMF BOWLING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED DECEMBER 31, 1996 (NOTE 2)
(IN THOUSANDS)
<TABLE>
<CAPTION>
EQUITY
ADJUSTMENT
FROM FOREIGN TOTAL
COMMON PAID-IN RETAINED CURRENCY STOCKHOLDERS'
STOCK CAPITAL DEFICIT TRANSLATION EQUITY
------ -------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance January 12, 1996.............. $ -- $ -- $ -- $ -- $ --
Initial capitalization.............. 384 389,066 -- -- 389,450
Capital contribution by
stockholders..................... 40 39,960 -- -- 40,000
Net loss............................ -- -- (19,484) -- (19,484)
Equity adjustment from foreign
currency translation............. -- -- -- (1,151) (1,151)
---- -------- -------- ------- --------
Balance December 31, 1996............. $424 $429,026 $(19,484) $ (1,151) $ 408,815
==== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-6
<PAGE> 82
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1. ORGANIZATION
AMF Bowling, Inc. ("AMF Bowling") changed its name from AMF Holdings Inc.
in 1997. AMF Bowling and its subsidiaries (collectively, the "Company" or "AMF")
are principally engaged in two business segments: (i) the ownership or operation
of bowling centers, consisting of 263 U.S. bowling centers and 78 international
bowling centers ("Bowling Centers") as of December 31, 1996, and (ii) the
manufacture and distribution of bowling equipment such as automatic pinspotters,
automatic scoring equipment, bowling pins, lanes, ball returns, certain spare
parts, and the resale of allied products such as bowling balls, bags, shoes, and
certain other spare parts ("Bowling Products"). The principal markets for
bowling equipment are U.S. and international independent bowling center
operators.
AMF Bowling Worldwide, Inc., formerly named AMF Group Inc. ("Bowling
Worldwide"), is a wholly owned subsidiary of AMF Group Holdings Inc. ("AMF Group
Holdings"). AMF Group Holdings is a wholly owned subsidiary of AMF Bowling. AMF
Group Holdings and Bowling Worldwide are Delaware corporations organized by GS
Capital Partners II, L.P., and certain other investment funds (collectively,
"GSCP") affiliated with Goldman, Sachs & Co. ("Goldman Sachs") to effect the
Acquisition (described below). AMF Bowling and AMF Group Holdings are holding
companies only. The primary assets in each are comprised of investments in
subsidiaries.
Pursuant to a Stock Purchase Agreement dated February 16, 1996, between AMF
Group Holdings and the stockholders (the "Prior Owners") of AMF Bowling Group
(the "Predecessor Company"), on May 1, 1996 (the "Closing Date"), AMF Group
Holdings acquired the Predecessor Company through a stock purchase by AMF Group
Holdings' subsidiaries of all the outstanding stock of the separate domestic and
foreign corporations that constituted substantially all of the Predecessor
Company and through the purchase of certain of the assets of the Predecessor
Company's bowling center operations in Spain and Switzerland (the
"Acquisition"). AMF Group Holdings did not acquire the assets of two bowling
centers located in Madrid, Spain, and Geneva, Switzerland (both of which were
retained by the Prior Owners).
The purchase price for the Acquisition was approximately $1.37 billion,
less approximately $2.0 million representing debt of the Predecessor Company
which remained in place following the closing of the Acquisition. The
Acquisition was accounted for by the purchase method of accounting, pursuant to
which the purchase price was allocated among the acquired assets and liabilities
in accordance with estimates of fair market value on the date of Acquisition.
The purchase included the payment of $1.323 billion to the Prior Owners. The
Acquisition was funded with $380.8 million of contributed capital, and $1.015
billion of debt, including bank debt and senior subordinated notes and discount
notes. The purchase included $8.7 million which represents warrants to purchase
870,000 shares of AMF Bowling common stock, par value $.01 per share ("Common
Stock"), which were issued on the Closing Date to Goldman Sachs. See "Note 9.
Long-Term Debt". See also "Note 14. Supplemental Disclosures to the Consolidated
Statement of Cash Flows" which presents the components of the purchase price
allocation.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The results of operations for the period ended December 31, 1996, reflect
the results of the Company since the inception date of January 12, 1996, and the
subsidiaries acquired as of May 1, 1996, from the Predecessor Company. All
significant intercompany balances and transactions have
F-7
<PAGE> 83
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
been eliminated in the accompanying consolidated financial statements. All
dollar amounts are in thousands, except where otherwise indicated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. The more significant estimates made by management include allowances for
obsolete inventory, uncollectible accounts receivable, realization of goodwill
and other deferred assets, litigation and claims, product warranty costs, and
self-insurance costs. Actual results could differ from those estimates.
Revenue Recognition
For sales to customers in the United States, revenue is generally
recognized at the time the products are shipped. For larger contract orders,
Bowling Products generally requires that customers submit a deposit as a
condition of accepting the order. Internationally, revenue is generally
recognized when products arrive at the customer's port of entry. For
nonaffiliate international sales, Bowling Products generally requires the
customer to obtain a letter of credit prior to shipment.
Warranty Costs
Bowling Products warrants all new products for certain periods up to one
year. Major products are warranted for one year. Bowling Products charges to
income an estimated amount for future warranty obligations, and offers customers
the option to purchase extended warranties on certain products. Warranty expense
aggregated $4,471 for the period ended December 31, 1996, and is included in
cost of sales in the accompanying consolidated statement of income.
Cash and Cash Equivalents
The Company classifies all highly liquid fixed-income investments purchased
with an original maturity of three months or less as cash equivalents.
Inventories
Bowling Products' inventory is valued at the lower of cost or market, cost
being determined using the first-in, first-out ("FIFO") method for U.S. and
international inventories. Bowling Centers' inventory is valued at the lower of
cost or market, with the cost being determined using the actual or average cost
method.
Long-Lived Assets
The carrying value of long-lived assets and certain identifiable
intangibles, including goodwill, is reviewed by the Company for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable, and an estimate of future undiscounted cash
flows is less than the carrying amount of the asset.
F-8
<PAGE> 84
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and
repairs which do not improve or extend the life of an asset are charged to
expense as incurred; major renewals or betterments are capitalized. Upon
retirement or sale of an asset, its cost and related accumulated depreciation
are removed from property, and any gain or loss is recognized.
As a result of the Acquisition, the carrying value of property and
equipment was adjusted to fair market value in accordance with the purchase
method of accounting. Property and equipment are depreciated over their
estimated useful lives using the straight-line method. Estimated useful lives of
property and equipment for financial reporting purposes are as follows:
<TABLE>
<S> <C>
Buildings and improvements.... 5 - 40 years
Leasehold improvements........ lesser of the estimated useful life or term of the lease
Bowling and related
equipment................... 5 - 10 years
Manufacturing equipment....... 2 - 7 years
Furniture and fixtures........ 3 - 8 years
</TABLE>
Goodwill
As a result of the Acquisition and in accordance with the purchase method
of accounting for the Acquisition, the Company recorded goodwill representing
the excess of the purchase price over the allocation among the acquired assets
and liabilities in accordance with estimates of fair market value on the Closing
Date. Goodwill is being amortized over 40 years. Amortization expense was
$13,070 for the period ended December 31, 1996.
Income Taxes
Upon consummation of the Acquisition, the U.S. and international
subsidiaries of AMF Bowling became taxable corporations under the Internal
Revenue Code ("IRC"). Income taxes are accounted for using the asset and
liability method under which deferred income taxes are recognized for the tax
consequences on future years of temporary differences between the financial
statement carrying amounts and the tax bases of assets and liabilities.
Research and Development Costs
Expenditures relating to the development of new products, including
significant improvements and refinements to existing products, are expensed as
incurred. The amount charged against income was approximately $1,312 for the
period ended December 31, 1996, and is included in cost of sales in the
accompanying consolidated statement of income.
Advertising Costs
Costs incurred for producing and communicating advertising are expensed
when incurred. The amount charged against income was approximately $9,299 for
the period ended December 31, 1996, with $5,932 included in bowling center
operating expenses for Bowling Centers, and $3,367 included in selling, general,
and administrative expenses for Bowling Products and Corporate in the
accompanying consolidated statement of income.
F-9
<PAGE> 85
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
Earnings Per Share
Net loss per share is calculated based on the actual weighted average
shares outstanding. Outstanding stock options and warrants are not considered as
their effect is antidilutive.
Foreign Currency Translation
All assets and liabilities of AMF Bowling's international operations are
translated from foreign currencies into U.S. dollars at year-end exchange rates.
Adjustments resulting from the translation of financial statements of
international operations into U.S. dollars are included in the equity adjustment
from foreign currency translation on the accompanying consolidated balance
sheet. Revenues and expenses of international operations are translated using
average exchange rates that existed during the year and reflect currency
exchange gains and losses resulting from transactions conducted in other than
local currencies. The net loss from transactions in foreign currencies of $488
is included in other expenses in the accompanying consolidated statement of
income.
Fair Value of Financial Instruments
The carrying value of financial instruments including cash and cash
equivalents and short-term debt approximated fair value at December 31, 1996,
because of the short maturity of these instruments. At December 31, 1996, the
fair value of interest rate cap agreements (to reduce the interest rate risk of
its floating rate debt) was approximately $577. The interest rate cap agreement
is valued using the estimated amount that the Company would receive to terminate
the cap agreement as of December 31, 1996, based on a quote from the
counterparty, taking into account current interest rates and the credit
worthiness of the counterparty. The Company has no intention of terminating the
cap agreement. The fair value of the Senior Debt, as defined in "Note 9. Long-
Term Debt," at December 31, 1996, was approximately $623,520 based on the market
value of debt with similar maturities and covenants. The fair value of the
Notes, as defined in "Note 9. Long-Term Debt", at December 31, 1996, was
approximately $560,315 based on the trading value at December 31, 1996.
Noncompete Agreements
AMF Bowling, through its subsidiaries, has noncompete agreements with
various individuals. The assets are recorded at cost or at the present value of
payments to be made under these agreements, discounted at annual rates ranging
from 8 percent to 10 percent. The assets are included in other assets on the
accompanying consolidated balance sheet and are amortized on a straight-line
basis over the terms of the agreements. Noncompete obligations at December 31,
1996, net of accumulated amortization, totaled approximately $2,498.
F-10
<PAGE> 86
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
Annual maturities on noncompete obligations as of December 31, 1996, are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
----------------------------------------------------
<S> <C>
1997................................................ $ 724
1998................................................ 666
1999................................................ 362
2000................................................ 164
2001................................................ 146
Thereafter.......................................... 436
-------
$ 2,498
======
</TABLE>
Self-Insurance Programs
The Company is self-insured up to certain levels for general and product
liability, workers' compensation, certain health care coverage, and property
damage. The cost of these self-insurance programs is accrued based upon
estimated settlements for known and anticipated claims. The Company has recorded
an estimated amount to cover known claims and claims incurred but not reported
as of December 31, 1996, which is included in accrued expenses in the
accompanying consolidated balance sheet.
NOTE 3. PRO FORMA RESULTS OF OPERATIONS
Pro forma statements of income are presented on the following pages for the
years ended December 31, 1996 and 1995, as if the Acquisition had occurred on
January 1, 1996 and 1995, respectively. AMF Bowling's pro forma statement of
income for the twelve months ended December 31, 1996, is based on the
Predecessor Company's statement of income for the four-month period ending April
30, 1996, reported elsewhere in this Prospectus, AMF Bowling's statement of
income for the period ended December 31, 1996, and adjustments giving effect to
the Acquisition under the purchase method of accounting as described in the
notes below. AMF Bowling's pro forma statement of income for the twelve months
ended December 31, 1995, is based on the Predecessor Company's results of
operations reported elsewhere in this Prospectus and adjustments giving effect
to the Acquisition under the purchase method of accounting as described in the
notes below. The pro forma results are for illustrative purposes only and do not
purport to be indicative of the actual results which occurred, nor are they
indicative of future results of operations.
F-11
<PAGE> 87
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
PRO FORMA RESULTS OF OPERATIONS (IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
AMF PREDECESSOR AMF
BOWLING, COMPANY BOWLING, INC.
INC. FOUR MONTHS TWELVE MONTHS
PERIOD ENDED ENDED PRO FORMA ENDED
12/31/96(a) 4/30/96 ADJUSTMENTS 12/31/96
------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
Operating revenue:..................... $384.8 $ 164.9 $ (0.8)(b) $ 548.9
------ ------ ------ ------
Operating expenses:
Cost of goods sold................... 130.5 43.1 -- 173.6
Bowling center operating expenses.... 123.7 80.2 (25.1)(b)(c) 178.8
Selling, general and administrative
expenses.......................... 35.1 35.5 (19.6)(b)(c) 51.0
Depreciation and amortization........ 49.4 15.1 9.0(d) 73.5
------ ------ ------ ------
Total operating expenses..... 338.7 173.9 (35.7) 476.9
------ ------ ------ ------
Operating income (loss)...... 46.1 (9.0) 34.9 72.0
Nonoperating expenses:
Interest expense..................... 78.0 4.5 23.7(e) 106.2
Other expenses, net.................. 1.9 0.7 -- 2.6
Interest income...................... (5.8) (0.6) -- (6.4)
------ ------ ------ ------
Income (loss) before income taxes...... (28.0) (13.6) 11.2 (30.4)
Provision (benefit) for income taxes... (8.5) (1.7) 1.3(f) (8.9)
------ ------ ------ ------
Net income (loss)............ $(19.5) $ (11.9) $ 9.9 $ (21.5)
====== ====== ====== ======
Net loss per share..................... $ (0.55)
======
</TABLE>
- ---------------
(a) For the period from the inception date of January 12, 1996 through December
31, 1996, which includes results of operations of the acquired business from
May 1, 1996 through December 31, 1996.
(b) To reflect the impact of AMF Group Holdings not acquiring in the Acquisition
the operations of one bowling center in Switzerland and one bowling center
in Spain.
(c) To eliminate a one-time charge of $44.0 million for special bonuses and
payments made by the then-current stockholders of the Predecessor Company
(the "Prior Owners") in April 1996.
(d) To reflect the increase in depreciation and amortization expense resulting
from the allocation of the purchase price to fixed assets and goodwill and a
change in the method of depreciation of fixed assets. The Predecessor
Company principally used the double declining balance method. The amount of
the pro forma adjustment for depreciation was determined using the
straight-line method over the estimated lives of the assets acquired.
Goodwill is being amortized over 40 years.
(e) To reflect the incremental interest expense associated with the issuance of
debt which partially funded the Acquisition.
(f) To give effect to the change in status of the U.S. and international
subsidiaries of AMF Bowling from S corporations to taxable corporations
under the U.S. federal tax laws upon consummation of the Acquisition.
F-12
<PAGE> 88
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
PRO FORMA RESULTS OF OPERATIONS (IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
PREDECESSOR AMF
COMPANY BOWLING, INC.
TWELVE MONTHS TWELVE MONTHS
ENDED PRO FORMA ENDED
12/31/95 ADJUSTMENTS 12/31/95
------------- ----------- -------------
<S> <C> <C> <C>
Operating revenue:................................. $ 564.9 $ (2.3)(h) $ 562.6
------ ------- ------
Operating expenses:
Cost of goods sold............................... 184.1 (0.3)(h) 183.8
Bowling center operating expenses................ 166.5 (1.5)(h) 165.0
Selling, general, and administrative expenses.... 50.8 (0.3)(i) 50.5
Depreciation and amortization.................... 39.1 27.9(j) 67.0
------ ------- ------
Total operating expenses................. 440.5 25.8 466.3
------ ------- ------
Operating income (loss).................. 124.4 (28.1) 96.3
Nonoperating expenses:
Interest expense................................. 15.7 88.6(k) 104.3
Other expenses, net.............................. 1.0 -- 1.0
Interest income.................................. (2.2) -- (2.2)
Foreign currency transaction loss................ 1.0 -- 1.0
------ ------- ------
Income (loss) before income taxes.................. 108.9 (116.7) (7.8)
Provision (benefit) for income taxes............... 40.6(g) (30.6)(l) 10.0
------ ------- ------
Net income (loss)........................ $ 68.3 $ (86.1) $ (17.8)
====== ======= ======
Net loss per share................................. $ (0.47)
======
</TABLE>
- ---------------
(g) Reflects the pro forma income tax provision that would have been provided
had the Predecessor Company consisted of taxable C corporations, rather than
S corporations.
(h) To reflect the net reduction in revenue and expenses related to the
following:
i. Certain assets of the Predecessor Company not purchased by AMF Group
Holdings.
ii. Impact of AMF Group Holdings not acquiring one bowling center in
Switzerland and one bowling center in Spain.
iii. Concurrent with the Acquisition, amounts due from and payable to the
Prior Owners and other related parties were canceled.
(i) To reflect the termination of management fees charged by an affiliate of the
Prior Owners.
(j) To reflect the increase in depreciation and amortization expense resulting
from the allocation of the purchase price to fixed assets and goodwill and a
change in the method of depreciation of fixed assets. The Predecessor
Company principally used the double declining balance method. The amount of
the pro forma adjustment for depreciation was determined using the
straight-line method over the estimated lives of the assets acquired.
Goodwill is being amortized over 40 years.
(k) To reflect the incremental interest expense associated with the issuance of
debt which partially funded the Acquisition.
(l) To reflect the pro forma income tax benefit associated with the pro forma
adjustments.
F-13
<PAGE> 89
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
NOTE 4. INVENTORIES
Inventories at December 31, 1996, consist of the following:
<TABLE>
<S> <C>
Bowling Products, at FIFO:
Raw materials................................... $ 11,683
Work in progress................................ 2,335
Finished goods and spare parts.................. 23,195
Bowling Centers, at average cost:
Merchandise inventory........................... 3,788
-------
$ 41,001
=======
</TABLE>
NOTE 5. DEFERRED TAXES AND OTHER CURRENT ASSETS
The components of deferred taxes and other current assets at December 31,
1996, are summarized below:
<TABLE>
<S> <C>
Deferred income taxes............................. $ 4,847
Advances or deposits.............................. 2,018
Other............................................. 4,313
-------
$ 11,178
=======
</TABLE>
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996, consists of the following:
<TABLE>
<S> <C>
Land............................................. $ 90,512
Buildings and improvements....................... 265,461
Equipment, furniture, and fixtures............... 304,067
Other............................................ 2,631
--------
662,671
Less: accumulated depreciation and
amortization................................... (31,875)
--------
$ 630,796
========
</TABLE>
Depreciation and amortization expense related to property and equipment was
$31,875 for the period ended December 31, 1996.
NOTE 7. OTHER LONG-TERM ASSETS
Other long-term assets at December 31, 1996, total $13,101 and are
primarily composed of long-term rent deposits, long-term portion of noncompete
obligations, and notes receivable.
F-14
<PAGE> 90
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
NOTE 8. ACCRUED EXPENSES
Accrued expenses at December 31, 1996, consist of the following:
<TABLE>
<S> <C>
Accrued compensation.............................. $ 9,141
Accrued interest.................................. 8,640
League bowling accounts........................... 7,676
Accrued installation costs........................ 4,451
Other............................................. 24,449
-------
$ 54,357
=======
</TABLE>
NOTE 9. LONG-TERM DEBT
Long-term debt at December 31, 1996, consists of the following:
<TABLE>
<S> <C>
Bank debt....................................... $ 564,625
Senior subordinated notes....................... 250,000
Senior subordinated discount notes.............. 274,663
Mortgage and equipment notes.................... 1,965
----------
Total debt............................ 1,091,253
Current maturities.............................. (42,376)
----------
Total long-term debt.................. $1,048,877
==========
</TABLE>
BANK DEBT
The bank debt (the "Senior Debt") was incurred pursuant to a credit
agreement (the "Bank Credit Agreement") dated as of May 1, 1996, and amended and
restated as of December 20, 1996, between Bowling Worldwide and its lenders. The
Bank Credit Agreement provides for (i) senior secured term loan facilities
aggregating $580.0 million (the "Term Facilities"), (ii) a senior secured
multiple-draw term facility of $150.0 million (the "Acquisition Facility"), and
(iii) a senior secured revolving credit facility of up to $50.0 million (the
"Working Capital Facility").
The Term Facilities consist of the following three tranches: (i) a Term
Loan Facility of $250.0 million, (ii) an Amortization Extended Loans
("AXELs(SM)") Series A facility of $190.0 million, and (iii) an AXELs(SM) Series
B Facility of $140.0 million. Maturity dates of the three tranches and scheduled
amortization payments are included in tables below. The Term Loan Facility bears
interest, at Bowling Worldwide's option, at Citibank's customary base rate plus
1.5% or at Citibank's Eurodollar rate plus 2.5%. At December 31, 1996, the
interest rate was 8.125%. The AXELs(SM) Series A Facility bears interest, at
Bowling Worldwide's option, at Citibank's customary base rate plus 1.875% or at
Citibank's Eurodollar rate plus 2.875%. At December 31, 1996, the interest rate
was 8.5%. The AXELs(SM) Series B Facility bears interest, at Bowling Worldwide's
option, at Citibank's customary base rate plus 2.125% or at Citibank's
Eurodollar rate plus 3.125%. At December 31, 1996, the interest rate was
10.375%. On January 10, 1997, the interest rate was adjusted to 8.69% when the
amounts under the Bank Credit Agreement were refinanced.
The Acquisition Facility has a term of five years. The Acquisition Facility
will begin to amortize in December 1999, with final maturity at March 31, 2001.
The Acquisition Facility bears interest, at Bowling Worldwide's option, at
Citibank's customary base rate plus 1.5% or at Citibank's Eurodollar rate plus
2.5%. At December 31, 1996, $65.0 million of the Acquisition Facility bore
interest at 9.75%,
F-15
<PAGE> 91
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
while $8.5 million bore interest at 8.125%. On January 10, 1997, $65.0 million
was refinanced as part of the AXELs(SM) Series B Facility and the interest rate
was adjusted to 8.69% as stated above.
The Working Capital Facility has a term of five years and will be fully
revolving until its final maturity. The Working Capital Facility will bear
interest, at Bowling Worldwide's option, at Citibank's customary base rate plus
1.5% or at Citibank's Eurodollar rate plus 2.5%.
Beginning May 1, 1997, the margins above Citibank's customary base rate and
Citibank's Eurodollar rate, at which the Term Loan Facility, the Working Capital
Facility, and the Acquisition Facility will bear interest, may be reduced
pursuant to a floating performance pricing grid which is based on the Total
Debt/EBITDA ratio for the four fiscal quarter rolling period then most recently
ended.
The Bank Credit Agreement contains certain covenants, including, but not
limited to, covenants related to cash interest coverage, fixed charge coverage,
payments on other debt, mergers and acquisitions, sales of assets, guarantees
and investments. The Bank Credit Agreement also contains certain provisions
which limit the amount of funds available for transfer from Bowling Worldwide to
AMF Group Holdings, and from AMF Group Holdings to AMF Bowling. Limits exist on,
among other things, the declaration or payment of dividends, distributions of
assets, and issuance or sale of capital stock.
So long as Bowling Worldwide is not in default of the covenants contained
in the Bank Credit Agreement, it may i) declare and pay dividends in common
stock; ii) declare and pay cash dividends to the extent necessary to make
payments of approximately $0.15 million due in May 1997 under certain noncompete
agreements with the Prior Owners; iii) declare and pay cash dividends for
general administrative expenses not to exceed $0.25 million; and iv) declare and
pay cash dividends not to exceed $2.0 million for the repurchase of Common
Stock. As of December 31, 1996, Bowling Worldwide is in compliance with all of
its covenants.
MORTGAGE AND EQUIPMENT NOTES
At December 31, 1996, mortgage and equipment notes related to one U.S.
bowling center bore interest at 9.175%.
NOTES
The senior subordinated notes will mature on March 15, 2006. Interest
accrues from the date of issuance at an annual rate of 10 7/8% and is payable in
cash semiannually in arrears on March 15 and September 15 of each year which
commenced on September 15, 1996.
The senior subordinated discount notes will mature on March 15, 2006 at a
fully-accreted value of $452,000. The senior subordinated discount notes will
result in an effective yield of 12 1/4% per annum, computed on a semiannual bond
equivalent basis. No interest will be payable prior to March 15, 2001.
Commencing March 15, 2001, interest will accrue and be payable in cash
semiannually in arrears on March 15 and September 15 of each year beginning with
September 15, 2001.
The Company's payment obligations under the senior subordinated notes and
the senior subordinated discount notes (together, the "Notes") are jointly and
severally guaranteed on a senior subordinated basis by AMF Group Holdings and
each of Bowling Worldwide's subsidiaries identified below in "Note 20.
Consolidating Financial Statements" (collectively, the "Guarantors").
F-16
<PAGE> 92
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
The guarantees of the Notes are subordinated to the guarantees of the
Senior Debt and the mortgage and equipment notes outstanding at December 31,
1996, referred to in the table above which have been issued by the Guarantors.
The Notes are general, unsecured obligations of Bowling Worldwide, are
subordinated in right of payment to all Senior Debt of Bowling Worldwide, and
rank pari passu with all existing and future subordinated debt of Bowling
Worldwide. The claims of the holders of the Notes will be effectively
subordinated to all other indebtedness and other liabilities (including trade
payables and capital lease obligations) of Bowling Worldwide's subsidiaries that
are not Guarantors and through which Bowling Worldwide will conduct a portion of
its operations. See "Note 20. Consolidating Financial Statements".
Prior to March 15, 1999, up to $100 million in aggregate principal amount
of senior subordinated notes will be redeemable at the option of Bowling
Worldwide, on one or more occasions, from the net proceeds of public or private
sales of common stock of, or contributions to the common equity capital of,
Bowling Worldwide, at a price of 110.875% of the principal amount of the senior
subordinated notes, together with accrued and unpaid interest, if any, to the
date of redemption; so long as at least $150 million in aggregate principal
amount of senior subordinated notes remains outstanding after such redemption.
Similarly, prior to March 15, 1999, the senior subordinated discount notes will
be redeemable at the option of Bowling Worldwide, on one or more occasions, from
the net proceeds of public or private sales of common stock of, or contributions
to the common equity capital of, Bowling Worldwide, at a price of 112.25% of the
accreted value of the senior subordinated discount notes; so long as at least
$150 million in accreted value of senior subordinated discount notes remains
outstanding after such redemption.
The indenture governing the senior subordinated notes and the indenture
governing the senior subordinated discount notes (the "Note Indentures") contain
certain covenants that, among other things, limit the ability of Bowling
Worldwide and its Restricted Subsidiaries, as defined therein, to incur
additional indebtedness and issue Disqualified Stock, as defined therein, pay
dividends or distributions or make investments or make certain other Restricted
Payments, as defined therein, enter into certain transactions with affiliates,
dispose of certain assets, incur liens securing pari passu and subordinated
indebtedness of Bowling Worldwide and engage in mergers and consolidations. As
of December 31, 1996, Bowling Worldwide is in compliance with all of its
covenants.
Annual maturities of long-term debt, including accretion of the senior
subordinated discount notes, as of December 31, 1996, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------------------------------------------
<S> <C>
1997............................................ $ 42,376
1998............................................ 47,375
1999............................................ 55,500
2000............................................ 71,750
2001............................................ 81,125
Thereafter...................................... 970,464
----------
$ 1,268,590
==========
</TABLE>
F-17
<PAGE> 93
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
Interest Rate Cap Agreements
During 1996, Bowling Worldwide entered into an interest rate cap agreement
with Goldman Sachs Capital Markets, L.P. to reduce the interest rate risk of its
Senior Debt. The notional amount of this cap was $500 million at December 31,
1996. Under the terms of this agreement, Bowling Worldwide receives payment if
the three-month LIBOR rises above 5.75 percent through April, 1997, above 6.50
percent from May, 1997 through April, 1998 and above 7.5 percent from May, 1998
through October, 1998. No amounts were received under this agreement during
1996.
Bowling Worldwide is exposed to credit-related loss in the event of
non-performance by the counterparty. Bowling Worldwide believes its exposure to
potential loss due to counterparty non-performance is minimized primarily due to
the relatively strong credit rating of the counterparty.
Average amounts outstanding and average borrowing rates for the period
ended December 31, 1996, were as follows:
<TABLE>
<CAPTION>
OUTSTANDING
AT AVERAGE AVERAGE
DECEMBER 31, AMOUNTS BORROWING
DESCRIPTION MATURITY DATES 1996 OUTSTANDING RATES
- ----------------------------------------- ---------------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Term Loan................................ March 31, 2001 $228,125 $ 243,074 8.20%
AXEL A................................... March 31, 2003 188,750 $ 188,164 8.58
AXEL B................................... March 31, 2004 74,250 $ 74,218 8.84
Acquisition Facility..................... March 31, 2001 73,500 $ 25,426 8.41
Working Capital Facility................. March 31, 2001 -- $ 11,434 9.09
Mortgage and Equipment Notes............. October 1, 2013 1,965 $ 1,967 9.18
</TABLE>
Deferred Financing Costs
Costs incurred to obtain bank financing and issue bond financing for the
Acquisition, as discussed above, are amortized over the lives of the various
types of debt. Bank financing costs are amortized over eight years and bond
financing costs are amortized over ten years using the effective interest rate
method. An interest rate cap agreement included in deferred financing costs is
amortized over the term of the agreement beginning November 1, 1996, and ending
October 31, 1998. Amortization expense for financing costs was $3,252 for the
period ended December 31, 1996. Interest expense for the interest rate cap
agreement was $304 for the period ended December 31, 1996.
Other
The Company is highly leveraged as a result of this indebtedness incurred
in connection with the Acquisition and subsequent acquisitions. Although the
Company believes it will be able to meet its debt obligations, there is no
assurance that the Company will generate sufficient cash flow in a timely manner
to satisfy scheduled principal and interest payments.
NOTE 10. INCOME TAXES
Income (loss) before income taxes at December 31, 1996, consists of the
following:
<TABLE>
<S> <C>
U.S.............................................................. $ (28,427)
International.................................................... 411
--------
$ (28,016)
========
</TABLE>
F-18
<PAGE> 94
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
The income tax provision (benefit) at December 31, 1996, consists of the
following:
<TABLE>
<S> <C>
CURRENT INCOME TAX EXPENSE
U.S. Federal..................................................... $ --
State and local.................................................. --
International.................................................... 5,508
--------
Total current provision................................ 5,508
--------
DEFERRED TAX BENEFIT
U.S. Federal..................................................... (12,274)
State and local.................................................. (1,766)
International.................................................... --
--------
Total deferred benefit................................. (14,040)
--------
Total benefit.......................................... $ (8,532)
========
</TABLE>
Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities at December 31, 1996, are as follows:
<TABLE>
<S> <C>
DEFERRED INCOME TAX ASSETS
Current assets
Reserve provisions not deductible for tax purposes.............. $ 4,847
-------
Noncurrent assets
Net operating losses............................................ 8,225
Foreign tax credits............................................. 5,452
Interest expense on high yield debt............................. 8,533
-------
Total noncurrent deferred tax assets.................... 22,210
-------
Total deferred tax assets......................................... 27,057
-------
DEFERRED INCOME TAX LIABILITIES
Noncurrent liabilities
Goodwill amortization............................................. 5,840
Depreciation on property and equipment............................ 20,265
-------
Total deferred tax liabilities.................................... 26,105
-------
Net deferred tax assets........................................... $ 952
=======
</TABLE>
In connection with the Acquisition, the Company has made a joint tax
election with the Prior Owners for certain entities under Section 338(h)(10) of
the Internal Revenue Code of 1986, as amended ("IRC"). The effect of this
election is the revaluation of the assets of the electing entities with any
residual purchase price allocated to goodwill. The nonelecting entities were
acquired by both stock and asset purchases.
The gross amount of net operating losses ("NOLs") the Company may utilize
on future tax returns is $22,986. The NOLs may be carried forward for fifteen
years until expiration. Foreign tax credits eligible for carry forward total
$5,452, and expire in five years. The Company had no valuation allowance related
to income tax assets as of December 31, 1996, and there was no change in the
valuation allowance during the year.
F-19
<PAGE> 95
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
The provision for income taxes differs from the amount computed by applying
the statutory rate of 35 percent for the period ended December 31, 1996, to
income before taxes. The principal reasons for this difference are as follows:
<TABLE>
<S> <C>
Tax at Federal statutory rate..................................... $ (9,806)
Increase resulting from:
Meals and entertainment......................................... 159
Goodwill related to acquisition of international bowling
centers...................................................... 1,093
Disallowance of certain high yield debt......................... 192
Other, net...................................................... (170)
-------
Total............................................................. $ (8,532)
=======
</TABLE>
NOTE 11. COMMITMENTS AND CONTINGENCIES
Bowling Centers and Bowling Products lease certain facilities and equipment
under operating leases which expire at various dates through 2026. Bowling
Centers has certain ground leases, associated with several centers, which expire
at various dates through 2058. These leases generally contain renewal options
and require payments of taxes, insurance, maintenance, and other expenses in
addition to the minimum annual rentals. Certain leases require contingent
payments based on usage of equipment above certain specified levels. Such
contingent rentals amounted to $912 for the period ended December 31, 1996.
Total rent expense under operating leases aggregated approximately $13,737 for
the period ended December 31, 1996.
Future minimum rental payments under the operating lease agreements as of
December 31, 1996, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
-------------------------------------------------
<S> <C>
1997............................................. $ 19,712
1998............................................. 16,192
1999............................................. 14,055
2000............................................. 12,274
2001............................................. 17,039
Thereafter....................................... 58,624
-------
$ 137,896
=======
</TABLE>
Litigation and Claims
The Company is involved in certain lawsuits arising out of normal business
operations. The majority of these relate to accidents at the bowling centers.
Management believes that the ultimate resolution of such matters will not have a
material adverse effect on the Company's results of operations or financial
position. While the ultimate outcome of the litigation and claims against the
Company cannot presently be determined, management believes the Company has made
adequate provision for possible losses.
F-20
<PAGE> 96
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
NOTE 12. STOCKHOLDERS' EQUITY
Stockholders Agreement
On April 30, 1996, AMF Bowling and the stockholders of AMF Bowling (the
"Stockholders") entered into a stockholders agreement (the "Stockholders
Agreement") which regulates the relationship among AMF Bowling and the
Stockholders. The Stockholders Agreement primarily provides for, subject to
certain limitations and exceptions, (a) the establishment and nomination of the
Board of Directors and an Executive Committee; (b) certain of the Stockholders
to purchase additional shares of Common Stock, to finance acquisitions, capital
expenditures, investments in partnerships or joint ventures, or any similar
transactions or expenditures; (c) Goldman Sachs to have the exclusive right to
perform all consulting, financing, investment banking and similar services for
AMF Bowling and its subsidiaries, for customary compensation and on terms
customary for similar engagements with unaffiliated third parties; and (d)
guidance in the event a Stockholder determines to sell its shares of Common
Stock. The foregoing rights and obligations will terminate under certain
circumstances and notwithstanding those circumstances, in the event of any
merger, recapitalization, consolidation, reorganization or other restructuring
of AMF Bowling as a result of which the Stockholders own less than a majority of
the outstanding voting power of the entity surviving such transaction, the
Stockholders Agreement will terminate.
Registration Rights Agreement
On April 30, 1996, AMF Bowling and the Stockholders entered into a
Registration Rights Agreement (the "Registration Rights Agreement"). Pursuant to
the Registration Rights Agreement, subject to certain limitations and
exceptions, certain Stockholders may make demands of AMF Bowling to register
shares of Common Stock held by such Stockholders; provided, that AMF Bowling is
not required to so register unless, in the case of an initial public offering,
the aggregate offering price is at least $100 million, and, in the case of any
other offering, the aggregate offering price is at least $50 million. Upon a
demand for registration by certain Stockholders, each of the other Stockholders
is to be given the opportunity to participate on a pro rata basis in the
registration demanded. The Registration Rights Agreement also provides the
Stockholders with piggyback registration rights, which allow each of them to
include all or a portion of their shares of Common Stock under a registration
statement filed by AMF Bowling, subject to certain exceptions and limitations.
NOTE 13. EMPLOYEE BENEFIT PLANS
The Company has a defined contribution 401(k) plan to which U.S. employees
may make voluntary contributions based on their compensation. Under the
provisions of the plan, the Company can, at its option, match a discretionary
percentage of employee contributions and make an additional profit-sharing
contribution as determined by the Board of Directors. Employer contributions
vest 100 percent after a five-year period. The amount charged to expense under
this plan was $1,060 for the period ended December 31, 1996.
Certain of the Company's international operations have employee benefit
plans covering selected employees. These plans vary as to the funding, including
local government, employee, and employer funding. Each international operation
has provided for pension expense and made contributions to these plans in
accordance with the requirements of the plans and local country practices. The
amounts charged to expense under these plans aggregated $506 for the period
ended December 31, 1996.
F-21
<PAGE> 97
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
Bowling Worldwide has entered into employment agreements with three
executives, each for a term ending in May 1999. Each agreement calls for
compensation consisting of a salary and an incentive bonus of up to 50 percent
of the executive's annual salary if the Company meets certain operational and
financial targets. Each employment agreement also calls for a continuation of
certain benefits, under specified circumstances, following termination of
employment.
These three executives were also granted options to purchase a total of
345,000 shares of Common Stock. Unless sooner exercised or forfeited, as
provided, the options expire in May 2006. Twenty percent of the options vest on
each of the first five anniversaries of the Closing Date. The exercise price of
the options is $10.00 per share, which approximates the fair value of the Common
Stock at the date of the grants.
One executive, Robert L. Morin, resigned from all positions with the
Company as of February 28, 1997. As part of Mr. Morin's severance arrangement,
AMF Bowling repurchased all of the shares of Common Stock owned by Mr. Morin and
all options held by Mr. Morin were canceled.
In connection with the Acquisition, AMF Bowling adopted a stock incentive
plan (the "Stock Incentive Plan") under which AMF Bowling may grant incentive
awards in the form of shares of Common Stock, options to purchase shares of
Common Stock ("Stock Options") and stock appreciation rights to certain
officers, employees, consultants, and nonemployee directors ("Participants") of
AMF Bowling and its affiliates. The total number of shares of Common Stock
initially reserved and available for grant under the Stock Incentive Plan is
1,767,151. A committee of AMF Bowling's Board of Directors (the "Committee") is
authorized to make grants and various other decisions under the Stock Incentive
Plan and to make determinations as to a number of the terms of awards granted
under the Stock Incentive Plan. In August 1996, the Committee granted Stock
Options to Participants to purchase a total of 713,000 shares of Common Stock at
an exercise price of $10.00 per share. Twenty percent of the options vest on
each of the first five anniversaries of the grant date. Stock Options are
nontransferable (except under certain limited circumstances) and, unless
otherwise determined by the Committee, have a term of ten years.
The Committee granted an additional 91,000 in Stock Options to several
individuals who began employment with the Company between August 1996 and
December 31, 1996. The number of Stock Options outstanding to senior management,
other employees, and directors at December 31, 1996, after including forfeited
Stock Options, total 1,096,500. In addition to Stock Options outstanding under
the Stock Incentive Plan, 130,000 Stock Options granted to Douglas J. Stanard on
May 1, 1996 were outstanding at December 31, 1996. No Stock Options awarded were
exercisable during the period ended December 31, 1996.
The Stock Incentive Plan will terminate ten years after its effective date;
however, awards outstanding as of such date will not be affected or impaired by
such termination. AMF Bowling's Board of Directors and the Committee have
authority to amend the Stock Incentive Plan and awards granted thereunder,
subject to the terms of the Stock Incentive Plan.
In 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation", and elected to account for its stock options under APB Opinion
No. 25, under which no compensation cost has been recognized. Had compensation
cost for these stock options been determined consistent with SFAS No. 123, the
Company's net loss for 1996 would have been increased to $23,227.
The weighted-average fair value of options granted during 1996 is $3.05 per
option. The 1,226,500 options outstanding at December 31, 1996, have a
weighted-average exercise price of $10.00 and a weighted-average remaining
contractual life of 9.6 years.
F-22
<PAGE> 98
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996: risk-free rate of return of 6.5%; expected
dividend yield of zero; expected time of exercise of ten years; expected
volatility of zero due to the lack of a public trading market for the securities
underlying the options based on the minimum value method.
NOTE 14. SUPPLEMENTAL DISCLOSURES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<S> <C> <C> <C> <C>
Cash paid for the period ended December 31, 1996:
Interest................................ $ 44,465
Income taxes............................ $ 7,990
</TABLE>
<TABLE>
<CAPTION>
CHARAN OTHER
ACQUISITION ACQUISITION ACQUISITIONS TOTAL
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Business acquisitions, net of cash
acquired
Working capital, other than cash
acquired............................. $ (17,385) $ (5,028) $ -- $ (22,413)
Plant and equipment..................... (537,827) (97,857) (5,182) (640,866)
Purchase price in excess of the net
assets acquired...................... (784,217) -- -- (784,217)
Other assets............................ (18,330) -- -- (18,330)
Noncurrent liabilities.................. 6,198 -- -- 6,198
Warrants to purchase shares of Common
Stock................................ 8,700 -- -- 8,700
------------ ---------- ------------ ------------
Net cash used for business
acquisitions......................... $ (1,342,861) $ (102,885) $ (5,182) $ (1,450,928)
============ ========== ========== ============
Non-cash financing activities:
Warrants to purchase shares of Common
Stock................................ $ 8,700
Notes receivable from three executive
officers for the purchase of Common
Stock................................ $ 3,000
</TABLE>
NOTE 15. ACQUISITIONS
On October 10, 1996, AMF Bowling Centers, Inc. ("AMF Bowling Centers"), a
Virginia corporation and an indirect, wholly owned subsidiary of Bowling
Worldwide, completed the acquisition (the "Charan Acquisition") of 50 bowling
centers and certain related assets and liabilities from Charan Industries, Inc.
("Charan"), a Delaware corporation, pursuant to an Asset Purchase Agreement (the
"Asset Purchase Agreement"), dated as of September 10, 1996, by and between AMF
Bowling Centers and Charan.
The purchase price of the Charan Acquisition was approximately $106.5
million, subject to certain adjustments. The Charan Acquisition was funded with
approximately $40.0 million from the sale of equity by AMF Bowling to its
institutional stockholders and one of its directors, and with approximately
$66.5 million from available borrowings under Bowling Worldwide's existing
Acquisition Facility.
The following unaudited pro forma information has been prepared assuming
the Charan Acquisition had occurred as of January 1, 1996 and 1995, respectively
and are based on pro forma AMF Bowling results of operations presented in "Note
3. Pro Forma Results of Operations". The
F-23
<PAGE> 99
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
pro forma information is presented for information purposes only and is not
necessarily indicative of what would have occurred if the acquisition had
occurred as of those dates. In addition, the pro forma information is not
intended to be a projection of future results of operations.
PRO FORMA CONSOLIDATED DATA (UNAUDITED):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-----------------
1996 1995
------ ------
(IN MILLIONS)
<S> <C> <C>
Operating revenue........................................ $595.5 $622.7
Operating income......................................... 80.0 105.2
Loss before income taxes................................. (26.9) (4.9)
Net loss................................................. (19.5) (16.1)
</TABLE>
Since the Acquisition and prior to December 31, 1996, AMF Bowling Centers
purchased an aggregate of 57 bowling centers and certain related assets and
liabilities from five unrelated sellers including Charan. The combined purchase
price was approximately $113.5 million, including certain adjustments and
transaction costs, and was funded with approximately $40.0 million from the sale
of equity by AMF Bowling to its institutional stockholders and one of its
directors, and with $73.5 million from available borrowing under Bowling
Worldwide's Acquisition Facility. The results of operations for purchases of
bowling centers and certain related assets and liabilities additional to the
Charan Acquisition were not material in relation to the Company's consolidated
results of operations.
Other Acquisitions
On January 17, 1997, the Company, through AMF Bowling Centers, entered into
an Agreement and Plan of Merger with American Recreation Centers, Inc. ("ARC")
pursuant to which a wholly owned subsidiary of AMF Bowling Centers will merge
with and into ARC (the "ARC Merger"). As a result of the ARC Merger, the
outstanding shares of ARC's common stock, no par value per share (the "ARC
Common Stock"), will be converted into the right to receive $8.50 per share, in
cash. The purchase price, after reflecting the assumption of ARC's outstanding
debt and the purchase of certain joint venture interests, represents a
transaction with a total value of approximately $70.0 million, which will be
funded from available borrowing under Bowling Worldwide's Acquisition Facility.
The ARC Merger is conditioned upon, among other things, approval by holders of a
majority of the outstanding shares of ARC Common Stock and upon receipt of
certain regulatory and governmental approvals. ARC operates 43 bowling centers
in six states.
Subsequent to December 31, 1996, the Company acquired an additional eight
bowling centers in the United States and six bowling centers in the United
Kingdom, all of which were previously owned by several unrelated single-center
and small-chain operators. The total purchase price was approximately $28.3
million, including certain adjustments and transaction costs, and was funded
with $16.5 million from available borrowing under Bowling Worldwide's
Acquisition Facility.
F-24
<PAGE> 100
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
NOTE 16. BUSINESS SEGMENTS
The Company operates in two major lines of business: operation of bowling
centers and manufacturing of bowling and related products. Information
concerning operations in these business segments for the period ended December
31, 1996, is presented below:
<TABLE>
<S> <C>
Revenue from unaffiliated customers
Bowling Centers
U.S........................................................ $ 132,300
International.............................................. 67,400
---------
199,700
Bowling Products
U.S........................................................ 69,100
International.............................................. 116,000
---------
185,100
---------
$ 384,800
=========
Intersegment sales
Bowling Products.............................................. $ 6,000
=========
Operating income (loss)
Bowling Centers
U.S........................................................ $ 8,300
International.............................................. 6,800
---------
15,100
Bowling Products
U.S........................................................ 23,200
International.............................................. 10,900
---------
34,100
Corporate..................................................... (3,200)
Eliminations.................................................. 100
---------
$ 46,100
=========
Identifiable assets
Bowling Centers
U.S........................................................ $ 612,800
International.............................................. 302,700
---------
915,500
Bowling Products
U.S........................................................ 606,700
International.............................................. 44,500
---------
651,200
Corporate..................................................... 27,200
Eliminations.................................................. 100
---------
$1,594,000
=========
Depreciation and amortization
Bowling Centers
U.S........................................................ $ 25,600
International.............................................. 12,100
---------
37,700
</TABLE>
F-25
<PAGE> 101
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<S> <C>
Bowling Products
U.S........................................................ 12,100
International.............................................. 500
---------
12,600
Eliminations.................................................. (900)
---------
$ 49,400
=========
Capital expenditures
Bowling Centers
U.S........................................................ $ 8,100
International.............................................. 5,000
---------
13,100
Bowling Products
U.S........................................................ 1,500
International.............................................. 1,700
---------
3,200
Corporate..................................................... 1,300
Eliminations.................................................. (700)
---------
$ 16,900
=========
Research and development expense
Bowling Products.............................................. $ 1,300
=========
</TABLE>
NOTE 17. GEOGRAPHIC SEGMENTS
Information about the Company's operations in different geographic areas
for the period ended December 31, 1996, and identifiable assets at December 31,
1996, are presented below:
<TABLE>
<S> <C>
Operating revenue
United States.................................................. $205,800
Hong Kong...................................................... 59,700
Japan.......................................................... 36,800
Australia...................................................... 33,500
United Kingdom................................................. 15,900
Sweden......................................................... 7,400
Mexico......................................................... 5,400
Korea.......................................................... 14,300
Spain.......................................................... 900
China.......................................................... 1,000
Canada......................................................... 200
Other European countries....................................... 9,900
Eliminations................................................... (6,000)
--------
$384,800
========
</TABLE>
Operating revenue for the U.S. Bowling Products operation has been reduced
by $63,400 for the period ended December 31, 1996, to reflect the elimination of
intracompany sales between the U.S. Bowling Products operation and the Bowling
Products international sales and service branches.
F-26
<PAGE> 102
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<S> <C>
Operating income (loss)
United States.................................................. $ 28,200
Hong Kong...................................................... 7,700
Japan.......................................................... 4,000
Australia...................................................... 4,900
United Kingdom................................................. 600
Sweden......................................................... 1,000
Mexico......................................................... 500
Korea.......................................................... 100
Spain.......................................................... (100)
Canada......................................................... (100)
China.......................................................... (100)
Other European countries....................................... (700)
Eliminations................................................... 100
--------
$ 46,100
========
</TABLE>
Operating income for the U.S. Bowling Products operation has been reduced
by $1,000 for the period ended December 31, 1996, to reflect the elimination of
intracompany gross profit between the U.S. Bowling Products operation and the
Bowling Products international sales and service branches.
<TABLE>
<S> <C>
Identifiable assets
United States................................................. $1,246,700
Hong Kong..................................................... 26,700
Japan......................................................... 40,200
Australia..................................................... 138,000
United Kingdom................................................ 72,300
Sweden........................................................ 3,000
Mexico........................................................ 15,200
Korea......................................................... 4,600
Spain......................................................... 7,300
Canada........................................................ 3,700
China......................................................... 6,000
Other European countries...................................... 30,200
Eliminations.................................................. 100
----------
$1,594,000
==========
</TABLE>
Identifiable assets for the international sales and service branches have
been reduced by $5,500 to reflect the elimination of intracompany gross profit
in inventory between the U.S. Bowling Products operations and the Bowling
Products international sales and service branches.
NOTE 18. RELATED PARTIES
Goldman Sachs and its affiliates have certain interests in the Company in
addition to being the initial purchasers of the registered debt securities of
the Company in connection with the Acquisition. Richard A. Friedman and Terence
M. O'Toole, each of whom is a managing Director of Goldman, Sachs, and Peter M.
Sacerdote, who is a limited partner of The Goldman Sachs
F-27
<PAGE> 103
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
Group, L.P., are directors of AMF Bowling, AMF Group Holdings and Bowling
Worldwide. Goldman Sachs and its affiliates together currently beneficially own
a majority of the outstanding voting equity of AMF Bowling; thus Goldman Sachs
will be deemed to be an "affiliate" of the Company. Goldman Sachs received an
underwriting discount of approximately $19.0 million in connection with the
purchase and resale of the notes. Goldman Sachs also served as financial advisor
to the owners of the Predecessor Company in connection with the Acquisition and
received a fee in the form of 10-year warrants to purchase 870,000 shares of
Common Stock. The warrants were valued for accounting purposes at approximately
$8.7 million. In addition, Goldman Sachs is entitled to the reimbursement of its
expenses and is indemnified in connection with its services.
In connection with the Credit Agreement, Goldman Sachs Credit Partners L.P.
acted as Syndication Agent, Goldman Sachs Credit Partners L.P. and Citicorp
Securities, Inc. acted as Arrangers, and Citibank, N.A. is acting as
Administrative Agent. Goldman Sachs Credit Partners L.P. is also a lender under
the Credit Agreement. Goldman Sachs received a fee of approximately $9.5 million
and was reimbursed for expenses in connection with such services. Goldman Sachs
also received a cash fee of $5.0 million from the Company in connection with the
Acquisition and was reimbursed for related expenses.
Pursuant to the three employment agreements with executives of the Company
discussed in "Note 13. Employee Benefit Plans," AMF Bowling issued to each
executive 150,000 shares of Common Stock, at a purchase price of $10.00 per
share. One executive was granted an initial employment bonus of $166,667 which
he used to partially fund his purchase of shares of Common Stock. Each executive
has borrowed $1.0 million from AMF Bowling in order to fund the portion of his
purchase of Common Stock. These notes are due in May 2003 and accrue interest,
compounded annually, on the unpaid principal amount at 7 percent per annum.
Pursuant to the Stock Subscription Agreement dated April 30, 1996, Charles
M. Diker, a director of AMF Bowling, AMF Group Holdings, and Bowling Worldwide,
purchased 125,000 shares of Common Stock, at a purchase price of $10.00 per
share. Pursuant to an Option Agreement (the "Diker Option Agreement") dated May
1, 1996, Mr. Diker was granted, pursuant to the Stock Incentive Plan,
non-qualified Stock Options to purchase 100,000 shares of Common Stock at an
exercise price of $10.00 per share. One third of such options vested on May 1,
1996, one third vest on May 1, 1997, and the remaining options vest on May 1,
1998. The Diker Option Agreement also provides, among other things, for
repurchase of all of the shares held by him for fair market value as of a
specified date upon certain conditions. Mr. Diker is a party to the Stockholders
Agreement and any shares of Common Stock held by Mr. Diker will be subject to
the terms of that agreement.
NOTE 19. RECENT ACCOUNTING PRONOUNCEMENTS
Effective for the fiscal year ended December 31, 1997, the Company is
required to adopt Statement of Financial Accounting Standards ("SFAS") No. 128
"Earnings Per Share" and No. 129 "Disclosure of Information About Capital
Structure." The Company does not expect that adoption of these standards will
have a material impact on the Company's financial position or results of
operations.
NOTE 20. CONSOLIDATING FINANCIAL STATEMENTS
The following consolidating information presents:
- Consolidating balance sheet as of December 31, 1996, and consolidating
statements of income and cash flows for the period ended December 31,
1996.
- Elimination entries necessary to combine the entities comprising AMF
Bowling.
F-28
<PAGE> 104
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
The Notes are jointly and severally guaranteed on a full and unconditional
basis by AMF Group Holdings and by the first and second-tier subsidiaries of
Bowling Worldwide, as follows (together with AMF Group Holdings, the
"Guarantors"):
AMF Bowling Centers Holdings Inc.
AMF Bowling Holdings Inc.
AMF Bowling, Inc.
AMF Bowling Centers, Inc.
Bush River Corporation
King Louie Lenexa, Inc.
AMF Beverage Company of Oregon, Inc.
AMF Beverage Company of W. VA., Inc.
AMF Worldwide Bowling Centers Holdings Inc.
AMF Bowling Centers (Aust) International Inc.
AMF Bowling Centers (Canada) International Inc.
AMF BCO-France One, Inc.
AMF BCO-France Two, Inc.
AMF Bowling Centers Spain Inc.
AMF Bowling Centers (Hong Kong) International Inc.
AMF Bowling International Inc.
AMF Bowling Mexico Holding, Inc.
Boliches AMF, Inc.
AMF BCO - UK One, Inc.
AMF BCO - UK Two, Inc.
AMF Bowling Centers China, Inc.
AMF BCO - China, Inc.
AMF Bowling Centers Switzerland Inc.
The following third-tier subsidiaries of Bowling Worldwide, all of which
are wholly owned subsidiaries of AMF Worldwide Bowling Centers Holdings Inc.,
have not provided guarantees (collectively, the "Non-Guarantors"):
AMF Bowling
Worthing North Properties Limited
AMF Bowling France SNC
AMF Bowling de Paris SNC
AMF Bowling de Lyon La Part Dieu SNC
Boliches y Compania
Operadora Mexicana de Boliches, S.A.
Promotora de Boliches, S.A. de C.V.
Immeubles Obispado, S.A.
Immeubles Minerva, S.A.
Boliches Mexicano, S.A.
AMF Bowling Centers (China) Company
AMF Garden Hotel Bowling Center Company
F-29
<PAGE> 105
AMF BOWLING, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- --------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
- -------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents................. $ 39,660 $ 3,908 $ -- $ 43,568
Accounts and notes receivable, net of
allowance for doubtful accounts........ 41,266 1,359 -- 42,625
Accounts receivable -- intercompany....... 3,365 1,259 (4,624) --
Inventories............................... 39,609 1,392 -- 41,001
Deferred taxes and other.................. 9,491 1,687 -- 11,178
----------- -------- -------- -----------
Total current assets.............. 133,391 9,605 (4,624) 138,372
Notes receivable -- intercompany............ 1,998 1,663 (3,661) --
Property and equipment, net................. 599,706 30,139 951 630,796
Investment in subsidiaries.................. 59,559 -- (59,559) --
Goodwill and other assets................... 823,762 1,080 -- 824,842
----------- -------- -------- -----------
Total assets...................... $ 1,618,416 $42,487 $(66,893) $ 1,594,010
=========== ======== ======== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable.......................... $ 30,198 $ 1,365 $ -- $ 31,563
Accounts payable -- intercompany.......... 773 3,851 (4,624) --
Accrued expenses.......................... 50,460 3,897 -- 54,357
Income taxes payable...................... 1,676 600 -- 2,276
Long-term debt, current portion........... 42,376 -- -- 42,376
----------- -------- -------- -----------
Total current liabilities......... 125,483 9,713 (4,624) 130,572
Long-term debt.............................. 1,048,877 -- -- 1,048,877
Notes payable -- intercompany............... 1,663 1,998 (3,661) --
Other long-term liabilities................. 1,851 -- -- 1,851
Deferred income taxes....................... 2,828 1,067 -- 3,895
----------- -------- -------- -----------
Total liabilities................. 1,180,702 12,778 (8,285) 1,185,195
----------- -------- -------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock.............................. 289 4,364 (4,229) 424
Paid-in capital........................... 454,506 24,098 (49,578) 429,026
Retained earnings (deficit)............... (11,184) 4,826 (13,126) (19,484)
Equity adjustment from foreign
currency translation................... (5,897) (3,579) 8,325 (1,151)
----------- -------- -------- -----------
Total stockholders' equity........ 437,714 29,709 (58,608) 408,815
----------- -------- -------- -----------
Total liabilities and
stockholders' equity............ $ 1,618,416 $42,487 $(66,893) $ 1,594,010
=========== ======== ======== ===========
</TABLE>
F-30
<PAGE> 106
AMF BOWLING, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE PERIOD ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Operating revenue............................. $364,095 $21,768 $ (1,054) $384,809
-------- ------- ------- --------
Operating expenses:
Cost of goods sold.......................... 127,623 3,566 (647) 130,542
Bowling center operating expenses........... 112,318 11,780 (425) 123,673
Selling, general, and administrative
expenses................................. 33,444 1,626 -- 35,070
Depreciation and amortization............... 46,198 3,260 (72) 49,386
-------- ------- ------- --------
Total operating expenses................. 319,583 20,232 (1,144) 338,671
-------- ------- ------- --------
Operating income......................... 44,512 1,536 90 46,138
Nonoperating expenses:
Interest expense............................ 77,968 22 -- 77,990
Other (income) expense, net................. (39) 1,029 922 1,912
Interest income............................. (5,480) (268) -- (5,748)
Equity in loss of subsidiaries.............. 499 -- (499) --
-------- ------- ------- --------
Total nonoperating expenses.............. 72,948 783 423 74,154
-------- ------- ------- --------
Income (loss) before income taxes........ (28,436) 753 (333) (28,016)
Provision (benefit) for income taxes..... (9,703) 1,171 -- (8,532)
-------- ------- ------- --------
Net loss................................. $(18,733) $ (418) $ (333) $(19,484)
======== ======= ======= ========
</TABLE>
F-31
<PAGE> 107
AMF BOWLING, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss...................................... $ (18,733) $ (418) $ (333) $ (19,484)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization.............. 46,198 3,260 (72) 49,386
Deferred taxes............................. (14,040) -- -- (14,040)
Amortization of bond discount.............. 24,731 -- -- 24,731
Equity in loss of subsidiaries............. (499) -- 499 --
Dividends from non-guarantor companies..... 922 (922) -- --
Loss on the sale of property and equipment,
net...................................... 390 18 -- 408
Changes in assets and liabilities:
Accounts and notes receivable............ (6,663) 159 -- (6,504)
Receivables and payables -- affiliates... 399 (399) -- --
Inventories.............................. 1,830 32 -- 1,862
Other assets............................. (3,334) (582) (94) (4,010)
Accounts payable and accrued
expenses.............................. 21,631 299 -- 21,930
Income taxes payable..................... 662 (245) -- 417
Other long-term liabilities.............. 18,918 217 -- 19,135
---------- -------- ------ -----------
Net cash provided by operating
activities............................... 72,412 1,419 -- 73,831
Cash flows from investing activities:
Acquisitions of operating units, net of cash
acquired................................... (1,454,213) 3,285 -- (1,450,928)
Purchases of property and equipment........... (15,930) (1,011) -- (16,941)
Proceeds from sales of property and
equipment.................................. 584 170 -- 754
---------- -------- ------ -----------
Net cash provided by (used in) investing
activities............................... (1,469,559) 2,444 -- (1,467,115)
Cash flows from financing activities:
Proceeds from long-term debt, net of deferred
financing costs............................ 1,059,277 -- -- 1,059,277
Payments on long-term debt.................... (38,875) -- -- (38,875)
Capital contribution.......................... 420,750 -- -- 420,750
Payment of noncompete obligations............. (2,892) -- -- (2,892)
---------- -------- ------ -----------
Net cash provided by financing
activities............................... 1,438,260 -- -- 1,438,260
---------- -------- ------ -----------
Effect of exchange rates on cash........... (1,453) 45 -- (1,408)
---------- -------- ------ -----------
Net increase in cash....................... 39,660 3,908 -- 43,568
Cash and cash equivalents at beginning of
period................................... -- -- -- --
---------- -------- ------ -----------
Cash and cash equivalents at end of
period................................... $ 39,660 $ 3,908 $ -- $ 43,568
========== ======== ====== ===========
</TABLE>
F-32
<PAGE> 108
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
1997
-----------
<S> <C>
(UNAUDITED)
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 16,640
Accounts and notes receivable, net of allowance for doubtful accounts of
$4,086.................................................................... 57,120
Inventories.................................................................. 56,488
Deferred taxes and other..................................................... 13,210
----------
Total current assets................................................. 143,458
Property and equipment, net.................................................... 743,675
Deferred financing costs, net.................................................. 40,151
Goodwill, net.................................................................. 766,661
Other assets................................................................... 21,647
----------
Total assets......................................................... $ 1,715,592
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................. $ 32,757
Accrued expenses............................................................. 54,550
Income taxes payable......................................................... 4,553
Note payable................................................................. 30,000
Long-term debt, current portion.............................................. 44,876
----------
Total current liabilities............................................ 166,736
Long-term debt................................................................. 1,146,415
Other long-term liabilities.................................................... 6,383
Deferred income taxes.......................................................... 4,922
----------
Total liabilities.................................................... 1,324,456
----------
Commitments and contingencies
Stockholders' equity:
Common stock (par value $.01, 60,000,000 shares authorized, 42,225,000 shares
issued and outstanding)................................................... 422
Paid-in capital.............................................................. 428,528
Retained deficit............................................................. (31,648)
Equity adjustment from foreign currency translation.......................... (6,166)
----------
Total stockholders' equity........................................... 391,136
----------
Total liabilities and stockholders' equity........................... $ 1,715,592
==========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-33
<PAGE> 109
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AMF BOWLING, INC.
---------------------
SIX MONTHS ENDED
JUNE 30,
---------------------
1997 1996(A)
-------- --------
<S> <C> <C>
Operating revenue.................................................. $318,068 $ 73,423
--------- ---------
Operating expenses:
Cost of goods sold............................................... 86,084 23,513
Bowling center operating expenses................................ 116,038 26,747
Selling, general, and administrative expenses.................... 30,172 7,518
Depreciation and amortization.................................... 43,424 11,650
--------- ---------
Total operating expenses...................................... 275,718 69,428
--------- ---------
Operating income (loss)....................................... 42,350 3,995
Nonoperating expenses (income):
Interest expense................................................. 57,454 23,873
Other expenses, net.............................................. 2,368 323
Interest income.................................................. (1,126) (3,782)
--------- ---------
Total nonoperating expenses................................... 58,696 20,414
--------- ---------
Loss before income taxes...................................... (16,346) (16,419)
Benefit for income taxes...................................... (4,182) (4,193)
--------- ---------
Net loss...................................................... $(12,164) $(12,226)
========= =========
Net loss per share................................................. $ (.29) $ (.32)
========= =========
Weighted average shares outstanding................................ 42,274 38,306
========= =========
</TABLE>
- ---------------
(a) For the period from the inception date of January 12, 1996 through June 30,
1996, which includes results of operations of the acquired business from May
1, 1996 through June 30, 1996.
The accompanying notes are an integral part of these consolidated financial
statements.
F-34
<PAGE> 110
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
AMF BOWLING, INC.
SIX MONTHS ENDED JUNE
30,
------------------------
1997 1996(A)
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................................ $ (12,164) $ (12,226)
Adjustments to reconcile net income loss to net cash provided by
operating activities:
Depreciation and amortization................................ 43,424 11,650
Deferred income taxes........................................ (1,775) 5,871
Amortization of bond discount................................ 16,788 8,826
Loss (gain) on the sale of property and equipment, net....... 94 (31)
Changes in assets and liabilities:
Accounts and notes receivable, net......................... (17,942) (3,678)
Inventories................................................ (15,877) (3,396)
Other assets............................................... (21,417) (47,372)
Accounts payable and accrued expenses...................... 1,432 21,418
Income taxes payable....................................... 2,257 (8,590)
Other long-term liabilities................................ 13,345 (517)
--------- -----------
Net cash provided by (used in) operating activities.......... 8,165 (28,045)
--------- -----------
Cash flows from investing activities:
Acquisitions of operating units, net of cash acquired........... (122,165) (1,333,048)
Purchases of property and equipment............................. (25,639) (3,318)
Proceeds from the sale of property and equipment................ 268 86
--------- -----------
Net cash used in investing activities........................ (147,536) (1,336,280)
--------- -----------
Cash flows from financing activities:
Proceeds from long-term debt, net of deferred financing costs... 133,500 1,029,930
Payment on long-term debt....................................... (20,250) (233)
Payments on notes payable -- stockholders, net.................. -- --
Capital contribution............................................ -- 380,250
Repurchase of common stock...................................... (500) --
Distributions to stockholders................................... -- --
Noncompete obligations.......................................... (322) (190)
--------- -----------
Net cash provided by financing activities.................... 112,428 1,409,757
--------- -----------
Effect of exchange rates on cash............................. 15 (338)
--------- -----------
Net (decrease) increase in cash.............................. (26,928) 45,094
Cash and cash equivalents at beginning of period............. 43,568 --
--------- -----------
Cash and cash equivalents at end of period................... $ 16,640 $ 45,094
========= ===========
</TABLE>
- ---------------
(a) For the period from the inception date of January 12, 1996, through June 30,
1996, which includes the cash flows of the acquired business from May 1,
1996 through June 30, 1996.
The accompanying notes are an integral part of these consolidated financial
statements.
F-35
<PAGE> 111
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 1. ORGANIZATION
The accompanying unaudited condensed consolidated financial statements
reflect all adjustments (consisting of normal recurring accruals) which are, in
the opinion of management, necessary for a fair presentation of the results of
operations for the interim periods. The interim financial information and notes
thereto should be read in conjunction with the April 30, 1996, and December 31,
1995 audited combined financial statements of AMF Bowling Group (the
"Predecessor Company") and the December 31, 1996 audited consolidated financial
statements of AMF Bowling, Inc. and subsidiaries included elsewhere in this
Registration Statement. The results of operations for the six months ended June
30, 1997, are not necessarily indicative of results to be expected for the
entire year.
AMF Bowling, Inc. ("AMF Bowling") changed its name from AMF Holdings Inc.
in 1997. AMF Bowling and its subsidiaries (collectively, the "Company" or "AMF")
are principally engaged in two business segments: (i) the ownership or operation
of bowling centers, consisting of 321 U.S. centers and 87 international centers
("Bowling Centers") as of June 30, 1997, and (ii) the manufacture and
distribution of bowling equipment such as automatic pinspotters, automatic
scoring equipment, bowling pins, lanes, ball returns, certain spare parts, and
the resale of allied products such as bowling balls, bags, shoes, and certain
other spare parts ("Bowling Products"). The principal markets for bowling
equipment are U.S. and international bowling center operators.
AMF Bowling Worldwide, Inc., formerly named AMF Group Inc. ("Bowling
Worldwide"), is a wholly owned subsidiary of AMF Group Holdings Inc. ("AMF Group
Holdings"). AMF Group Holdings is a wholly owned subsidiary of AMF Bowling. AMF
Group Holdings and Bowling Worldwide are Delaware corporations organized by GS
Capital Partners II, L.P., and certain other investment funds (collectively,
"GSCP") affiliated with Goldman, Sachs & Co. ("Goldman Sachs") to effect the
Acquisition (described below). AMF Group Holdings and AMF Bowling are holding
companies only. The primary assets in each are comprised of investments in
direct and/or indirect subsidiaries.
Pursuant to a Stock Purchase Agreement dated February 16, 1996, between AMF
Group Holdings and the stockholders (the "Prior Owners") of the Predecessor
Company, on May 1, 1996 (the "Closing Date"), AMF Group Holdings acquired the
Predecessor Company through a stock purchase by AMF Group Holdings' subsidiaries
of all the outstanding stock of the separate domestic and foreign corporations
that constituted substantially all of the Predecessor Company and through the
purchase of certain of the assets of the Predecessor Company's bowling center
operations in Spain and Switzerland (the "Acquisition"). AMF Group Holdings did
not acquire the assets of two bowling centers located in Madrid, Spain and
Geneva, Switzerland (both of which were retained by the Prior Owners).
The purchase price for the Acquisition was approximately $1.37 billion,
less approximately $2.0 million representing debt of the Predecessor Company
which remained in place following the closing of the Acquisition. The
Acquisition was accounted for by the purchase method of accounting, pursuant to
which the purchase price was allocated among the acquired assets and liabilities
in accordance with estimates of fair market value on the date of Acquisition.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated results of operations of AMF Bowling have been presented
for the six months ended June 30, 1997, and the period from the inception date
of January 12, 1996 through June 30,
F-36
<PAGE> 112
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
1996. All significant intercompany balances and transactions have been
eliminated in the accompanying consolidated financial statements. All dollar
amounts are in thousands, except where otherwise indicated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. The estimates made by management include allowances for obsolete
inventory, uncollectible accounts receivable, realization of goodwill and other
deferred assets, litigation and claims, product warranty costs, and
self-insurance costs. Actual results could differ from those estimates.
Goodwill
As a result of the Acquisition and subsequent purchases of bowling centers
discussed in "Note 9. Acquisitions", and in accordance with the purchase method
of accounting for the Acquisition, the Company recorded goodwill representing
the excess of the purchase price over the allocation among the acquired assets
and liabilities in accordance with estimates of fair market value on the dates
of acquisition. Goodwill is being amortized over 40 years. Amortization expense
was $9,860 for the six months ended June 30, 1997. Accumulated amortization at
June 30, 1997 was $22,930.
Earnings Per Share
Net loss per share is calculated based on the actual weighted average
shares outstanding. Outstanding stock options and warrants are not considered as
their effect is antidilutive.
NOTE 3. PRO FORMA RESULTS OF OPERATIONS (UNAUDITED) (IN MILLIONS)
Pro forma statements of income are presented on the following pages for the
six months ended June 30, 1996, as if the Acquisition had occurred on January 1,
1996. AMF Bowling's pro forma statement of income for the six months ended June
30, 1996, is based on the Predecessor Company's statement of income for the four
months ended April 30, 1996, AMF Bowling's statement of income for the period
from the inception date of January 12, 1996 through June 30, 1996, and
adjustments giving effect to the Acquisition under the purchase method of
accounting as described in the notes below. The pro forma results are for
illustrative purposes only, do not purport to be indicative of the actual
results which occurred, and are not indicative of future results of operations.
F-37
<PAGE> 113
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
PRO FORMA
-------------
PREDECESSOR AMF
COMPANY BOWLING, INC.
-------------- -------------
AMF
BOWLING, INC. FOUR MONTHS SIX MONTHS
---------------- ENDED ENDED
PERIOD ENDED -------------- PRO FORMA -------------
JUNE 30, 1996(a) APRIL 30, 1996 ADJUSTMENTS JUNE 30, 1996
---------------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Operating revenue.................. $ 73.4 $164.9 $ (0.8)(b) $ 237.5
------ ------ ------ ------
Operating expenses:
Cost of goods sold............... 23.5 43.1 (0.1)(b) 66.5
Bowling center operating
expenses...................... 26.7 80.2 (24.4)(b)(c) 82.5
Selling, general, and
administrative expenses....... 7.5 35.5 (20.3)(b)(c) 22.7
Depreciation and amortization.... 11.7 15.1 8.1(d) 34.9
------ ------ ------ ------
Total operating
expenses............... 69.4 173.9 (36.7) 206.6
------ ------ ------ ------
Operating income
(loss)................. 4.0 (9.0) 35.9 30.9
Nonoperating expenses:
Interest expense................. 23.9 4.5 23.8(e) 52.2
Other expenses, net.............. 0.3 0.7 -- 1.0
Interest income.................. (3.8) (0.6) -- (4.4)
------ ------ ------ ------
Income (loss) before income taxes.. (16.4) (13.6) 12.1 (17.9)
Provision (benefit) for income
taxes............................ (4.2) (1.7) 1.5(f) (4.4)
------ ------ ------ ------
Net income (loss)........ $(12.2) $(11.9) $ 10.6 $ (13.5)
====== ====== ====== ======
Net loss per share................. $ (0.35)
======
</TABLE>
- ---------------
(a) For the period from the inception date of January 12, 1996 through June 30,
1996, which includes results of the acquired business from May 1, 1996
through June 30, 1996.
(b) To reflect the impact of AMF Group Holdings not acquiring the operations of
one bowling center in Switzerland and one bowling center in Spain.
(c) To eliminate a one-time charge of $44.0 million for special bonuses and
payments made by the Prior Owners in April 1996.
(d) To reflect the increase in depreciation and amortization expense from the
allocation of the purchase price to fixed assets and goodwill and a change
in the method of depreciation of fixed assets. The Predecessor Company
principally used the double declining balance method. The amount of the pro
forma adjustment for depreciation was determined using the straight-line
method over the estimated lives of the assets acquired. Goodwill is being
amortized over 40 years.
(e) To reflect the incremental interest expense associated with the issuance of
debt which partially funded the Acquisition.
(f) To give effect to the change in status of certain U.S. and international
subsidiaries of AMF Bowling from S corporations to taxable corporations
under the U.S. federal tax law upon consummation of the Acquisition.
F-38
<PAGE> 114
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 4. INVENTORIES
Inventories at June 30, 1997, consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
1997
-----------
<S> <C>
(UNAUDITED)
<CAPTION>
<S> <C>
Bowling Products, at FIFO:
Raw materials................................. $13,603
Work in progress.............................. 2,493
Finished goods and spare parts................ 35,365
Bowling Centers, at average cost:
Merchandise inventory......................... 5,027
-------
$56,488
=======
</TABLE>
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1997, consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
1997
-----------
<S> <C>
(UNAUDITED)
<CAPTION>
<S> <C>
Land............................................ $ 103,004
Buildings and improvements...................... 306,848
Equipment, furniture, and fixtures.............. 386,580
Other........................................... 9,993
--------
806,425
Less: accumulated depreciation and
amortization.................................. (62,750)
--------
$ 743,675
========
</TABLE>
Depreciation and amortization expense related to property and equipment was
$30,875 and $7,445 for the six months ended June 30, 1997 and 1996,
respectively.
NOTE 6. LONG-TERM DEBT
Long-term debt at June 30, 1997, consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
1997
-----------
<S> <C>
(UNAUDITED)
<CAPTION>
<S> <C>
Bank debt...................................... $ 677,875
Exchange senior subordinated notes............. 250,000
Exchange senior subordinated discount notes.... 291,446
Mortgage and equipment notes................... 1,970
----------
Total debt........................... 1,221,291
Current maturities............................. (74,876)
----------
Total long-term debt................. $ 1,146,415
==========
</TABLE>
F-39
<PAGE> 115
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
In May 1997, Bowling Worldwide amended the Bank Credit Agreement to
increase the flexibility and borrowing capacity of its ongoing acquisition
program. As a result, Bowling Worldwide increased the availability under the
Acquisition Facility to $230.0 million. As of July 31, 1997, $144.0 million was
outstanding under the Acquisition Facility.
In July 1997, Bowling Worldwide entered into an interest rate cap agreement
to reduce the interest rate risk of its Senior Debt. The notional amount of this
cap is $100.0 million. Under the terms of this agreement, Bowling Worldwide
receives payment if the three month LIBOR rises above 7.00 percent through March
31, 1998.
Deferred Financing Costs
Costs incurred to obtain bank financing and issue bond financing for the
Acquisition are amortized over the lives of the various types of debt. Bank
financing costs are amortized over eight years and bond financing costs are
amortized over ten years using the effective interest rate method. An interest
rate cap agreement included in deferred financing costs is amortized over the
term of the agreement beginning November 1, 1996, and ending October 31, 1998.
Amortization expense for financing costs was $2,530 for the six months ended
June 30, 1997. Interest expense for the interest rate cap agreement was $911 for
the six months ended June 30, 1997.
NOTE 7. COMMITMENTS AND CONTINGENCIES
Litigation and Claims
The Company is involved in certain lawsuits arising out of normal business
operations. The majority of these relate to accidents at bowling centers.
Management believes that the ultimate resolution of such matters will not have a
material adverse effect on the Company's results of operations or financial
position. While the ultimate outcome of the litigation and claims against the
Company cannot presently be determined, management believes the Company has made
adequate provision for possible losses.
NOTE 8. EMPLOYEE BENEFIT PLANS
The total number of options to purchase shares of Common Stock ("Stock
Options") currently reserved and available for grant under the Stock Incentive
Plan is 1,767,151. On June 11, 1997, the Executive Committee of AMF Bowling's
Board of Directors approved the grant of Stock Options to participants of the
Stock Incentive Plan to purchase a total of 366,000 shares of Common Stock at an
exercise price of $10.00 per share. The number of Stock Options outstanding to
senior management, other employees, and directors at June 30, 1997, after giving
effect to the grant and to forfeited Stock Options, total 1,418,000 at an
exercise price of $10.00 per share. In addition to Stock Options outstanding
under the Stock Incentive Plan, 130,000 Stock Options granted to Douglas J.
Stanard on May 1, 1996 were outstanding at June 30, 1997.
NOTE 9. ACQUISITIONS
On April 24, 1997, the Company completed the acquisition of American
Recreation Centers, Inc. ("ARC"), which operated 43 bowling centers in six
states. The aggregate purchase price of the ARC acquisition was approximately
$70 million, including repayment of certain debt and the purchase of related
joint venture interests, and was funded from available borrowing under the
Acquisition Facility. Between January 1, 1997 and June 30, 1997, the Company
acquired 64 centers in the United States, seven centers in the United Kingdom,
two centers in Australia, and certain
F-40
<PAGE> 116
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
related assets and liabilities from several unrelated sellers including ARC. The
aggregate purchase price was approximately $122.2 million, including certain
adjustments and transaction costs, and was funded with $103.5 million from
available borrowing under AMF Group's Acquisition Facility and the remainder
from internally generated cash.
In addition, between July 1, 1997, and September 23, 1997, the Company
acquired 30 centers in the United States from five unrelated sellers. The
aggregate purchase price was approximately $62.0 million, and was funded with
$59.0 million from available borrowing under the Acquisition Facility and $3.0
million from internally generated cash. As a result of the acquisitions, and
after giving effect to the construction of one center and the closing of six
centers in 1997, the Company operated 352 U.S. centers and 87 international
centers as of September 23, 1997.
The Company has entered into purchase agreements regarding the acquisition
of 15 additional U.S. centers from several unrelated sellers. The aggregate
purchase price is expected to be approximately $28.7 million, and will be funded
primarily with available borrowings under the Acquisition Facility and cash
generated from operations.
In April 1997, the Company entered into a joint venture arrangement with
Hong Leong Corporation Limited, a Singapore-based conglomerate. Pursuant to the
arrangement, the joint venture, to be owned 50% by the Company and 50% by Hong
Leong, is expected to build and operate up to 20 bowling centers during the next
three years. These bowling centers, the first of which is expected to open
during 1997 in Tianjin, China, will be located in China, Indonesia, Malaysia,
the Philippines, Thailand and Vietnam.
In June 1997, the Company signed an agreement to enter into a joint venture
arrangement with Playcenter S.A., a Sao Paulo-based amusement and entertainment
company ("Playcenter"). Pursuant to the arrangement, the joint venture, to be
owned 50% by the Company and 50% by Playcenter, is expected to build or assume
ownership of, and operate, up to 39 bowling centers, in Brazil and Argentina
during the next four years.
The Company expects its total investments in the joint ventures with Hong
Leong and Playcenter to be approximately $12 million and $14 million,
respectively, and expects each joint venture to finance the construction and
acquisition of bowling centers with financing that is non-recourse to the
Company.
F-41
<PAGE> 117
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
NOTE 10. BUSINESS SEGMENTS
The Company operates in two major lines of business: operating bowling
centers and manufacturing bowling and related products. Information concerning
operations in these businesses for the six months ended June 30, 1997 and 1996,
respectively, is presented below (in millions):
<TABLE>
<CAPTION>
AMF BOWLING, INC.
-----------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1997
-----------------------------------------------------------------------------------------------------
BOWLING CENTERS BOWLING PRODUCTS
------------------------------- -------------------------------
U.S. INTERNATIONAL SUBTOTAL U.S. INTERNATIONAL SUBTOTAL CORPORATE ELIMINATIONS TOTAL
------ ------------- -------- ------ ------------- -------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue from
unaffiliated
customers............ $148.7 $ 52.4 $ 201.1 $ 47.7 $69.3 $117.0 $ -- $ -- $ 318.1
Intersegment sales..... -- -- -- 5.3 2.4 7.7 -- -- 7.7
Operating income
(loss)............... 22.8 5.9 28.7 16.1 5.3 21.4 (8.4) 0.7 42.4
Identifiable assets.... 729.0 306.1 1,035.1 615.7 58.2 673.9 6 0.6 1,715.6
Depreciation and
amortization......... 25.1 9.2 34.3 9.3 0.6 9.9 -- (0.8) 43.4
Capital expenditures... 19.0 3.0 22.0 1.9 0.4 2.3 1.5 (0.2) 25.6
Research and
development expense.. -- -- -- 0.7 -- 0.7 -- -- 0.7
</TABLE>
<TABLE>
<CAPTION>
AMF BOWLING, INC.
------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1996
------------------------------------------------------------------------------------------------
BOWLING CENTERS BOWLING PRODUCTS
------------------------------ ------------------------------
U.S. INTERNATIONAL SUBTOTAL U.S. INTERNATIONAL SUBTOTAL CORPORATE ELIMINATIONS TOTAL
----- ------------- -------- ----- ------------- -------- ----------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue from unaffiliated
customers................. $23.3 $16.2 $ 39.5 $15.7 $18.2 $ 33.9 $ -- $ -- $73.4
Intersegment sales.......... -- -- -- 0.6 1.3 1.9 -- -- 1.9
Operating income (loss)..... (3.6) 2.3 (1.3) 4.5 1.2 5.7 (0.2) (0.2) 4.0
Depreciation and
amortization.............. 6.2 2.6 8.8 3.0 0.1 3.1 -- (0.2) 11.7
Capital expenditures........ 1.5 1.7 3.2 0.2 0.2 0.4 -- (0.3) 3.3
Research and development
expense................... -- -- -- 1.1 -- 1.1 -- -- 1.1
</TABLE>
F-42
<PAGE> 118
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
NOTE 11. RECENT ACCOUNTING PRONOUNCEMENTS
Effective for the fiscal year ended December 31, 1997, the Company is
required to adopt Statement of Financial Accounting Standards ("SFAS") No. 128
"Earnings Per Share" and No. 129 "Disclosure of Information About Capital
Structure." Effective for the fiscal year ended December 31, 1998, the Company
is required to adopt SFAS No. 130 "Reporting Comprehensive Income" and SFAS No.
131 "Disclosures About Segments of an Enterprise and Related Information." The
Company does not expect that adoption of these standards will have a material
impact on the Company's financial position or results of operations. The
adoption of SFAS No. 130 by the Company will require reporting comprehensive
income, which includes the foreign currency translation adjustment, in an
alternative format prescribed by the standard.
NOTE 12. CONSOLIDATING FINANCIAL STATEMENTS
The following consolidating financial information presents:
- Consolidating balance sheet as of June 30, 1997, and consolidating
statements of income and cash flows for the six months ended June 30,
1997.
- Elimination entries necessary to combine the entities comprising AMF
Bowling.
The Notes are jointly and severally guaranteed on a full and unconditional
basis by AMF Group Holdings and by the first and second-tier subsidiaries of
Bowling Worldwide. Third-tier subsidiaries of Bowling Worldwide have not
provided guarantees.
F-43
<PAGE> 119
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
---------- --------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
- ---------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents.................... $ 15,651 $ 989 $ -- $ 16,640
Accounts and notes receivable, net of
allowance for doubtful accounts............ 55,738 1,382 -- 57,120
Accounts receivable -- intercompany.......... 2,889 4,609 (7,498) --
Inventories.................................. 54,535 1,953 -- 56,488
Deferred taxes and other..................... 11,343 1,867 -- 13,210
---------- ------- -------- ----------
Total current assets.................. 140,156 10,800 (7,498) 143,458
Notes receivable -- intercompany............... 6,771 10,663 (17,434) --
Property and equipment, net.................... 702,932 39,712 1,031 743,675
Investment in subsidiaries..................... 26,099 -- (26,099) --
Goodwill and other assets...................... 821,781 6,678 -- 828,459
---------- ------- -------- ----------
Total assets.......................... $1,697,739 $67,853 $(50,000) $1,715,592
========== ======= ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable............................. $ 30,786 $ 1,971 $ -- $ 32,757
Accounts payable -- intercompany............. 74 7,424 (7,498) --
Accrued expenses............................. 49,769 4,781 -- 54,550
Income taxes payable......................... 3,218 1,335 -- 4,553
Note payable................................. 30,000 -- -- 30,000
Long-term debt, current portion.............. 44,876 -- -- 44,876
---------- ------- -------- ----------
Total current liabilities............. 158,723 15,511 (7,498) 166,736
Long-term debt................................. 1,137,415 9,000 -- 1,146,415
Notes payable -- intercompany.................. 1,327 16,107 (17,434) --
Other long-term liabilities.................... 6,383 -- -- 6,383
Deferred income taxes.......................... 3,881 1,041 -- 4,922
---------- ------- -------- ----------
Total liabilities..................... 1,307,729 41,659 (24,932) 1,324,456
---------- ------- -------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock................................. -- 4,362 (3,940) 422
Paid-in capital.............................. 427,446 23,600 (22,518) 428,528
Retained earnings (deficit).................. (31,270) 3,769 (4,147) (31,648)
Equity adjustment from foreign currency
translation................................ (6,166) (5,537) 5,537 (6,166)
---------- ------- -------- ----------
Total stockholders' equity............ 390,010 26,194 (25,068) 391,136
---------- ------- -------- ----------
Total liabilities and stockholders'
equity.............................. $1,697,739 $67,853 $(50,000) $1,715,592
========== ======= ======== ==========
</TABLE>
F-44
<PAGE> 120
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Operating revenue............................. $298,354 $20,625 $ (911) $318,068
-------- ------- ------- --------
Operating expenses:
Cost of goods sold.......................... 83,875 2,818 (609) 86,084
Bowling center operating expenses........... 105,290 10,938 (190) 116,038
Selling, general, and administrative
expenses................................. 28,714 1,458 -- 30,172
Depreciation and amortization............... 40,632 2,985 (193) 43,424
-------- ------- ------- --------
Total operating expenses............ 258,511 18,199 (992) 275,718
-------- ------- ------- --------
Operating income.................... 39,843 2,426 81 42,350
Nonoperating expenses (income):
Interest expense............................ 57,180 274 -- 57,454
Other (income) expense, net................. (86) 1,127 1,327 2,368
Interest income............................. (948) (178) -- (1,126)
Equity in earnings of subsidiaries.......... 246 -- (246) --
-------- ------- ------- --------
Total nonoperating expenses......... 56,392 1,223 1,081 58,696
-------- ------- ------- --------
Income (loss) before income taxes... (16,549) 1,203 (1,000) (16,346)
Provision (benefit) for income
taxes............................. (5,617) 1,435 -- (4,182)
-------- ------- ------- --------
Net loss............................ $(10,932) $ (232) $ (1,000) $(12,164)
======== ======= ======= ========
</TABLE>
F-45
<PAGE> 121
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................... $(10,932) $ (232) $ (1,000) $ (12,164)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization............ 40,632 2,985 (193) 43,424
Deferred income taxes.................... (1,775) -- -- (1,775)
Amortization of bond discount............ 16,788 -- -- 16,788
Equity in earnings of subsidiaries....... (246) -- 246 --
Loss on the sale of property and
equipment, net......................... 94 -- -- 94
Changes in assets and liabilities:
Accounts and notes receivable.......... (17,750) (192) -- (17,942)
Receivables and
payables -- affiliates.............. (4,502) 4,502 -- --
Inventories............................ (15,383) (494) -- (15,877)
Other assets........................... (20,128) (797) (492) (21,417)
Accounts payable and accrued expenses.. (50) 1,482 -- 1,432
Income taxes payable................... 1,745 512 -- 2,257
Other long-term liabilities............ 13,345 -- -- 13,345
-------- ------- ------- ---------
Net cash provided by (used in) operating
activities............................. 1,838 7,766 (1,439) 8,165
Cash flows from investing activities:
Acquisitions of operating units, net of cash
acquired................................. (105,444) (16,721) -- (122,165)
Purchases of property and equipment......... (24,228) (1,523) 112 (25,639)
Proceeds from sale of property and
equipment................................ 268 -- -- 268
-------- ------- ------- ---------
Net cash provided by (used in) investing
activities............................. (129,404) (18,244) 112 (147,536)
Cash flows from financing activities:
Proceeds from long-term debt, net of
deferred financing costs................. 124,500 9,000 133,500
Payment on long-term debt................... (20,250) -- -- (20,250)
Repurchase of common stock.................. (500) -- -- (500)
Dividend to Parent.......................... 0 (1,327) 1,327 0
Noncompete obligations...................... (322) -- -- (322)
-------- ------- ------- ---------
Net cash provided by financing
activities............................. 103,428 7,673 1,327 112,428
-------- ------- ------- ---------
Effect of exchange rates on cash......... 112 (97) -- 15
-------- ------- ------- ---------
Net decrease in cash..................... (24,026) (2,902) -- (26,928)
Cash and cash equivalents at beginning of
period................................. 39,677 3,891 -- 43,568
-------- ------- ------- ---------
Cash and cash equivalents at end of
period................................. $ 15,651 $ 989 $ -- $ 16,640
======== ======= ======= =========
</TABLE>
F-46
<PAGE> 122
REPORT OF INDEPENDENT ACCOUNTANTS
To the Boards of Directors
and the Stockholders
AMF Bowling Group
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, of cash flows and of changes in stockholders'
equity present fairly, in all material respects, the financial position of AMF
Bowling Group at April 30, 1996 and December 31, 1995, and the results of its
operations and its cash flows for the period ended April 30, 1996 and for each
of the two years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Norfolk, Virginia
June 28, 1996
F-47
<PAGE> 123
AMF BOWLING GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 21,913 $ 9,732
Accounts and notes receivable, net of allowance for doubtful
accounts of $3,110 and $3,373, respectively.................. 33,887 39,026
Accounts and notes receivable -- affiliates..................... 166 3,979
Inventories..................................................... 43,296 39,821
Prepaid expenses and other...................................... 6,113 5,182
-------- --------
Total current assets.................................... 105,375 97,740
Notes receivable -- affiliates.................................... -- 22,941
Property and equipment, net....................................... 251,544 259,724
Other assets...................................................... 18,330 19,973
-------- --------
Total assets............................................ $ 375,249 $400,378
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ $ 23,670 $ 23,641
Book overdrafts................................................. 5,724 2,362
Accrued expenses and deposits................................... 34,916 30,328
Accounts and notes payable -- affiliates........................ -- 1,989
Long-term debt, current portion................................. 10 1,084
Income taxes payable............................................ 1,757 7,129
-------- --------
Total current liabilities............................... 66,077 66,533
Long-term debt.................................................... 1,958 19,550
Notes payable -- affiliates....................................... -- 146,727
Other liabilities................................................. 2,811 5,856
Deferred income taxes............................................. 1,429 174
-------- --------
Total liabilities....................................... 72,275 238,840
-------- --------
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock.................................................... 454 1,538
Paid-in capital................................................. 251,770 63,781
Retained earnings............................................... 52,302 101,080
Equity adjustment from foreign currency translation............. (1,552) (3,400)
Notes receivable stock subscription............................. -- (1,461)
-------- --------
Total stockholders' equity.............................. 302,974 161,538
-------- --------
Total liabilities and stockholders' equity.............. $ 375,249 $400,378
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE> 124
AMF BOWLING GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOUR MONTHS YEARS ENDED
ENDED DECEMBER 31,
APRIL 30, ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Operating revenues:
Sales of products and services....................... $ 164,371 $563,998 $515,426
Revenue from operating lease activities.............. 573 926 2,360
-------- -------- --------
Total operating revenues..................... 164,944 564,924 517,786
-------- -------- --------
Operating expenses:
Cost of sales, excluding depreciation of $791,
$2,531, and $1,691, respectively.................. 43,118 184,129 196,043
Bowling center operations............................ 80,156 166,465 115,147
Selling, general and administrative.................. 35,557 50,778 57,142
Depreciation and amortization........................ 15,097 39,139 24,776
-------- -------- --------
Total operating expenses..................... 173,928 440,511 393,108
-------- -------- --------
Operating (loss) income...................... (8,984) 124,413 124,678
Nonoperating income (expenses):
Interest expense..................................... (4,504) (15,711) (7,394)
Other expenses, net.................................. (692) (1,043) (1,188)
Interest income...................................... 611 2,184 526
Foreign currency transaction loss.................... (29) (979) (867)
-------- -------- --------
(Loss) income before income taxes...................... (13,598) 108,864 115,755
Income tax benefit (expense)........................... 1,731 (12,098) (16,452)
-------- -------- --------
Net (loss) income............................ $ (11,867) $ 96,766 $ 99,303
======== ======== ========
</TABLE>
PRO FORMA FINANCIAL INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
FOUR MONTHS YEARS ENDED
ENDED DECEMBER 31,
APRIL 30, ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Net (loss) income before income taxes and pro forma
adjustments.......................................... $ (13,598) $108,864 $115,755
Pro forma C Corporation -- tax benefit (provision)..... 5,065 (40,616) (42,972)
-------- -------- --------
Pro forma net (loss) income............................ $ (8,533) $ 68,248 $ 72,783
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE> 125
AMF BOWLING GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOUR MONTHS YEARS ENDED
ENDED DECEMBER 31,
APRIL 30, ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income.................................... $ (11,867) $ 96,766 $ 99,303
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization..................... 15,097 39,139 24,776
Deferred income taxes............................. 414 (830) (19)
Loss on sale of property and equipment, net....... -- 567 911
Changes in assets and liabilities, net of effects
from companies acquired:
Accounts and notes receivable, net.............. 4,784 10,630 (9,014)
Receivables and payables -- affiliates.......... 1,535 6,147 4,725
Inventories..................................... (3,631) (5,996) (1,411)
Other assets and liabilities.................... (2,673) (101) (1,000)
Accounts payable and accrued expenses........... 8,713 (18,741) 3,838
Income taxes payable............................ (5,745) (2,830) (2,390)
-------- -------- --------
Net cash provided by operating activities....... 6,627 124,751 119,719
-------- -------- --------
Cash flows from investing activities:
Acquisitions of operating units, net of cash
acquired.......................................... -- -- (17,307)
Purchase of property and equipment................... (6,874) (29,965) (17,788)
Proceeds from sales of property and equipment........ -- 1,410 1,535
Other................................................ 2,989 229 941
-------- -------- --------
Net cash used for investing activities.......... (3,885) (28,326) (32,619)
-------- -------- --------
Cash flows from financing activities:
Payments on credit note agreements, net.............. -- (11,057) (3,689)
Distributions to stockholders........................ (36,721) (71,851) (78,170)
Payment of long-term debt............................ (3,812) (10,285) (1,104)
Payment for redemption of stock...................... -- (3,960) --
Proceeds (payments) on notes payable -- stockholders,
net............................................... 1,236 (3,793) (8,560)
Capital contributions by stockholders................ 24,805 8,329 2,109
Collection of notes receivable -- affiliates......... 19,408 -- --
Other................................................ 3,988 (2,056) (212)
-------- -------- --------
Net cash provided by (used for) financing
activities................................... 8,904 (94,673) (89,626)
Effect of exchange rates on cash................ 535 (194) 2,759
-------- -------- --------
Net increase in cash................................... 12,181 1,558 233
Cash at beginning of period............................ 9,732 8,174 7,941
-------- -------- --------
Cash at end of period.................................. $ 21,913 $ 9,732 $ 8,174
======== ======== ========
</TABLE>
See Note 11 for supplemental disclosures to the Combined Statements of Cash
Flows.
The accompanying notes are an integral part of these financial statements.
F-50
<PAGE> 126
AMF BOWLING GROUP
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
EQUITY
ADJUSTMENT
FROM FOREIGN TOTAL
COMMON PAID-IN RETAINED CURRENCY STOCKHOLDERS'
STOCK CAPITAL EARNINGS TRANSLATION OTHER EQUITY
------- -------- -------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1993......... $ 1,536 $ 46,714 $ 45,573 $ (5,389) $ -- $ 88,434
Net income................ -- -- 99,303 -- -- 99,303
Distribution to
stockholders........... -- -- (78,170) -- -- (78,170)
Increase in equity
adjustment from foreign
currency translation... -- -- -- 2,087 -- 2,087
Capital contributions..... -- 2,109 -- -- -- 2,109
The Reece Corporation
merger................. -- 9,184 9,459 -- -- 18,643
Other..................... -- (32) -- -- -- (32)
------- -------- -------- ------- ------- --------
Balance,
December 31, 1994......... 1,536 57,975 76,165 (3,302) -- 132,374
Net income................ -- -- 96,766 -- -- 96,766
Distribution to
stockholders........... -- -- (71,851) -- -- (71,851)
Redemption of stock....... -- (3,960) -- -- -- (3,960)
Decrease in equity
adjustment from foreign
currency translation... -- -- -- (98) -- (98)
Sale of stock............. 2 1,479 -- -- (1,479) 2
Capital contributions..... -- 8,329 -- -- -- 8,329
Other..................... -- (42) -- -- 18 (24)
------- -------- -------- ------- ------- --------
Balance,
December 31, 1995......... 1,538 63,781 101,080 (3,400) (1,461) 161,538
Net loss.................. -- -- (11,867) -- -- (11,867)
Distribution to
stockholders........... -- -- (36,721) -- -- (36,721)
Increase in equity
adjustment from foreign
currency translation... -- -- -- 1,665 -- 1,665
Payment of notes
receivable
officer/stockholder.... -- -- -- -- 1,461 1,461
Capital contributions..... 102 187,989 -- -- -- 188,091
Other..................... (1,186) -- (190) 183 -- (1,193)
------- -------- -------- ------- ------- --------
Balance, April 30, 1996..... $ 454 $251,770 $ 52,302 $ (1,552) $ -- $ 302,974
======= ======== ======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE> 127
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
NOTE 1 -- ORGANIZATION
AMF Bowling Group ("the Combined Companies") consisted of the following
entities:
S CORPORATIONS
- - AMF Bowling, Inc. ("AMF Bowling")
- - AMF Bowling Centers, Inc. ("AMF Bowling Centers")
- - AMF Beverage Company of Oregon, Inc.
- - King Louis Lenexa, Inc.
- - AMF Bowling Centers (Aust) International Inc.
- - AMF Bowling Centers (Canada) International Inc.
- - AMF BCO - France One, Inc.
- - AMF BCO - France Two, Inc.
- - AMF Bowling Centers (Hong Kong) International Inc.
- - AMF Bowling Centers International Inc. - Japan
- - AMF Bowling Mexico Holding, Inc.
- - Boliches AMF, Inc.
- - AMF Bowling Centers II Inc. - Switzerland
- - AMF BCO - U.K. One, Inc.
- - AMF BCO - U.K. Two, Inc.
- - AMF BCO - China, Inc.
- - AMF Bowling Centers China, Inc.
OTHER
- - AMF Catering Services Pty, Ltd.
- - Bush River Corporation
Pursuant to a Stock Purchase Agreement dated February 16, 1996 between AMF
Group Holdings, Inc. and the stockholders of AMF Bowling Group (the "Combined
Companies"), on May 1, 1996, AMF Group Holdings, Inc. (the "Company"), through
its subsidiaries, acquired the Combined Companies in a stock purchase of all the
outstanding stock of the separate domestic and foreign corporations that
constitute substantially all of the Combined Companies and through the purchase
of certain assets of the Combined Companies' bowling center operations in Spain
and Switzerland. Prior to the acquisition, the Combined Companies were
controlled by the Virginia Investment Trust.
The Combined Companies operated bowling centers in the United States and in
9 foreign countries and manufactured and distributed a full line of bowling and
leisure related products. The principal markets for bowling and leisure related
equipment are domestic and foreign independent bowling center operators. The
accompanying combined financial statements have been prepared for the purpose of
presenting the financial position and results of operations of the bowling
related operations of the various entities.
The Company did not acquire the assets of two bowling centers located in
Madrid, Spain and Geneva, Switzerland (both of which were retained by the
sellers) and, accordingly, the April 30, 1996 combined financial statements
exclude the assets of these centers. As a result of the acquisition, the
Company, at May 1, 1996, owns or operates 205 of the Combined Companies'
domestic bowling centers and 78 international bowling centers (205 domestic
bowling centers and 80 international bowling centers at December 31, 1995). The
purchase price for the acquisition was approximately $1,300,000, subject to
certain postclosing adjustments, less approximately $2,000
F-52
<PAGE> 128
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
representing debt of the Combined Companies which remained in place following
the closing of the acquisition (the "Closing").
The revaluation, in accordance with Accounting Principles Board Opinion No.
16, of the Combined Companies' assets and liabilities as a result of the Stock
Purchase Agreement has not been reflected in the accompanying combined financial
statements. In addition, no adjustments have been recorded to reflect any tax
liability resulting from the stock purchase and the related Section 338(h)(10)
election.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying combined financial statements have been prepared on the
accrual basis of accounting and conform in all material respects to accounting
principles generally accepted in the United States. The accompanying combined
financial statements are stated in U.S. dollars. All significant intercompany
and intracompany balances and transactions have been eliminated in the
accompanying combined financial statements.
Use of estimates
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
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. The more significant estimates made by management include
allowances for obsolete inventory, uncollectible accounts receivable, product
warranty costs and litigation and claims. Actual results could differ from those
estimates.
Fiscal year
The entities included in the accompanying combined financial statements
operate on fiscal years ending on December 31, except for AMF Bowling Centers,
which operated on a 52-week period ended on the last Sunday in December during
1994, and the Fair Lanes operation which operated on a fiscal period ended on
December 29, 1994. For 1995, AMF Bowling Centers, including the acquired Fair
Lanes operation, adopted a calendar month-end; accordingly, the results of
operations for the period ended December 31, 1995 include AMF Bowling Centers'
operations for the period December 26, 1994 (December 30, 1994 with respect to
Fair Lanes operations) through December 31, 1995.
Revenue recognition
Revenue is generally recognized from the sale of products at the time the
products are shipped. For larger contract orders, the Combined Companies
generally require that customers submit a deposit as a condition of accepting
the order. For nonaffiliate international sales, the Combined Companies
generally require the customer to obtain a letter of credit prior to shipment.
Warranty costs
AMF Bowling offers warranties for its various products and provides, by a
current charge to income, an amount it estimates will be needed to cover future
warranty obligations for products
F-53
<PAGE> 129
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
sold. Warranty expense aggregated approximately $1,313 for the four months ended
April 30, 1996 and $2,748 and $4,963 for the years ended December 31, 1995 and
1994, respectively.
Cash and cash equivalents
For the purpose of the statement of cash flows, the Combined Companies
consider all highly liquid debt instruments purchased with an original maturity
of three months or less at the date of purchase to be cash equivalents.
Inventories
Manufacturing inventory is valued at the lower of cost or market, cost
being determined using the last-in, first-out ("LIFO") method for domestic
inventories and the first-in, first-out ("FIFO") method for foreign inventories.
Bowling center inventory is valued at the lower of cost or market with the
cost being determined using the actual or average cost method.
Property and equipment
Property and equipment are stated at cost. Expenditures for maintenance and
repairs which do not improve or extend the life of an asset are charged to
expense as incurred; major renewals or betterments are capitalized to the
property accounts. Upon retirement or sale of an asset, its cost and related
accumulated depreciation are removed from the property accounts, and any gain or
loss is recognized.
Property and equipment are depreciated over their estimated useful lives
using straight-line and accelerated methods. Estimated useful lives of property
and equipment for financial reporting purposes are as follows:
<TABLE>
<S> <C>
Buildings and improvements.................... 5 - 40 years
Bowling and related equipment................. 5 - 10 years
Manufacturing equipment....................... 2 - 7 years
Furniture and fixtures........................ 3 - 8 years
</TABLE>
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," ("SFAS No.
121"). SFAS No. 121 is effective for fiscal year 1996 for the Company. This
Statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets.
The adoption of SFAS No. 121 did not have a material effect on the financial
position or results of operations of the Company.
Income taxes
Certain of the Combined Companies included in the accompanying combined
financial statements have elected S Corporation status under the Internal
Revenue Code (see Note 1). As an S Corporation, the companies may be liable for
U.S. federal income taxes under certain circumstances and liable for state
income taxes in certain jurisdictions; all other domestic income taxes are the
responsibility of the Combined Companies' stockholders.
F-54
<PAGE> 130
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
The foreign branches of the S Corporations and other foreign entities file
income tax returns and pay taxes in their respective countries. The stockholders
receive a tax credit, subject to certain limitations, in their U.S. federal
income tax returns for foreign taxes paid by the foreign branches of the U.S.
Corporation and certain other foreign entities.
The Combined Companies account for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," ("SFAS No. 109"). SFAS No. 109 mandates the liability method for
computing deferred income taxes. Because the Combined Companies have elected S
Corporation status, deferred income taxes are only provided with respect to
state and foreign income taxes.
Research and development costs
Expenditures relating to the development of new products, including
significant improvements and refinements to existing products, are expensed as
incurred. The amounts charged against income were approximately $875 for the
four months ended April 30, 1996 and $3,600 and $3,075 for the years ended
December 31, 1995 and 1994, respectively.
Advertising costs
Costs incurred for producing and communicating advertising are expensed
when incurred. The amounts charged against income were approximately $3,575 for
the four months ended April 30, 1996 and $12,250 and $10,400 for the years ended
December 31, 1995 and 1994, respectively.
Foreign currency
In accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation," all assets and liabilities of the Combined
Companies' foreign operations are translated from foreign currencies into U.S.
dollars at year-end exchange rates. Revenues and expenses of foreign operations
are translated using average exchange rates that existed during the year and
reflect currency exchange gains and losses resulting from transactions conducted
in nonlocal currencies. Adjustments resulting from the translation of financial
statements of foreign operations into U.S. dollars are included in the equity
adjustment from foreign currency translation on the accompanying combined
balance sheets. Gains and losses arising from transactions in foreign currencies
are included as a separate item in the accompanying combined statement of
operations.
Fair value of financial instruments
The carrying value of financial instruments including cash and cash
equivalents, accounts receivable, accounts payable and short-term debt
approximated fair value at April 30, 1996 and December 31, 1995 because of the
short maturity of these instruments. The carrying value of long-term receivables
and payables approximated fair value as of April 30, 1996 and December 31, 1995
based upon market rates for similar instruments.
Noncompete agreements
The Combined Companies have certain noncompete agreements with individuals.
The assets are recorded at cost or at the present value of payments to be made
under these agreements, discounted at annual rates ranging from 8%-10%. The
assets are included in other current and noncurrent assets and are amortized on
a straight-line basis over the terms of the agreements. Noncompete obligations
were $3,095 at April 30, 1996 and $3,300 at December 31, 1995.
F-55
<PAGE> 131
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
Common stock
The common stock account represents the aggregate number of shares
outstanding for all the Combined Companies multiplied by the respective par
value at each of the Combined Companies.
NOTE 3 -- RELATED PARTY TRANSACTIONS
The Combined Companies had related party transactions with several
companies which are affiliated through common ownership and with certain of its
officers, directors and stockholders. The majority of balances with affiliated
companies were liquidated on or prior to April 30, 1996. Interest income and
expense during the four months ended April 30, 1996 were not significant to the
operating results of the Combined Companies. A summary of the significant
balances and transactions with related parties follows.
Accounts and notes receivable -- affiliates, including accrued interest, at
April 30, 1996 and December 31, 1995 consisted of the following:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
--------- -------------
<S> <C> <C>
Accounts receivable -- affiliates................... $ 166 $ 2,084
=== =======
Notes receivable -- AMF Reece....................... $ -- $ 12,910
Notes receivable -- stockholders.................... -- 11,130
Note receivable -- AMF Machinery Systems
("AMS")........................................... -- 796
--- -------
-- 24,836
Current maturities.................................. -- (1,895)
--- -------
$ -- $ 22,941
=== =======
</TABLE>
Notes receivable -- AMF Reece represented various notes, plus accrued and
unpaid interest income, between AMF Bowling and AMF Reece, an affiliated
company. The notes earned interest monthly based on the LIBOR rate plus .75%,
which was 6.48% at December 31, 1995. Interest income was $762 for the year
ended December 31, 1995.
Notes receivable -- stockholders represented notes of $9,394 plus accrued
and unpaid interest income, between the Combined Companies and its stockholders.
Interest on the notes was at the
LIBOR plus .75% rate, which was 6.48% at December 31, 1995. Interest income for
the years ended December 31, 1995 and 1994 was $602 and $70, respectively.
F-56
<PAGE> 132
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
Accounts and notes payable -- affiliates at April 30, 1996 and December 31,
1995 consisted of the following:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
--------- -------------
<S> <C> <C>
Accounts payable -- stockholders.................... $-- $ 322
Accounts payable -- AMS............................. -- 1,619
Accounts payable -- CCA Industries.................. -- 48
--- -------
$-- $ 1,989
=== =======
Notes payable -- stockholders....................... $-- $ 117,022
Note payable -- Fair Lanes, Inc..................... -- 24,096
Notes payable -- AMS................................ -- 5,609
Capital lease obligations -- Commonwealth
Leasing Corporation ("CLC")....................... -- --
--- -------
-- 146,727
Current maturities.................................. -- --
--- -------
Long-term portion................................... $-- $ 146,727
=== =======
</TABLE>
Notes payable -- stockholders included $88,323, plus accrued and unpaid
interest, at December 31, 1995 of 9.5% of Fair Lanes, Inc. ("Fair Lanes") notes
which were acquired by certain stockholders in conjunction with the acquisition
of Fair Lanes. A portion of the notes were acquired by the stockholders as a
result of the plan of reorganization (Note 14). The note balance included
interest from the period July 15, 1994 through January 15, 1995 which was paid
through the issuance of additional notes. The notes were assumed by AMF Bowling
Centers in connection with the acquisition of the assets of Fair Lanes on July
2, 1995. The notes, originally payable in 2001, were paid prior to April 30,
1996, pursuant to the purchase of the Combined Companies. Interest expense for
the years ended December 31, 1995 and 1994 was approximately $8,053 and $1,900,
respectively.
Notes payable -- stockholders included $16,773, plus accrued and unpaid
interest, on a $60,000 revolving line of credit between AMF Bowling Centers and
its stockholders which originally matured on December 31, 1998. The notes were
repaid on or prior to April 30, 1996, pursuant to the purchase of the Combined
Companies. Interest on the notes was at the lesser of the prime rate or the
LIBOR rate plus 0.50% (6.23% at December 31, 1995). The note was repaid on or
prior to April 30, 1996, pursuant to the purchase of the Combined Companies.
Interest expense on these notes was $562 and $1,922 for the years ended December
31, 1995 and 1994, respectively.
Also, included in notes payable -- stockholders was a $1,943 note, plus
accrued and unpaid interest, which represented the balance outstanding on a
$16,000 revolving line of credit between AMF Bowling and its stockholders.
Interest on the note was at the prime rate (8.50% at December 31, 1995). The
note was repaid on or prior to April 30, 1996, pursuant to the purchase of the
Combined Companies. Interest expense on this note was $179 for the year ended
December 31, 1995.
The average amount outstanding under the various lines of credit was $7,865
during fiscal 1995 and $34,733 during fiscal 1994. The maximum amount
outstanding under these agreements was $21,246 during fiscal 1995 and $43,403
during fiscal 1994. The average interest rate on the outstanding debt was 7.5%
during fiscal 1995 and 5.56% during fiscal 1994.
F-57
<PAGE> 133
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
Note payable -- Fair Lanes related to the acquisition of Fair Lanes net
assets by AMF Bowling Centers from the AMF stockholders. Interest on the note
was at prime (8.50% at December 31, 1995). The note, originally payable on
December 31, 1998, was repaid on or prior to April 30, 1996, pursuant to the
purchase of the Combined Companies. Interest expense for the year ended December
31, 1995 was $1,187.
The notes payable of $5,609 to AMS consisted of various notes plus accrued
and unpaid interest (at 8.5%-11%) and were payable on demand. The notes were
repaid on or prior to April 30, 1996, pursuant to the purchase of the Combined
Companies. Interest expense on these notes was $417 and $380 for the years ended
December 31, 1995 and 1994, respectively.
Other related party transactions
The Combined Companies were charged $512 for the four months ended April
30, 1996 and $1,622 and $1,198 for the years ended December 31, 1995 and 1994,
respectively, in management fees for certain consulting and administrative
services performed by affiliated companies.
In May 1995, the Combined Companies began purchasing health insurance from
CCA Industries, an affiliated company, on a fully insured basis. Total premiums
for the four months ended April 30, 1996 were $411 and for the period from May
1995 to December 31, 1995 aggregated $889.
During the year ended December 31, 1995, Fair Lanes acquired equipment
which was leased from Commonwealth Leasing Corporation ("CLC"), an affiliated
company, for $1,367. The difference between the capitalized lease obligation and
the purchase price was treated as an adjustment of the notes payable -- Fair
Lanes.
The Combined Companies purchased used bowling equipment from CLC for $1,429
and $984 during the years ended 1995 and 1994, respectively.
The Combined Companies charged service fees and sales commissions of $53
and $126 for the years ended December 31, 1995 and 1994, respectively, to
Commonwealth Leasing Corporation, an affiliated company. These charges have been
treated as reductions in selling, general and administrative expenses.
The Combined Companies lease equipment from CCA Financial, an affiliated
company. Rent expense was $203 for the four months ended April 30, 1996 and $444
and $550 for the years ended December 31, 1995 and 1994, respectively.
NOTE 4 -- INVENTORIES
Inventories at April 30, 1996 and December 31, 1995 consist of the
following:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Raw materials....................................... $ 10,325 $ 10,590
Work-in-progress.................................... 2,084 1,522
Finished goods and spare parts...................... 28,661 24,920
Merchandise inventory............................... 3,033 4,045
------- -------
44,103 41,077
Inventory valuation reserves........................ (807) (1,256)
------- -------
$ 43,296 $ 39,821
======= =======
</TABLE>
F-58
<PAGE> 134
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
Inventories were determined using the following methods at April 30, 1996
and December 31, 1995:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
LIFO (Domestic manufacturing)....................... $ 27,128 $ 24,389
FIFO (Foreign manufacturing)........................ 13,135 11,387
Other (Merchandise inventory)....................... 3,033 4,045
------- -------
$ 43,296 $ 39,821
======= =======
</TABLE>
If LIFO inventories had been valued at current costs, they would have been
greater by $2,527 at April 30, 1996 and $2,496 at December 31, 1995.
NOTE 5 -- PROPERTY AND EQUIPMENT
Property and equipment at April 30, 1996 and December 31, 1995 consist of
the following:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Land............................................ $ 25,891 $ 25,692
Buildings and improvements...................... 143,147 138,448
Equipment, furniture and fixtures............... 256,308 251,936
Construction in progress........................ 110 1,925
--------- ---------
425,456 418,001
Less: accumulated depreciation and
amortization.................................. (173,912) (158,277)
--------- ---------
$ 251,544 $ 259,724
========= =========
</TABLE>
Depreciation expense was $14,523 for the four months ended April 30, 1996
and $37,889 and $23,184 for the years ended December 31, 1995 and 1994,
respectively.
NOTE 6 -- ACCRUED EXPENSES AND DEPOSITS
Accrued expenses and deposits at April 30, 1996 and December 31, 1995
consist of the following:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Accrued compensation................................ $ 9,714 $ 7,152
League bowling accounts............................. 3,776 6,368
Other............................................... 21,426 16,808
--------- ---------
$ 34,916 $ 30,328
========= =========
</TABLE>
F-59
<PAGE> 135
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
NOTE 7 -- LONG-TERM DEBT
Long-term debt at April 30, 1996 and December 31, 1995 consisted of the
following:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Notes payable to bank -- guaranteed.................. $ -- $ 3,764
Mortgage and equipment notes......................... 1,968 14,469
Industrial development bond.......................... -- 1,354
Other................................................ -- 1,047
------- -------
1,968 20,634
Current maturities................................... (10) (1,084)
------- -------
Long-term portion.................................... $ 1,958 $ 19,550
======= =======
</TABLE>
Notes payable to bank -- guaranteed represented a credit agreement entered
into between AMF Bowling Centers and a bank under which up to $32,750 could be
borrowed. An additional $25,000 could be borrowed from one or more additional
financial institutions. Interest was payable at a rate equal to the lesser of
the prime rate or the LIBOR rate plus .50% (6.23% at December 31, 1995). The
notes were secured by certain tangible personal property of AMF Bowling Centers
and were guaranteed by certain stockholders. The agreement also required AMF
Bowling Centers to meet certain financial covenants, including maximum debt to
equity ratios, minimum tangible net worth requirements and minimum earnings to
charge ratios. At December 31, 1995, AMF Bowling Centers was in violation of
certain requirements which were subsequently waived by the bank through March
31, 1997. The notes payable were repaid on or prior to April 30, 1996, pursuant
to the purchase of the Combined Companies.
The mortgage and equipment notes were secured by first deeds of trust on
various bowling centers. The notes generally required monthly payments and
matured at various times through October 2008. Interest rates on these notes
were generally fixed and ranged from 3% to 12%. The notes were repaid on or
prior to April 30, 1996, except for one.
The Industrial Development Bond was secured by a first deed of trust on one
of the bowling centers. Interest on the bond was at a fluctuating rate based on
the prime rate of the lending bank (6.947% at December 31, 1995). Monthly
principal and interest payments were originally due through August 2001. The
bond was repaid on or prior to April 30, 1996, pursuant to the purchase of the
Combined Companies.
AMF Bowling had an agreement with a bank under which up to $15,000 could be
borrowed. This arrangement expired on April 30, 1996. There were no borrowings
at December 31, 1995 under the agreement. Interest was payable monthly at the
lower of the bank's prime rate or the adjusted LIBOR plus 0.50% (6.23% at
December 31, 1995). This agreement required certain financial covenants to be
met, including maximum debt to equity ratios, minimum tangible net worth
requirements and minimum earnings to charge ratios.
AMF Bowling had a $3,500 revolving credit line with a bank which was due to
expire on June 30, 1996. No balance was outstanding at December 31, 1995.
Interest on outstanding borrowings was payable quarterly at the lower of the
bank's prime interest rate or the adjusted LIBOR rate plus 0.50% (6.23% at
December 31, 1995). Under this line were two standby letters of credit with
amounts outstanding at December 31, 1995 of $1,138, expiring on December 1,
1996, and of $12 expiring on August 19, 1996.
F-60
<PAGE> 136
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
The average amount outstanding under the various lines of credit was
$21,807 during fiscal 1995 and $4,801 during fiscal 1994. The maximum amount
outstanding under these credit arrangements was $39,454 during fiscal 1995 and
$27,334 during fiscal 1994. The average interest rate on these credit
arrangements was 6.43% during fiscal 1995 and 6.06% during fiscal 1994.
AMF Bowling had available a foreign exchange line of $5,000 and a letter of
credit line of $1,000. No balances were outstanding at December 31, 1995. One
standby letter of credit with an amount at December 31, 1995 of $535, which
expired on January 18, 1996, and four import letters of credit totaling $142
were outstanding under these lines.
NOTE 8 -- INCOME TAXES
Income (loss) before income taxes consists of the following:
<TABLE>
<CAPTION>
FOUR MONTHS YEARS ENDED
ENDED DECEMBER 31,
APRIL 30, ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
United States.......................... $ (7,757) $ 77,931 $ 75,807
Foreign................................ (5,841) 30,933 39,948
-------- -------- --------
$ (13,598) $108,864 $115,755
======== ======== ========
</TABLE>
The income tax benefit (provision) consists of the following:
<TABLE>
<CAPTION>
FOUR MONTHS YEARS ENDED
ENDED DECEMBER 31,
APRIL 30, ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
CURRENT TAX BENEFIT (PROVISION)
U.S. federal........................... $ -- $ -- $ --
State and local........................ 205 (1,065) (481)
Foreign................................ 1,940 (11,961) (15,450)
-------- -------- --------
Total current.......................... 2,145 (13,026) (15,931)
-------- -------- --------
DEFERRED TAX BENEFIT (PROVISION)
U.S. federal........................... -- -- --
State and local........................ -- 32 --
Foreign................................ (414) 896 (521)
-------- -------- --------
Total deferred......................... (414) 928 (521)
-------- -------- --------
Total benefit (provision).............. $ 1,731 $(12,098) $(16,452)
======== ======== ========
</TABLE>
F-61
<PAGE> 137
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
DEFERRED TAX ASSETS
Current assets...................................... $ 815 $ 1,198
Noncurrent assets................................... 799 799
------- -------
Total deferred tax assets........................... 1,614 1,997
------- -------
DEFERRED TAX LIABILITIES
Noncurrent liabilities.............................. (1,429) (1,998)
------- -------
Total deferred tax liabilities...................... (1,429) (1,998)
------- -------
Net deferred tax assets (liabilities)............... $ 185 $ (1)
======= =======
</TABLE>
The primary determination of the deferred tax assets are book accruals not
deductible for tax purposes, such as the allowance for bad debts, inventory
reserves and various other accruals. Deferred tax liabilities are a result of
accelerated depreciation methods used for tax purposes.
The benefit (provision) for income taxes differs from the amount computed
by applying the statutory rate of 35% for the four months ended April 30, 1996
and the years ended December 31, 1995 and 1994 to income (loss) before income
taxes. The principal reasons for this difference are as follows:
<TABLE>
<CAPTION>
FOUR MONTHS YEARS ENDED
ENDED DECEMBER 31,
APRIL 30, ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Tax benefit (provision) at
federal statutory rate................ $ 4,759 $(38,102) $(40,514)
(Increase) decrease in rates resulting
from:
S Corporation election for U.S.
federal tax purposes............... (4,759) 38,102 40,514
State and local taxes................. 205 (1,033) (481)
Foreign income taxes.................. 1,526 (11,065) (15,971)
-------- -------- --------
Total................................. $ 1,731 $(12,098) $(16,452)
======== ======== ========
</TABLE>
Pro forma provision for income taxes (unaudited)
As a result of the Stock Purchase Agreement, the Combined Companies will no
longer be treated as an S Corporation for income tax purposes in the United
States and in certain state jurisdictions.
Accordingly, the combined statements of operations include a pro forma
adjustment for income taxes which would have been recorded if the Combined
Companies had not been an S Corporation, based on tax laws in effect during
these periods. The pro forma adjustment was computed separately for each entity
and then combined, except for purposes of computing the utilization of foreign
tax credits related to the worldwide bowling center operations, the domestic and
worldwide bowling center operations were considered in the aggregate.
F-62
<PAGE> 138
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
Pro forma income tax benefit (provision) is as follows:
<TABLE>
<CAPTION>
FOUR MONTHS YEARS ENDED
ENDED DECEMBER 31,
APRIL 30, ---------------------
1996 1995 1994
----------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CURRENT
U.S. federal......................... $ 3,222 $(26,404) $(24,368)
State and local...................... 329 (3,491) (3,730)
Foreign.............................. 1,940 (11,961) (15,450)
------ -------- --------
Total current........................ 5,491 (41,856) (43,548)
------ -------- --------
DEFERRED
U.S. federal......................... (85) 317 979
State and local...................... 73 27 118
Foreign.............................. (414) 896 (521)
------ -------- --------
Total deferred....................... (426) 1,240 576
------ -------- --------
Total provision (benefit)............ $ 5,065 $(40,616) $(42,972)
====== ======== ========
</TABLE>
Temporary differences and carryforwards which give rise to pro forma
deferred tax assets and liabilities at April 30, 1996 and December 31, 1995 are
as follows:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
DEFERRED TAX ASSETS
Current assets.................................. $ 3,851 $ 6,178
Noncurrent assets............................... 192 7,124
------- -------
Total deferred tax assets....................... 4,043 13,302
------- -------
DEFERRED TAX LIABILITIES
Noncurrent liabilities.......................... (6,170) (2,707)
------- -------
Total deferred tax liabilities.................. (6,170) (2,707)
------- -------
Net deferred tax liabilities.................... $(2,127) $ 10,595
======= =======
</TABLE>
Pro forma deferred income taxes relate primarily to timing differences
between financial and income tax reporting for depreciation and certain accruals
which are not currently deductible for income tax purposes.
F-63
<PAGE> 139
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
A reconciliation of the Combined Companies' pro forma United States income
tax benefit (provision) computed by applying the statutory United States federal
income tax rate of 35% to the Combined Companies' income (loss) before income
taxes is presented in the following table:
<TABLE>
<CAPTION>
FOUR MONTHS YEARS ENDED
ENDED DECEMBER 31,
APRIL 30, ---------------------
1996 1995 1994
----------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Tax benefit (provision) at federal
statutory rate..................... $ 4,759 $(38,102) $(40,514)
(Increase) decrease in rates
resulting from:
State and local taxes, net......... 402 (2,272) (2,304)
Foreign income taxes............... 1,526 (11,065) (15,971)
Foreign tax credits................ (1,526) 11,065 15,971
Other business credits............. -- -- 79
Nondeductible items................ (91) (171) (134)
Environmental tax.................. -- (102) (103)
Other.............................. (5) 31 4
------- -------- --------
$ 5,065 $(40,616) $(42,972)
======= ======== ========
</TABLE>
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
Leases
The Combined Companies lease certain facilities and equipment under
operating leases which expire at various dates through 2011. These leases
generally contain renewal options and require the Combined Companies to pay
taxes, insurance, maintenance and other expenses in addition to the minimum
annual rentals. Certain leases require contingent payments based on usage of
equipment above certain specified levels. Such contingent rentals amounted to
$293 for the four months ended April 30, 1996 and $1,517 and $1,275 for the
years ended December 31, 1995 and 1994, respectively.
Future minimum rental payments under the operating lease agreements are as
follows:
<TABLE>
<CAPTION>
PERIOD ENDING
DECEMBER 31,
-----------------------------------------------
<S> <C>
1996 (eight months)............................ $ 15,200
1997........................................... 14,900
1998........................................... 12,800
1999........................................... 10,900
2000........................................... 8,900
Thereafter..................................... 49,600
--------
$112,300
========
</TABLE>
Total rent expense under operating leases aggregated approximately $7,487
for the four months ended April 30, 1996 and $19,250 and $15,650 for the years
ended December 31, 1995 and 1994, respectively.
F-64
<PAGE> 140
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
Litigation and claims
AMF Bowling's Pins and Lanes division was the defendant in an
administrative proceeding related to a labor dispute. This claim was resolved in
favor of the division during 1995 and the related reserve of approximately
$1,100 was reversed.
AMF Bowling terminated its Korean distributorship agreement. The Korean
distributor filed suit against the company in Korea seeking an injunction
against AMF Bowling's Seoul Korea branch to prevent AMF Bowling from selling
bowling and bowling related products in Korea. The Korean Court dismissed the
suit on jurisdiction grounds subsequent to year-end. Such a decision is subject
to an appeal.
On January 10, 1996, the Korean distributor filed a second suit in the
Supreme Court of the State of New York against AMF Bowling and AMF Bowling
Centers. The suit alleges a number of complaints related to the conduct and
termination of the Korean distributorship agreement and alleges that the
defendants caused the Korean distributor's insolvency. The Korean distributor is
seeking compensatory damages of at least $41,759 and punitive damages of at
least $100,000 or ten times the amount of compensatory damages awarded,
whichever is greater, under each of seven causes of action set forth in the
suit.
Management believes that the Korean distributorship agreement was properly
terminated. Management intends to vigorously defend against this claim and
believes the resolution of such claim will not have a significant effect on the
Combined Companies' combined financial position or results of operations. Under
terms of the sale agreement (Note 1), the current AMF shareholders have agreed
to indemnify the buyers for any loss related to this litigation.
On March 5, 1996, the defendant in an action entitled Northland Bowl and
Sports Center, Inc. and Recreation Associates, II v. Golden Giant, Inc., d/b/a
Golden Giant Building System, Court of Common Pleas, Centre County, Pa. (Index
No. 96-75), asserted a third-party claim against AMF Bowling and other parties.
Defendant, Golden Giant, a construction company, was previously named as
defendant by a bowling center (not owned or operated by the Combined Companies)
in connection with the collapse of the center's roof in early 1994. Golden Giant
has now named AMF Bowling, charging it with negligence and breach of implied
warranty for installing scoring monitors (four years before the roof collapsed)
on a portion of the building that allegedly could not adequately support the
additional weight of the equipment. The bowling center plaintiff claims total
damages in amounts exceeding $3,500, and Golden Giant asserts that, if plaintiff
is entitled to any recovery, it should be in whole or part against AMF Bowling.
AMF Bowling is involved in two patent infringement suits. The plaintiff in
the first case, a competitor of AMF Bowling's Century division, obtained a
summary judgment on the issue of liability in December 1994. The court recently
issued an order which will permit AMF to appeal. The plaintiff claims damages in
the range of $3,000 to $9,000. A trial on damages will not occur unless and
until the liability issue is resolved against AMF Bowling. Management intends to
vigorously contest the claim and believes the resolution of such claim will not
have a significant effect on the Combined Companies' combined financial position
or results of operations.
The second patent infringement suit relates to AMF Bowling's Pins and Lanes
division. Management has settled this claim for $250 during the four months
ended April 30, 1996.
AMF Bowling Centers and AMF Bowling are defendants in a wrongful death suit
related to an employee. The employee's estate is seeking compensatory damages up
to $3,000 plus $3,000 in punitive damages. However, the plaintiff's counsel has
verbally offered to settle the case for $350.
F-65
<PAGE> 141
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
Management expects to vigorously contest the claim and believes the resolution
of such claim will not have a significant effect on the Combined Companies'
combined financial position or results of operations.
In addition, the Combined Companies are involved in certain other lawsuits
and claims arising out of normal business operations. The majority of these
relate to accidents at the Combined Companies' bowling centers. Management
believes that the ultimate resolution of such matters will not materially affect
the Combined Companies' results of operations or financial position.
While the ultimate outcome of the litigation and claims against the
Combined Companies cannot presently be determined, management believes the
Combined Companies have made adequate provision for possible losses. At April
30, 1996 and December 31, 1995, the Combined Companies had recorded reserves
aggregating approximately $2,900 and $2,800, respectively, for litigation and
claims.
NOTE 10 -- EMPLOYEE BENEFIT PLANS AND BONUS
The Combined Companies have a defined contribution 401(k) plan to which
domestic employees may make voluntary contributions based on their compensation.
Under the provisions of the plan, the Combined Companies can, at their option,
match a discretionary percentage of employee contributions and make an
additional contribution as determined by their Board of Directors. Contributions
vest 100% after a five-year period. The amounts charged to expense under this
plan were approximately $410 for the four months ended April 30, 1996 and $1,122
and $901 for the years ended December 31, 1995 and 1994, respectively.
One of the Combined Companies has a Stock Performance Plan (the "Plan") for
certain key employees. Under the terms of the Plan, eligible employees earn
Stock Performance Units as a result of the Company meeting certain operating
performance conditions, as defined by the Plan, relating to (1) sales, (2) cash
flow and (3) operating results. Benefits under the Plan vest over a five-year
period and will be paid in installments over a ten-year period without interest
(or less if specified by the Company's Board of Directors) upon the termination
of an eligible employee. The Plan can be terminated or amended at any time by
the Company's Board of Directors. The amount charged to expense under this plan
was approximately $1,479 for the four months ended April 30, 1996 and $622 and
$311 for the years ended December 31, 1995 and 1994, respectively. The agreement
contains a provision which would accelerate the payout of the benefits from ten
years to five years upon a change-of-control event and would require that
interest be paid on the unpaid balance. On April 30, 1996, the Combined
Companies made payments of $3,085 related to these plans and the plans were
terminated.
Certain of the Combined Companies' foreign operations have employee benefit
plans covering selected employees. These plans vary as to the funding, including
local government, employee and employer funding. Each company has provided
pension expense and made contributions to these plans in accordance with the
requirements of the plans and local country practices. The amounts charged to
expense under these plans aggregated $291 for the four months ended April 30,
1996 and $806 and $701 for the years ended December 31, 1995 and 1994.
On April 30, 1996, the Combined Companies paid bonuses and special payments
to employees, former employees and former directors of $43,760 in recognition of
their services.
F-66
<PAGE> 142
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
NOTE 11 -- SUPPLEMENTAL DISCLOSURES TO THE COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOUR MONTHS YEARS ENDED
ENDED DECEMBER 31,
APRIL 30, -------------------
1996 1995 1994
----------- ------- -------
<S> <C> <C> <C>
Cash paid during the year for:
Interest....................................... $ 12,862 $ 5,909 $ 4,306
Income taxes................................... $ 5,359 $16,922 $17,593
Noncash capital contribution by the stockholders:
Debt forgiveness............................... $ 163,184 $ -- $ --
</TABLE>
NOTE 12 -- BUSINESS SEGMENTS
The Combined Companies operate in two major lines of business: operation of
bowling centers and manufacturing of bowling and related products. Information
concerning operations in these business segments for the four months ended April
30, 1996 and the years ended December 31, 1995 and 1994 and identifiable assets
at April 30, 1996 and December 31, 1995 are presented below:
<TABLE>
<CAPTION>
FOUR MONTHS YEARS ENDED
ENDED DECEMBER 31,
APRIL 30, ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Revenues from unaffiliated customers
Bowling centers
Domestic.................................. $ 75,000 $192,400 $121,600
International............................. 33,500 99,900 103,800
Manufacturing................................ 56,400 272,600 292,400
-------- -------- --------
$ 164,900 $564,900 $517,800
======== ======== ========
Intersegment sales
Bowling centers
Domestic.................................. $ -- $ -- $ --
International............................. -- -- --
Manufacturing................................ 4,600 13,900 9,300
-------- -------- --------
$ 4,600 $ 13,900 $ 9,300
======== ======== ========
Operating (loss) income
Bowling centers
Domestic.................................. $ 3,600 $ 26,500 $ 17,600
International............................. (2,500) 23,700 26,400
Manufacturing................................ (9,600) 75,700 80,900
Eliminations................................. (500) (1,500) (200)
-------- -------- --------
$ (9,000) $124,400 $124,700
======== ======== ========
</TABLE>
F-67
<PAGE> 143
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOUR MONTHS YEARS ENDED
ENDED DECEMBER 31,
APRIL 30, ---------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Identifiable assets
Bowling centers
Domestic.................................. $ 218,300 $224,500
International............................. 65,400 64,600
Manufacturing................................ 101,500 119,800
Eliminations................................. (10,000) (8,500)
-------- --------
$ 375,200 $400,400
======== ========
Depreciation and amortization expense
Bowling centers
Domestic.................................. $ 11,800 $ 29,100 $ 14,700
International............................. 2,500 7,500 7,100
Manufacturing................................ 1,200 3,600 3,700
Eliminations................................. (400) (1,000) (700)
-------- -------- --------
$ 15,100 $ 39,200 $ 24,800
======== ======== ========
Capital expenditures
Bowling centers
Domestic.................................. $ 5,100 $ 17,800 $ 10,400
International............................. 2,300 10,200 4,300
Manufacturing................................ 400 4,500 4,100
Eliminations................................. (900) (2,500) (1,000)
-------- -------- --------
$ 6,900 $ 30,000 $ 17,800
======== ======== ========
</TABLE>
F-68
<PAGE> 144
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
NOTE 13 -- GEOGRAPHIC SEGMENTS
Information about the Combined Companies' operations in different
geographic areas for the four months ended April 30, 1996 and the years ended
December 31, 1995 and 1994 and identifiable assets at April 30, 1996 and
December 31, 1995 are presented below:
<TABLE>
<CAPTION>
FOUR MONTHS YEARS ENDED
ENDED DECEMBER 31,
APRIL 30, ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Net operating revenue:
United States................................ $ 103,800 $371,400 $296,300
Japan........................................ 13,700 50,300 58,200
Hong Kong.................................... 14,000 40,800 55,100
Korea........................................ 5,800 6,000 --
Australia.................................... 14,700 47,100 43,900
United Kingdom............................... 7,300 26,100 27,600
Mexico....................................... 2,100 7,800 15,300
Sweden....................................... 1,200 10,000 9,700
Canada....................................... 300 600 700
Spain........................................ 1,000 2,700 2,600
Other European countries..................... 5,200 16,000 17,700
China........................................ 400 -- --
Eliminations................................. (4,600) (13,900) (9,300)
--------- --------- ---------
$ 164,900 $564,900 $517,800
========= ========= =========
</TABLE>
Net operating revenues for the United States manufacturing operation has
been reduced by approximately $21,500 for the four months ended April 30, 1996
and $61,000 and $69,200 for the years ended December 31, 1995 and 1994,
respectively, to reflect the elimination of intercompany sales between the
domestic manufacturing operation and the manufacturing foreign sales and service
branches.
F-69
<PAGE> 145
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOUR MONTHS YEARS ENDED
ENDED DECEMBER 31,
APRIL 30, ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Operating (loss) income
United States................................ $ (2,900) $ 92,200 $ 83,300
Japan........................................ (1,400) 8,800 13,300
Hong Kong.................................... 800 6,200 5,200
Korea........................................ (300) (1,200) --
Australia.................................... (1,300) 13,300 12,000
United Kingdom............................... (1,100) 2,400 3,700
Mexico....................................... (200) 1,500 4,300
Sweden....................................... (500) 1,500 1,700
Canada....................................... -- -- --
Spain........................................ (100) (100) 300
Other European countries..................... (1,300) 1,300 1,100
China........................................ (200) -- --
Eliminations................................. (500) (1,500) (200)
--------- --------- ---------
$ (9,000) $124,400 $124,700
========= ========= =========
</TABLE>
Operating (loss) income for the United States manufacturing operation has
been reduced by approximately $1,300 for the four months ended April 30, 1996
and $900 and $1,600 for the years ended December 31, 1995 and 1994,
respectively, to reflect the elimination of intercompany gross profit between
the domestic manufacturing operation and the manufacturing foreign sales and
service branches.
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Identifiable assets
United States........................................... $ 290,400 $311,300
Japan................................................... 17,200 22,100
Hong Kong............................................... 7,700 8,500
Korea................................................... 4,500 2,900
Australia............................................... 34,800 31,600
United Kingdom.......................................... 12,200 11,800
Mexico.................................................. 5,100 4,500
Sweden.................................................. 2,200 2,600
Canada.................................................. 900 1,200
Spain................................................... 200 2,000
Other European countries................................ 7,700 8,400
China................................................... 2,300 2,000
Eliminations............................................ (10,000) (8,500)
--------- ---------
$ 375,200 $400,400
========= =========
</TABLE>
Identifiable assets for the foreign sales and service branches have been
reduced by approximately $5,700 at April 30, 1996 and $4,400 at December 31,
1995 to reflect the elimination of
F-70
<PAGE> 146
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
intercompany gross profit in inventory between the domestic manufacturing
operations and the manufacturing foreign sales and service branches.
NOTE 14 -- BUSINESS COMBINATIONS
Effective December 31, 1994, The Reece Corporation, a related company, was
merged into AMF Bowling. The merger was accounted for at historical cost as a
capital contribution. The Reece Corporation activities for 1995 and 1994 were
not material to the combined financial statements.
Effective August 31, 1994, AMF Bowling acquired certain assets and
liabilities of Legendary Billiards, Inc. ("Legendary") for $215. Legendary is a
manufacturer of billiard cues. The acquisition was accounted for under the
purchase method, and the results of operations are included in the financial
statements from the date of acquisition.
Pro forma results of operations for the Legendary acquisition have not been
presented because the effects of this acquisition were not material.
Fair Lanes, Inc. ("Fair Lanes") operated 106 bowling centers in the United
States and Puerto Rico. On June 22, 1994, Fair Lanes and its parent Fair Lanes
Entertainment, Inc. ("FLE"), each filed voluntary petitions for relief under
Chapter 11 of Title 11 of the United States Code ("Chapter 11"). Fair Lanes'
operating subsidiaries did not file for Chapter 11 protection. At the time of
filing, liabilities subject to compromise consisted of Fair Lanes' $138,000
senior secured notes, which were publicly traded, and FLE's debt in the form of
$48,000 variable rate and zero coupon notes (these notes were also publicly
traded). The Bankruptcy Court approved the plan of reorganization effective
September 29, 1994 whereby the holders of FLE's $48,000 of notes received
approximately 6% of Fair Lanes' equity and the holders of Fair Lanes' $138,000
of notes received approximately 94% of Fair Lanes' equity and $90,350 of new
9.5% notes. The former Fair Lanes' equityholders' interests were eliminated as a
result of the reorganization. Through September 29, 1994, AMF's shareholders had
purchased old Fair Lanes' and FLE's notes which resulted in the AMF shareholders
obtaining approximately 56% of the voting shares of Fair Lanes. One other
shareholder held approximately 35% of the new stock and the remaining 9% was
held by other shareholders. The AMF shareholders were able to acquire the shares
held by the 35% shareholder on January 7, 1996 and an additional 2% of the
shares from other shareholders in open market purchases. On February 7, 1996,
the AMF shareholders affected a cash merger and bought out the remaining
shareholders.
The Fair Lanes' acquisition was accounted for as a purchase. As a result of
the relatively short acquisition period and the fact that the minority
shareholders' interest was not affected for losses during the acquisition
period, the combined financial statements include the results of operations for
periods subsequent to September 29, 1994.
The assets acquired and liabilities assumed were recorded at their
estimated fair value as follows:
<TABLE>
<S> <C>
Current assets.................................. $ 3,059
Property and equipment.......................... 141,785
Other assets.................................... 12,643
Current liabilities............................. (22,672)
Long-term liabilities........................... (116,174)
----------
Purchase price.................................. $ 18,641
==========
</TABLE>
F-71
<PAGE> 147
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
The following summary presents unaudited pro forma combined results of
operations as if the acquisition of Fair Lanes occurred at the beginning of
1994, and includes adjustments related to depreciation of fixed assets and
interest expense on debt assuming the initial purchase price allocation occurred
as of January 1, 1994. In addition, expenses related to the Chapter 11
reorganization have been eliminated. The pro forma results are for illustrative
purposes only, and do not purport to be indicative of the actual results which
would have occurred had the transaction been consummated as of January 1, 1994,
nor are they indicative of future results of operations. The pro forma results
do not reflect changes in the business which have occurred subsequent to the
date of acquisition.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
------------
<S> <C>
Operating revenue............................ $590,459
Operating income............................. 113,411
Income before income taxes................... 94,949
</TABLE>
F-72
<PAGE> 148
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
NOTE 15 -- STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
APRIL 30, 1996
------------------------------------------------------------------------------------------------
EQUITY
ADJUSTMENT
FROM FOREIGN TOTAL
ISSUED AND COMMON PAID IN RETAINED CURRENCY STOCKHOLDERS'
AUTHORIZED OUTSTANDING STOCK CAPITAL EARNINGS TRANSLATION OTHER EQUITY
---------- ------------ ------ -------- -------- ------------ ----- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AMF Bowling, Inc. ...... 10,000 950.6689 $ 1 $ 51,778 $15,639 $ 593 $-- $ 68,011
AMF Bowling Centers,
Inc. ................. 15,000 9,485.1000 9 183,780 8,825 -- -- 192,614
AMF Beverage Company of
Oregon, Inc........... 10,000 94.8510 -- -- -- -- -- --
King Louie Lenexa,
Inc. ................. 30,000 94.8510 -- -- -- -- -- --
AMF Catering Services
Pty Ltd. ............. 100,000 100,000.0000 82 -- -- -- -- 82
AMF Bowling Centers
(Aust) International,
Inc. ................. 10,000 948.5100 1 492 24,327 1,645 -- 26,465
AMF Bowling Centers
(Canada)
International,
Inc. ................. 10,000 948.5100 1 2,109 (1,238) 85 -- 957
AMF BCO - France One,
Inc. ................. 10,000 1,000.0000 1 220 533 (93) -- 661
AMF BCO - France Two,
Inc. ................. 10,000 1,000,0000 1 595 1,440 (250) -- 1,786
AMF Bowling Centers
(Hong Kong)
International,
Inc. ................. 10,000 948.5100 1 532 2,175 -- -- 2,708
AMF Bowling Centers
International, Inc. -
Japan................. 10,000 9,485.1000 10 1,210 4,446 505 -- 6,171
AMF Bowling Mexico
Holding, Inc. ........ 1,000 75.6972 322 1,856 2,563 (3,056) -- 1,685
Boliches AMF, Inc. ..... 10,000 100.0000 1 493 682 (814) -- 362
AMF Bowling Centers II
Inc. - Switzerland.... -- -- 205 171 -- 376
AMF BCO - U.K.
One, Inc. ............ 10,000 100.0000 1 1,597 (350) (86) -- 1,162
AMF BCO - U.K.
Two, Inc. ............ 10,000 100.0000 1 4,357 (956) (235) -- 3,167
AMF BCO - China,
Inc. ................. 10,000 1,000.0000 1 577 (159) (4) -- 415
AMF Bowling Centers
China, Inc. .......... 10,000 1,000.0000 1 2,174 (600) (13) -- 1,562
Bush River Corporation.. 100,000 18,895.1919 20 -- -- -- -- 20
Eliminations............ -- -- -- -- (5,230) -- -- (5,230)
---- -------- ------- -------- --- --------
Totals............................................. $454 $251,770 $52,302 $ (1,552) $-- $302,974
==== ======== ======= ======== === ========
</TABLE>
F-73
<PAGE> 149
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------------------------------------------------------------
NOTES
RECEIVABLE TOTAL
ISSUED AND COMMON PAID IN RETAINED DEFERRED STOCK STOCKHOLDERS'
AUTHORIZED OUTSTANDING STOCK CAPITAL EARNINGS TRANSLATION SUBSCRIPTION EQUITY
---------- ----------- ------ ------- -------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AMF Bowling, Inc. ... 10,000 950.6689 $ 1 $28,213 $ 54,463 $ 593 $ -- $ 83,270
AMF Bowling Centers,
Inc. .............. 15,000 9,485.1000 9 29,122 13,436 -- (726) 41,841
AMF Beverage Company
of Oregon, Inc. ... 10,000 94.8510 -- -- 382 -- -- 382
King Louie Lenexa,
Inc. .............. 30,000 94.8510 -- -- 859 -- -- 859
AMF Bowling Centers
(Aust)
International,
Inc. .............. 10,000 948.5100 1 492 25,251 (74) (503) 25,167
AMF Bowling Centers
(Canada)
International,
Inc. .............. 10,000 948.5100 1 2,109 (1,286) 85 -- 909
AMF BCO - France One,
Inc. .............. 10,000 1,000.0000 1 31 681 (44) -- 669
AMF BCO - France Two,
Inc. .............. 10,000 1,000,0000 1 83 1,842 (119) -- 1,807
AMF Bowling Centers
(Hong Kong)
International,
Inc. .............. 10,000 948.5100 1 57 2,420 -- (62) 2,416
AMF Bowling Centers
International,
Inc. - Japan....... 10,000 9,485.1000 10 156 4,285 611 (170) 4,892
AMF Bowling Mexico
Holding, Inc. ..... 1,000 75.6972 1,507 226 2,753 (3,258) -- 1,228
Boliches AMF,
Inc. .............. 10,000 100.0000 1 60 814 (815) -- 60
AMF Bowling Centers
II Inc. -
Switzerland........ 1,000 100.0000 1 -- 617 61 -- 679
AMF BCO - U.K. One,
Inc. .............. 10,000 100.0000 1 129 (186) (113) -- (169)
AMF BCO - U.K. Two,
Inc. .............. 10,000 100.0000 1 352 (509) (310) -- (466)
AMF BCO - China,
Inc. .............. 10,000 1,000.0000 1 577 (97) (4) -- 477
AMF Bowling Centers
China, Inc. ....... 10,000 1,000.0000 1 2,174 (367) (13) -- 1,795
Bush River
Corporation........ 100,000 18,895.1919 -- -- 230 -- -- 230
Eliminations......... -- -- -- -- (4,508) -- -- (4,508)
------ ------- -------- ------- -------- --------
Totals......................................... $1,538 $63,781 $101,080 $(3,400) $ (1,461) $161,538
====== ======= ======== ======= ======== ========
</TABLE>
F-74
<PAGE> 150
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
NOTE 16 -- CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On February 16, 1996, the stockholders of the Combined Companies executed a
Stock Purchase Agreement, subject to certain closing conditions, to sell the
stock and certain assets of the individual companies to AMF Group Holdings,
Inc., through its subsidiaries. On May 1, 1996, the sale transaction was
completed.
In conjunction with the acquisition of the Combined Companies, AMF Bowling
Worldwide, Inc., a subsidiary of AMF Group Holdings, Inc. formerly named AMF
Group Inc., issued Senior Subordinated Notes and Senior Subordinated Discount
Notes on March 21, 1996. On May 1, 1996, AMF Bowling Worldwide, Inc., executed a
bank credit agreement and certain additional subsidiaries of AMF Bowling
Worldwide, Inc., became guarantors of the Senior Subordinated Notes and the
Senior Subordinated Discount Notes. These financing arrangements provide for
guarantees by the following companies which became indirect subsidiaries of AMF
Bowling Worldwide, Inc., which is the borrower and issuer of the notes
evidencing such indebtedness. Guarantor companies include the following:
- AMF Bowling Centers, Inc.
- Bush River Corporation
- King Louie Lenexa, Inc.
- AMF Beverage Company of Oregon, Inc.
- AMF Bowling, Inc.
- AMF Bowling Centers (Aust) International Inc.
- AMF Bowling Centers (Canada) International Inc.
- AMF BCO - France One, Inc.
- AMF BCO - France Two, Inc.
- AMF Bowling Centers (Hong Kong) International Inc.
- AMF Bowling Centers International Inc. (Japan)
- AMF Bowling Mexico Holding, Inc.
- Boliches AMF, Inc.
- AMF BCO - U.K. One, Inc.
- AMF BCO - U.K. Two, Inc.
- AMF BCO - China, Inc.
- AMF Bowling Centers China, Inc.
Included with the guarantor companies at April 30, 1996 are AMF Bowling
Centers Switzerland Inc. and AMF Bowling Centers Spain Inc., newly formed
subsidiaries of AMF Bowling Worldwide, Inc., which, respectively, purchased
assets of one bowling center and two bowling centers from AMF Bowling Centers
II, Inc. (Switzerland) and AMF Bowling S.A., former subsidiary of AMF Bowling
Mexico Holding, Inc.
F-75
<PAGE> 151
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
Included with the guarantor companies at December 31, 1995 and 1994 is AMF
Bowling Centers II, Inc. (Switzerland) which sold assets of one bowling center,
as discussed above, to a newly formed subsidiary of AMF Bowling Worldwide, Inc.,
which became a guarantor.
Non-guarantor companies at April 30, 1996 include the following foreign
subsidiaries of certain guarantor companies:
- AMF Bowling (Unlimited)
- Worthington North Properties Limited
- AMF Bowling France SNC
- AMF Bowling de Paris SNC
- AMF Bowling de Lyon La Part Dieu SNC
- Boliches y Compania
- Operadora Mexicana de Boliches, S.A.
- Promotora de Boliches, S.A. de C.V.
- Immeubles Obispado, S.A.
- Immeubles Minerva, S.A.
- Boliches Mexicano, S.A.
- AMF Bowling Centers (China) Company
- AMF Garden Hotel Bowling Center Company
Included in the non-guarantor companies at December 31, 1995 and 1994 is
AMF Bowling S.A. which sold assets of two bowling centers in Spain to a newly
formed subsidiary of AMF Bowling Worldwide, Inc., which became a guarantor
company.
The following condensed combining information presents:
- Condensed combining balance sheets as of April 30, 1996 and December 31,
1995 and the related condensed combining statements of operations and of
cash flows for the four months ended April 30, 1996 and the years ended
December 31, 1995 and 1994.
- Elimination entries necessary to combine the entities comprising the
Combined Companies.
F-76
<PAGE> 152
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
CONDENSED COMBINING BALANCE SHEETS
FOUR MONTHS ENDED APRIL 30, 1996
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 18,628 $ 3,285 $ -- $ 21,913
Accounts and notes receivable, net of allowance
for doubtful accounts....................... 32,316 1,571 -- 33,887
Accounts and notes receivable -- affiliates.... 2,463 380 (2,677) 166
Inventories.................................... 41,831 1,465 -- 43,296
Prepaid expenses and other..................... 4,856 1,257 -- 6,113
-------- ------- ------- --------
Total current assets................... 100,094 7,958 (2,677) 105,375
Property and equipment, net...................... 241,968 10,518 (942) 251,544
Investment in subsidiaries....................... 10,643 -- (10,643) --
Other assets..................................... 17,399 931 -- 18,330
-------- ------- ------- --------
Total assets........................... $370,104 $19,407 $(14,262) $375,249
======== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................... $ 21,760 $ 1,910 $ -- $ 23,670
Book overdrafts................................ 5,724 -- -- 5,724
Accrued expenses and deposits.................. 32,185 2,731 -- 34,916
Accounts and notes payable -- affiliates....... 14 2,663 (2,677) --
Long-term debt, current portion................ 10 -- -- 10
Income taxes payable........................... 1,078 679 -- 1,757
-------- ------- ------- --------
Total current liabilities.............. 60,771 7,983 (2,677) 66,077
Long-term debt................................... 1,958 -- -- 1,958
Other liabilities................................ 2,811 -- -- 2,811
Deferred income taxes............................ 648 781 -- 1,429
-------- ------- ------- --------
Total liabilities...................... 66,188 8,764 (2,677) 72,275
-------- ------- ------- --------
Commitments and contingencies
Stockholders' equity:
Common stock................................... 454 3,940 (3,940) 454
Paid-in capital................................ 251,770 5,003 (5,003) 251,770
Retained earnings.............................. 53,244 6,247 (7,189) 52,302
Equity adjustment from foreign currency
translation................................. (1,552) (4,547) 4,547 (1,552)
-------- ------- ------- --------
Total stockholders' equity............. 303,916 10,643 (11,585) 302,974
-------- ------- ------- --------
Total liabilities and stockholders'
equity............................... $370,104 $19,407 $(14,262) $375,249
======== ======= ======= ========
</TABLE>
F-77
<PAGE> 153
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
CONDENSED COMBINING BALANCE SHEETS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 8,843 $ 889 $ -- $ 9,732
Accounts and notes receivable, net of
allowance for doubtful accounts........... 37,499 1,527 -- 39,026
Accounts and notes
receivable -- affiliates.................. 4,477 7,465 (7,963) 3,979
Inventories.................................. 38,042 1,779 -- 39,821
Prepaid expenses and other................... 3,944 1,238 -- 5,182
-------- ------- -------- --------
Total current assets................. 92,805 12,898 (7,963) 97,740
Notes receivable -- affiliates................. 22,941 -- -- 22,941
Property and equipment, net.................... 250,637 10,582 (1,495) 259,724
Other assets................................... 29,869 822 (10,718) 19,973
-------- ------- -------- --------
Total assets......................... $396,252 $24,302 $(20,176) $400,378
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................. $ 22,313 $ 1,403 $ (75) $ 23,641
Book overdrafts.............................. 2,362 -- -- 2,362
Accrued expenses and deposits................ 28,203 2,125 -- 30,328
Accounts and notes payable -- affiliates..... 1,821 7,033 (6,865) 1,989
Long-term debt, current portion.............. 1,084 -- -- 1,084
Income taxes payable......................... 5,930 1,199 -- 7,129
-------- ------- -------- --------
Total current liabilities............ 61,713 11,760 (6,940) 66,533
Long-term debt................................. 19,550 -- -- 19,550
Notes payable -- affiliates.................... 146,639 1,076 (988) 146,727
Other liabilities.............................. 5,282 748 -- 6,030
-------- ------- -------- --------
Total liabilities.................... 233,184 13,584 (7,928) 238,840
-------- ------- -------- --------
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock................................. 1,538 3,941 (3,941) 1,538
Paid-in capital.............................. 63,781 4,153 (4,153) 63,781
Retained earnings............................ 102,610 7,300 (8,830) 101,080
Equity adjustment from foreign currency
translation............................... (3,400) (4,676) 4,676 (3,400)
Notes receivable stock subscription.......... (1,461) -- -- (1,461)
-------- ------- -------- --------
Total stockholders' equity........... 163,068 10,718 (12,248) 161,538
-------- ------- -------- --------
Total liabilities and stockholders'
equity............................. $396,252 $24,302 $(20,176) $400,378
======== ======= ======== ========
</TABLE>
F-78
<PAGE> 154
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
CONDENSED COMBINING STATEMENTS OF OPERATIONS
FOUR MONTHS ENDED APRIL 30, 1996
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Operating revenue:
Sales of products and services............... $154,500 $10,731 $ (860) $164,371
Revenue from operating lease activities...... 323 250 -- 573
-------- ------- ----- --------
Total operating revenues............. 154,823 10,981 (860) 164,944
-------- ------- ----- --------
Operating expenses:
Cost of goods sold, excluding depreciation of
$791...................................... 42,242 1,445 (569) 43,118
Bowling center operations.................... 71,289 8,985 (118) 80,156
Selling, general and administrative.......... 34,875 682 -- 35,557
Depreciation and amortization................ 14,380 802 (85) 15,097
-------- ------- ----- --------
Total operating expenses............. 162,786 11,914 (772) 173,928
-------- ------- ----- --------
Operating loss....................... (7,963) (933) (88) (8,984)
Nonoperating income (expenses):
Interest expense............................. (4,501) (3) -- (4,504)
Other expenses, net.......................... (634) (58) -- (692)
Interest income.............................. 574 37 -- 611
Equity in earnings of subsidiaries........... (707) -- 707 --
Foreign currency transaction gain (loss)..... (179) 150 -- (29)
-------- ------- ----- --------
Loss before income taxes....................... (13,410) (807) 619 (13,598)
Income tax benefit............................. 1,631 100 -- 1,731
-------- ------- ----- --------
Net loss............................. $(11,779) $ (707) $ 619 $(11,867)
======== ======= ===== ========
</TABLE>
F-79
<PAGE> 155
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
CONDENSED COMBINING STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
---------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
Operating revenues:
Sales of products and services............ $ 532,349 $ 34,197 $ (2,548) $563,998
Revenue from operating lease activities... 926 -- -- 926
-------- ------- ------- --------
Total operating revenues.......... 533,275 34,197 (2,548) 564,924
-------- ------- ------- --------
Operating expenses:
Cost of sales, excluding depreciation of
$2,531................................. 180,980 4,730 (1,581) 184,129
Bowling center operations................. 149,535 16,930 -- 166,465
Selling, general and administrative....... 47,218 4,046 (486) 50,778
Depreciation and amortization............. 36,723 2,650 (234) 39,139
-------- ------- ------- --------
Total operating expenses.......... 414,456 28,356 (2,301) 440,511
-------- ------- ------- --------
Operating income.................. 118,819 5,841 (247) 124,413
Nonoperating income (expenses):
Interest expense.......................... (15,569) (142) -- (15,711)
Other expenses, net....................... (600) (443) -- (1,043)
Interest income........................... 1,837 347 -- 2,184
Equity in earnings of subsidiaries........ 3,444 -- (3,444) --
Foreign currency transaction loss......... (465) (514) -- (979)
-------- ------- ------- --------
Income before income taxes.................. 107,466 5,089 (3,691) 108,864
Income tax expense.......................... 10,453 1,645 -- 12,098
-------- ------- ------- --------
Net income........................ $ 97,013 $ 3,444 $ (3,691) $ 96,766
======== ======= ======= ========
</TABLE>
F-80
<PAGE> 156
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
CONDENSED COMBINING STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
---------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
Operating revenues:
Sales of products and services............ $ 478,056 $ 40,930 $ (3,560) $515,426
Revenue from operating lease activities... 969 1,391 -- 2,360
-------- ------- ------- --------
Total operating revenues.......... 479,025 42,321 (3,560) 517,786
-------- ------- ------- --------
Operating expenses:
Cost of sales, excluding depreciation of
$1,691................................. 191,250 6,694 (1,901) 196,043
Bowling center operations................. 97,898 18,718 (1,469) 115,147
Selling, general and administrative....... 52,392 4,750 -- 57,142
Depreciation and amortization............. 21,606 3,343 (173) 24,776
-------- ------- ------- --------
Total operating expenses.......... 363,146 33,505 (3,543) 393,108
-------- ------- ------- --------
Operating income.................. 115,879 8,816 (17) 124,678
Nonoperating income (expenses):
Interest expense.......................... (7,164) (230) -- (7,394)
Other expenses, net....................... (1,188) -- -- (1,188)
Interest income........................... 231 295 -- 526
Equity in earnings of subsidiaries........ 5,179 -- (5,179) --
Foreign currency transaction loss......... (654) (213) -- (867)
-------- ------- ------- --------
Income before income taxes.................. 112,283 8,668 (5,196) 115,755
Income tax expense.......................... 12,963 3,489 -- 16,452
-------- ------- ------- --------
Net income........................ $ 99,320 $ 5,179 $ (5,196) $ 99,303
======== ======= ======= ========
</TABLE>
F-81
<PAGE> 157
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
CONDENSED COMBINING STATEMENTS OF CASH FLOWS
FOUR MONTHS ENDED APRIL 30, 1996
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................... $(11,072) $ (707) $ (88) $(11,867)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization............ 14,380 802 (85) 15,097
Deferred income taxes.................... 435 (21) -- 414
Equity in earnings of subsidiaries....... (707) -- 707 --
Changes in assets and liabilities:
Accounts and notes receivable, net..... 4,821 (37) -- 4,784
Receivables and
payables -- affiliates.............. 593 942 -- 1,535
Inventories............................ (3,655) 24 -- (3,631)
Other assets and liabilities........... (3,476) (34) 837 (2,673)
Accounts payable and accrued
expenses............................ 7,634 1,079 -- 8,713
Income taxes payable................... (5,442) (303) -- (5,745)
-------- ------- ------- --------
Net cash provided by operating
activities.......................... 3,511 1,745 1,371 6,627
-------- ------- ------- --------
Cash flows from investing activities:
Purchase of property and equipment.......... (6,046) (1,001) 173 (6,874)
Other....................................... 2,989 -- -- 2,989
-------- ------- ------- --------
Net cash used for investing
activities.......................... (3,057) (1,001) 173 (3,885)
-------- ------- ------- --------
Cash flows from financing activities:
Distributions to stockholders............... (36,721) (622) 622 (36,721)
Payment of long-term debt................... (3,812) -- -- (3,812)
Proceeds from notes payable -- stockholders,
net...................................... 1,236 -- -- 1,236
Capital contributions by stockholders....... 24,805 2,252 (2,252) 24,805
Collection of notes
receivable -- affiliates................. 19,408 -- -- 19,408
Other....................................... 3,902 -- 86 3,988
-------- ------- ------- --------
Net cash provided by financing
activities.......................... 8,818 1,630 (1,544) 8,904
Effect of exchange rates on cash and
cash equivalents.................... 330 205 -- 535
-------- ------- ------- --------
Net increase in cash and cash equivalents..... 9,602 2,579 -- 12,181
Cash and cash equivalents at beginning of
period...................................... 9,026 706 -- 9,732
-------- ------- ------- --------
Cash and cash equivalents at end of period.... $ 18,628 $ 3,285 $ -- $ 21,913
======== ======= ======= ========
</TABLE>
F-82
<PAGE> 158
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
CONDENSED COMBINING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................. $ 97,013 $ 3,444 $ (3,691) $ 96,766
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in earnings of subsidiaries....... (3,444) -- 3,444 --
Dividends from non-guarantor companies... 3,133 -- (3,133) --
Depreciation and amortization............ 36,661 2,682 (204) 39,139
Deferred income taxes.................. 215 (1,045) -- (830)
Loss on sale of property and equipment,
net................................. 567 -- -- 567
Changes in assets and liabilities, net
of effects from companies acquired:
Accounts and notes receivable,
net............................... 11,864 (1,234) -- 10,630
Receivables and
payables -- affiliates............ 7,262 (1,115) -- 6,147
Inventories......................... (5,596) (400) -- (5,996)
Other assets and liabilities........ (2,484) (369) 2,752 (101)
Accounts payable and accrued
expenses.......................... (19,187) 446 -- (18,741)
Income taxes payable................ (2,039) (791) -- (2,830)
-------- ------- ------- --------
Net cash provided by operating
activities........................ 123,965 1,618 (832) 124,751
-------- ------- ------- --------
Cash flows from investing activities:
Purchase of property and equipment.......... (26,411) (4,005) 451 (29,965)
Proceeds from sales of property and
equipment................................ 494 916 -- 1,410
Other....................................... 229 -- -- 229
-------- ------- ------- --------
Net cash used for investing
activities........................ (25,688) (3,089) 451 (28,326)
-------- ------- ------- --------
Cash flows from financing activities:
Dividends to guarantor companies............ -- (3,133) 3,133 --
Payments on credit note agreements, net..... (11,057) -- -- (11,057)
Distributions to stockholders............... (71,851) -- -- (71,851)
Payment of long-term debt................... (10,605) 320 -- (10,285)
Payment for redemption of stock --.......... (3,960) -- -- (3,960)
stockholders, net........................ (4,882) 1,089 -- (3,793)
Capital contributions by stockholders....... 8,329 -- -- 8,329
Capital contributions from guarantor........ -- 2,752 (2,752) --
Other....................................... (2,056) -- -- (2,056)
-------- ------- ------- --------
Net cash (used for) provided by
financing activities.............. (96,082) 1,028 381 (94,673)
Effect of exchange rates on cash.... (5) (189) -- (194)
-------- ------- ------- --------
Net increase (decrease) in cash and cash
equivalents................................. 2,190 (632) -- 1,558
Cash at beginning of year..................... 6,653 1,521 -- 8,174
-------- ------- ------- --------
Cash at end of year........................... $ 8,843 $ 889 $ -- $ 9,732
======== ======= ======= ========
</TABLE>
F-83
<PAGE> 159
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
CONDENSED COMBINING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
-------- --------- ------------ --------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................... $ 99,320 $ 5,179 $ (5,196) $ 99,303
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in earnings of subsidiaries............ (5,179) -- 5,179 --
Dividends from non-guarantor companies........ 5,084 -- (5,084) --
Depreciation and amortization................. 21,606 3,343 (173) 24,776
Deferred income taxes...................... (104) 85 -- (19)
Loss on sale of property and equipment,
net...................................... 911 -- -- 911
Changes in assets and liabilities, net of
effects from companies acquired:
Accounts and notes receivable, net....... (9,325) 311 -- (9,014)
Receivables and payables -- affiliates... 3,692 1,033 -- 4,725
Inventories.............................. (1,369) (42) -- (1,411)
Other assets............................. (864) (136) -- (1,000)
Accounts payable and accrued expenses.... 3,929 (91) -- 3,838
Income taxes payable..................... (3,207) 817 -- (2,390)
-------- ------- ------- --------
Net cash provided by operating
activities............................ 114,494 10,499 (5,274) 119,719
-------- ------- ------- --------
Cash flows from investing activities:
Acquisitions of operating units, net of cash
acquired................................... (17,307) -- -- (17,307)
Purchase of property and equipment............ (16,692) (1,286) 190 (17,788)
Proceeds from sales of property and
equipment.................................. 1,494 41 -- 1,535
Other......................................... 941 -- -- 941
-------- ------- ------- --------
Net cash used for investing
activities.......................... (31,564) (1,245) 190 (32,619)
-------- ------- ------- --------
Cash flows from financing activities:
Dividends to guarantor companies.............. -- (5,084) 5,084 --
Payments on credit note agreements, net....... (3,689) -- -- (3,689)
Distributions to stockholders................. (78,170) -- -- (78,170)
Payment of long-term debt..................... (740) (364) -- (1,104)
Proceeds (payments) on notes payable --
stockholders, net.......................... (4,989) (3,571) -- (8,560)
Capital contributions by stockholders......... 2,109 -- -- 2,109
Other......................................... (212) -- -- (212)
-------- ------- ------- --------
Net cash used for financing
activities.......................... (85,691) (9,019) 5,084 (89,626)
Effect of exchange rates on cash...... 2,488 271 -- 2,759
-------- ------- ------- --------
Net increase (decrease) in cash and cash
equivalents................................... (273) 506 -- 233
Cash at beginning of year....................... 6,926 1,015 -- 7,941
-------- ------- ------- --------
Cash at end of year............................. $ 6,653 $ 1,521 -- $ 8,174
======== ======= ======= ========
</TABLE>
F-84
<PAGE> 160
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
NOTE 17 -- SUBSEQUENT EVENT (UNAUDITED)
On October 10, 1996, AMF Bowling Centers, Inc., completed the acquisition
of 50 bowling centers and certain related assets and liabilities from Charan
Industries, Inc. pursuant to an Asset Purchase Agreement, dated as of September
10, 1996.
The purchase was approximately $106,500, including certain adjustments and
transaction costs. It was funded with approximately $40,000 from the sale of
equity by AMF Group Holdings Inc., a wholly-owned subsidiary of AMF Holdings
Inc., to its institutional stockholders and one of its directors and with
$66,500 from available borrowing under the Company's Acquisition Facility.
The April 30, 1996 combined financial statements do not reflect any
adjustments or cost associated with the acquisition.
F-85
<PAGE> 161
AMF BOWLING, INC.
SELECTED QUARTERLY DATA (UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AMF BOWLING, INC.
--------------------
1997 QUARTERS ENDED MARCH 31 JUNE 30
- ---------------------------- --------- --------
<S> <C> <C>
Operating revenue........... $ 157.6 $160.5
Gross profit................ 119.5 112.4
Operating income............ 29.7 12.7
Income (loss) before income
taxes..................... 1.2 (17.6)
Net income.................. 0.1 (12.3)
Net income (loss) per
share..................... -- (0.29)
</TABLE>
<TABLE>
<CAPTION>
AMF BOWLING, INC.
PREDECESSOR COMPANY ---------------------------------------------------------
---------------------- PRO FORMA
ONE MONTH TWO MONTHS QUARTER
1996 QUARTERS ENDED MARCH 31 APRIL 30 JUNE 30 JUNE 30 SEPTEMBER 30 DECEMBER 31
- ---------------------------- -------- --------- ---------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Operating revenue........... $123.3 $ 41.6 $ 73.4 $ 114.8 $131.8 $ 179.6
Gross profit................ 92.6 29.2 49.9 78.9 86.8 117.6
Operating income (loss)..... 27.9 (36.9) 4.0 5.3 14.3 27.8
Income (loss) before income
taxes..................... 24.3 (37.9) (15.8) (18.1) (12.2) 0.7
Net income (loss)........... 21.6 (33.4) (11.9) (13.6) (5.3) (2.1)
Net income (loss) per
share..................... (0.31) (0.36) (0.14) (0.05)
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-----------------------------------------------------
1995 QUARTERS ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- ---------------------------- -------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Operating revenue........... $156.9 $ 138.3 $130.4 $ 139.3
Gross profit................ 109.4 90.6 84.6 96.2
Operating income............ 41.7 26.8 22.1 33.8
Income before income
taxes..................... 37.5 23.5 17.8 30.2
Net income.................. 34.2 19.7 14.9 27.9
</TABLE>
F-86
<PAGE> 162
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
AMF Bowling Centers, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of loss, of cash flows and of stockholder's
equity present fairly, in all material respects, the financial position of Fair
Lanes, Inc. (Debtor-in-Possession) and its subsidiaries at September 29, 1994
and June 30, 1994, and the results of their operations and their cash flows for
the three months ended September 29, 1994 and the year ended June 30, 1994, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of Fair Lanes' management. Our responsibility
is to express an opinion on these statements based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
For the period June 22, 1994 through September 29, 1994, Fair Lanes, Inc.
operated as a debtor-in-possession pursuant to Chapter 11 of the United States
Bankruptcy Code. On September 20, 1994, the creditors approved and the
Bankruptcy Court confirmed a plan or reorganization, with an effective date of
September 29, 1994, whereby Fair Lanes' Senior Secured Noteholders gained
ownership and voting control of the majority of Fair Lanes' common stock. As a
result of the change of control, Fair Lanes, Inc. will adjust the carrying
values of its assets and liabilities to their estimated fair values as of
September 30, 1994, taking into consideration the effects of the plan of
reorganization. The accompanying consolidated financial statements do not
reflect these adjustments and, accordingly, the carrying value of Fair Lanes,
Inc.'s assets and liabilities will change from those reported in the
accompanying consolidated balance sheet as of September 29, 1994, as disclosed
in Note 3.
As discussed in Note 12, Fair Lanes, Inc. adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," effective June 25, 1993.
PRICE WATERHOUSE LLP
Norfolk, Virginia
January 23, 1996
F-87
<PAGE> 163
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 29, JUNE 30,
1994 1994
------------- --------
(SEE NOTE 3)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 3,419 $ 4,005
Receivables, net of allowance................................... 153 166
Inventories..................................................... 2,192 2,001
Prepaid expenses and other assets............................... 1,880 2,324
-------- --------
Total current assets......................................... 7,644 8,496
Property and equipment, net....................................... 178,002 179,860
Value of acquired leases, net..................................... 13,521 13,821
Other assets...................................................... 3,548 3,758
-------- --------
$ 202,715 $205,935
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Borrowings on line-of-credit.................................... $ 3,500 $ --
Current maturities of long-term debt and obligations under
capital leases............................................... 2,109 2,332
Accounts payable................................................ 8,223 6,242
Accrued expenses and other liabilities.......................... 9,334 7,026
-------- --------
Total current liabilities.................................... 23,166 15,600
-------- --------
Long-term liabilities:
Long-term debt, less current maturities......................... 12,924 13,135
Obligations under capital leases, less current maturities....... 7,189 7,414
Deferred income taxes........................................... -- 4,276
Other........................................................... 5,175 3,542
-------- --------
Total long-term liabilities.................................. 25,288 28,367
-------- --------
Liabilities subject to compromise under reorganization
proceedings..................................................... 151,975 151,975
-------- --------
Total liabilities............................................ 200,429 195,942
-------- --------
Commitments and contingencies
Stockholder's equity:
Common stock -- $.01 par value per share, 1,000 shares, issued
and outstanding.............................................. -- --
Additional paid-in capital...................................... 45,023 45,023
Accumulated deficit............................................. (45,739) (37,999)
Advances from Entertainment..................................... 3,002 2,969
-------- --------
Total stockholder's equity................................... 2,286 9,993
-------- --------
$ 202,715 $205,935
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-88
<PAGE> 164
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
SEPTEMBER 29, JUNE 30,
1994 1994
------------- ----------
<S> <C> <C>
Operating revenue................................................. $ 19,376 $101,759
Operating expenses:
Cost of merchandise sold........................................ 2,032 10,321
Selling, general and administrative expenses.................... 25,425 94,049
----- ------
27,457 104,370
----- ------
Operating loss.......................................... (8,081) (2,611)
Interest expense.................................................. (2,654) (20,157)
Other income (expense), net....................................... 7 (2,918)
----- ------
Loss before reorganization costs, income tax benefit (provision)
and cumulative effect of accounting change................... (10,728) (25,686)
Reorganization costs.............................................. (1,288) (5,377)
----- ------
Loss before income tax benefit and cumulative effect of
accounting change............................................ (12,016) (31,063)
Income tax benefit................................................ 4,276 11,804
----- ------
Loss before cumulative effect of accounting change.............. (7,740) (19,259)
Cumulative effect of accounting change............................ -- 3,902
----- ------
Net loss................................................ $ (7,740) $(15,357)
===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-89
<PAGE> 165
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
SEPTEMBER 29, JUNE 30,
1994 1994
------------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................................ $(7,740) $(15,357)
Adjustments to reconcile net loss to net cash used for operating
activities:
Depreciation and amortization................................ 3,583 15,026
Amortization of deferred charges............................. 32 754
Loss on disposal of assets................................... -- 2,632
Loss on equity investments................................... -- 1,132
Noncash reorganization costs................................. -- 3,618
Deferred income taxes........................................ (4,276) (11,914)
Cumulative effect of change in method of accounting for
income taxes................................................ -- (3,902)
Changes in assets and liabilities:
Decrease (increase) in receivables......................... 13 (68)
Increase in inventories.................................... (191) (387)
(Increase) decrease in prepaid expenses and other assets... 444 (902)
Increase (decrease) in accounts payable and accrued
expenses.................................................. 4,289 (5,695)
Accrued interest with respect to liabilities subject to
compromise................................................ 1,757 13,975
Other...................................................... (123) (86)
------- --------
Net cash used for operating activities.................. (2,212) (1,174)
------- --------
Cash flows from investing activities:
Purchases of property and equipment............................. (2,404) (5,453)
Proceeds from sales of property and equipment................... -- 6,534
Other........................................................... 1,156 435
------- --------
Net cash provided by (used for) investing activities.... (1,248) 1,516
------- --------
Cash flows from financing activities:
Proceeds from short-term borrowings............................. 3,500 6,000
Principal payments of indebtedness and obligations under capital
leases....................................................... (659) (8,757)
Dividends paid to Bowling....................................... -- (1,565)
Advances from Entertainment..................................... 33 5,380
Other........................................................... -- (101)
------- --------
Net cash provided by financing activities............... 2,874 957
------- --------
Net increase (decrease) in cash and cash equivalents.............. (586) 1,299
Cash and cash equivalents at beginning of year.................... 4,005 2,706
------- --------
Cash and cash equivalents at end of year.......................... $ 3,419 $ 4,005
======= ========
Cash paid during the period for:
Interest........................................................ $ 889 $ 11,602
======= ========
Income taxes.................................................... $ -- $ 110
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-90
<PAGE> 166
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONAL ADVANCES TOTAL
PAID-IN ACCUMULATED (TO) FROM STOCKHOLDER'S
CAPITAL DEFICIT ENTERTAINMENT EQUITY
---------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at June 24, 1993..................... $ 45,023 $ (21,077) $(2,411) $ 21,535
Net loss for the year ended June 30,
1994.................................... -- (15,357) -- (15,357)
Dividends.................................. -- (1,565) -- (1,565)
Advances from Entertainment, net........... -- -- 5,380 5,380
------- -------- ------- --------
Balance at June 30, 1994..................... 45,023 (37,999) 2,969 9,993
Net loss for the three months ended
September 29, 1994...................... -- (7,740) -- (7,740)
Advances from Entertainment................ -- -- 33 33
------- -------- ------- --------
Balance at September 29, 1994................ $ 45,023 $ (45,739) $ 3,002 $ 2,286
======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-91
<PAGE> 167
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS)
NOTE 1 -- BUSINESS
At September 29, 1994 and June 30, 1994, Fair Lanes, Inc.
(Debtor-in-Possession) and subsidiaries (Fair Lanes) operated 106 bowling
centers, containing 3,876 lanes, located in sixteen states and Puerto Rico.
Prior to Fair Lanes' emergence from bankruptcy, Fair Lanes was a
wholly-owned subsidiary of Fair Lanes Bowling, Inc. (Bowling), which was a
wholly-owned subsidiary of Fair Lanes Entertainment, Inc. (Debtor-in-Possession)
(Entertainment). Fair Lanes' assets represented substantially all of the
operating assets of Bowling and Entertainment. Effective with the emergence from
bankruptcy proceedings, Entertainment, Bowling and Fair Lanes, Inc. were merged
into one entity and a change in control occurred (see Notes 2 and 3).
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements have been prepared on the accrual
basis of accounting utilizing guidance provided by American Institute of
Certified Public Accountants' Statement of Position 90-7, "Financial Statements
by Entities in Reorganization Under the Bankruptcy Code" (SOP 90-7). On
September 29, 1994, in accordance with Fair Lanes' Plan of Reorganization (the
"Plan") dated July 15, 1994, control of the majority of Fair Lanes' common stock
transferred to the holders of Fair Lanes' Senior Secured Notes. The revaluation
of Fair Lanes' assets and liabilities as a result of this reorganization and
change in control has not been reflected in the accompanying consolidated
balance sheet as of September 29, 1994 (see Note 3).
The consolidated financial statements include the accounts of Fair Lanes
and all of its wholly-owned subsidiaries. All intercompany transactions have
been eliminated in consolidation.
Fair Lanes reports on a 52-53 week year ending on the last Thursday of
June. Fiscal year 1994 consisted of 53 weeks. The three-month period ended
September 29, 1994 consisted of 13 weeks.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements. Such estimates affect the reported amounts of expenses during
current and subsequent reporting periods, and actual results could differ from
such estimates.
CASH AND CASH EQUIVALENTS
Cash in excess of daily requirements is invested in marketable securities
consisting of commercial paper and bank repurchase agreements with maturities of
three months or less. Such investments are deemed to be cash equivalents for
purposes of the consolidated balance sheets and consolidated statements of cash
flows.
INVENTORIES
Inventories (principally food, beverage and pro shop merchandise) are
valued at the lower of cost or market with cost being determined by the first-in
first-out method.
F-92
<PAGE> 168
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation, including amortization of property under capital
leases, is provided by the straight-line method over the estimated useful lives
of the assets as follows:
<TABLE>
<CAPTION>
ASSETS CLASS USEFUL LIVES
------------------------------------------------- ------------------------
<S> <C>
Buildings........................................ 30-40 years
Machinery and equipment.......................... 4-20 years
Leasehold improvements and property under capital
leases......................................... Shorter of the estimated
useful lives or terms of
leases
</TABLE>
Additions and major improvements are capitalized and included in the
property accounts; the cost of routine maintenance and repairs is charged to
expense as incurred. Upon sale or other disposal of depreciable assets, the
related cost and accumulated depreciation and amortization are removed from the
accounts and any gain or loss is reflected in income.
VALUE OF ACQUIRED LEASES
Value of acquired leases result from purchase accounting adjustments
assigning values to favorable bowling center capital and operating lease
obligations and are being amortized over the remaining lives of the leases.
These leases have an average remaining life of approximately 10 years as of
September 29, 1994.
DEFERRED FINANCING COSTS
Costs incurred to obtain financing are deferred and amortized over the
lives of the related debt using the interest method. During the year ended June
30, 1994, Fair Lanes wrote off the unamortized deferred financing costs
associated with the Senior Secured Notes (see Note 9).
DEFERRED INCOME TAXES
At June 25, 1993, Fair Lanes adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No.
109), which required, among other things, a change from the deferred method to
the asset and liability method of accounting for deferred income taxes. Under
the asset and liability method, deferred income taxes are generally recognized
for temporary differences between the financial reporting basis and income tax
basis of assets and liabilities based on enacted tax rates expected to be in
effect when such amounts are realized or settled. The effects of changes in tax
laws or rates on deferred tax assets and liabilities are recognized in the
period that includes the enactment date.
Under the deferred method applied in prior periods, deferred income taxes
were recognized for income and expense items that were reported in different
periods for financial reporting and income tax purposes based on the tax rates
applicable in the period of the calculations and were not adjusted for
subsequent changes in tax laws or rates.
F-93
<PAGE> 169
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
NOTE 3 -- REORGANIZATION PLAN AND LIQUIDITY
During the year ended June 30, 1994, Fair Lanes' cash resources were
insufficient to meet its debt service obligations with respect to the $138,000
of 11 7/8% Senior Secured Notes due August 15, 1997 (Senior Secured Notes).
Accordingly, management and the Board of Directors of Fair Lanes determined that
it was in the best interest of Fair Lanes to suspend interest payments on its
Senior Secured Notes commencing with the February 15, 1994 interest payment and
to pursue a negotiated restructuring of Fair Lanes' capital structure.
Management of Fair Lanes and committees representing certain Senior Secured
Noteholders of Fair Lanes and certain security holders of Entertainment agreed
in principle to support the Plan. On June 22, 1994 (Petition Date), Fair Lanes
and Entertainment filed a combined voluntary petition for relief under Chapter
11 of the federal bankruptcy laws in the United States Bankruptcy Court for the
District of Maryland, Baltimore Division (the Bankruptcy Court). Accordingly,
for the period June 22, 1994 through September 29, 1994, Fair Lanes was
operating as a Debtor-in-Possession under the jurisdiction of the Bankruptcy
Court. As a Debtor-in-Possession, Fair Lanes could not engage in transactions
outside the ordinary course of business without approval of the Bankruptcy
Court, after notice and hearing.
Liabilities subject to compromise in the accompanying consolidated balance
sheets represent Fair Lanes' liabilities as of the Petition Date subject to
adjustment in the reorganization process and consist of the Senior Secured Notes
of $138,000 and accrued interest thereon from August 16, 1993 to June 22, 1994
of $13,975. Fair Lanes defaulted on the February 15, 1994 interest payment and
stopped accruing interest on the Senior Secured Notes as of the Petition Date.
Under the contractual terms of the agreement, accrued interest on the Senior
Secured Notes at June 30, 1994 was $14,339. The Senior Secured Notes were issued
at a discount which was being amortized on the interest method over the term of
the loan. The unamortized discount at June 22, 1994 was approximately $444 and
was written off (see Note 9).
The Plan was approved by the creditors and confirmed by the Bankruptcy
Court on September 20, 1994 and was effective September 29, 1994. The confirmed
plan provided for the following:
CLAIMS OF THE FAIR LANES' SENIOR SECURED AND ENTERTAINMENT'S VARIABLE RATE AND
ZERO COUPON NOTEHOLDERS
The $138,000 of Senior Secured Notes were exchanged for a new issue of
$90,350 Senior Secured Notes (New Senior Secured Notes) and 94% of new Fair
Lanes' common stock. The New Senior Secured Notes bear interest at 9.5%.
Entertainment had $36,844 of variable rate notes and $7,375 of zero coupon
notes (accreted value) outstanding as of the Petition Date. Under the Plan, such
amounts were settled with the issuance of the remaining 6% of the new Fair
Lanes' common stock and warrants to purchase additional shares of the new Fair
Lanes' common stock. These warrants were not exercised and were subsequently
canceled.
OTHER GENERAL CLAIMS
Other obligations of Fair Lanes were to be settled in full. Substantially
all remaining liabilities were obligations of Fair Lanes' subsidiaries and
include trade debt, mortgage debt and capital lease obligations. Such
obligations were unaffected by the bankruptcy and the Plan.
F-94
<PAGE> 170
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
COMMON STOCK
The common stockholders of Fair Lanes and Entertainment received no shares
in the new Fair Lanes stock. As part of the transaction, Entertainment and
Bowling were merged into Fair Lanes.
NEW SENIOR SECURED NOTES
The New Senior Secured Notes may be redeemed at any time on or after July
15, 1997 and prior to maturity (July 15, 2001) at the option of Fair Lanes,
either in whole or in part, at redemption prices defined in the Indenture,
together with interest accrued to the date of redemption. However, at any time
prior to July 15, 1997, Fair Lanes may redeem up to $30,000 of the initial
principal amount of the New Senior Secured Notes from the net proceeds of one or
more underwritten public offerings of equity securities of Fair Lanes, at a
redemption price equal to 108.5% of the principal amount thereof plus accrued
and unpaid interest to the redemption date, provided that at least $60,000 of
the principal amount of New Senior Secured Notes remain outstanding immediately
after the occurrence of any such redemption and that any such redemption occurs
within 60 days following the closing of any such public offering. In addition,
Fair Lanes may be required to offer to repurchase the New Senior Secured Notes
upon the occurrence of a "change of control" event as described in the
Indenture.
The New Senior Secured Notes are secured by a pledge of all of the
outstanding shares of capital stock of each of Fair Lanes' operating
subsidiaries and require semiannual interest payments in January and July of
each year. Interest began accruing on the New Senior Secured Notes from July 15,
1994 (date of Plan's filing) and is included from this date to September 29,
1994 in the accompanying consolidated statement of loss.
OTHER PLAN COMPONENTS
Upon the emergence of Fair Lanes from bankruptcy proceedings, an unrelated
third party acquired majority ownership of Fair Lanes' common stock through its
prior ownership of the 11 7/8% bonds. Shortly thereafter, this third party
obtained 100% ownership of Fair Lanes' stock in a transaction accounted for by
the purchase method as of September 30, 1994. The following table summarizes the
adjustments required to record the reorganization and change in control:
<TABLE>
<CAPTION>
DEBT FAIR VALUE
ACTUAL DISCHARGE ADJUSTMENTS PRO FORMA
-------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Current assets..................... $ 7,644 $ -- $ (2,715) $ 4,929
Property, plant and equipment,
net.............................. 178,002 -- (36,217) 141,785
Value of acquired leases, net...... 13,521 -- (2,180) 11,341
Other assets....................... 3,548 -- (2,246) 1,302
-------- -------- -------- --------
$202,715 $ -- $ (43,358) $ 159,357
======== ======== ======== ========
Current liabilities................ $ 23,166 $ -- $ 1,376 $ 24,542
Long-term debt..................... 172,088 (61,625) -- 110,463
Other long-term liabilities........ 5,175 -- 536 5,711
Stockholder's equity............... 2,286 61,625 (45,270) 18,641
-------- -------- -------- --------
$202,715 $ -- $ (43,358) $ 159,357
======== ======== ======== ========
</TABLE>
F-95
<PAGE> 171
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following at September 29, 1994 and
June 30, 1994.
<TABLE>
<CAPTION>
SEPTEMBER 29, JUNE 30,
1994 1994
------------- ---------
<S> <C> <C>
Land and improvements..................................... $ 53,630 $ 53,626
Buildings................................................. 98,130 97,645
Machinery and equipment................................... 62,461 61,210
Leasehold improvements.................................... 9,036 8,772
Leased property under capital leases 13,610 13,610
------------- --------
236,867 234,863
Less -- accumulated depreciation and amortization......... 58,865 55,003
------------- --------
$ 178,002 $ 179,860
============= ========
</TABLE>
Depreciation expense, including property under capital leases, was $3,209
and $13,865 for the three months ended September 29, 1994 and the year ended
June 30, 1994, respectively.
NOTE 5 -- ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following at
September 29, 1994 and June 30, 1994:
<TABLE>
<CAPTION>
SEPTEMBER 29, JUNE 30,
1994 1994
------------- --------
<S> <C> <C>
Insurance................................................... $ 1,547 $ 1,547
Payroll..................................................... 1,949 2,330
Property taxes.............................................. 2,040 1,489
Reorganization costs........................................ 2,280 1,293
Other....................................................... 1,518 367
------------- --------
$ 9,334 $ 7,026
============= ========
</TABLE>
NOTE 6 -- SHORT-TERM BORROWINGS
In July 1993, Fair Lanes obtained a $6,000 seasonal loan from a principal
vendor which was repaid in December 1993.
In August 1994, Fair Lanes entered into a $4,000 line of credit agreement
with a bank. Borrowings under the line bear interest at the bank's prime rate
plus 1% and are secured by certain equipment of Fair Lanes' subsidiaries.
Interest is payable monthly. Subsequent to September 29, 1994, this line of
credit was repaid in full.
F-96
<PAGE> 172
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
NOTE 7 -- OTHER INDEBTEDNESS
Other long-term debt secured by mortgages on real property and equipment,
exclusive of capital lease obligations, consists of the following at September
29, 1994 and June 30, 1994:
<TABLE>
<CAPTION>
SEPTEMBER 29, JUNE 30,
1994 1994
------------- --------
<S> <C> <C>
9% to 9 3/4% to 1997-2002.................................. $ 3,839 $ 3,939
10% to 10 1/2% to 1998-2007................................ 1,482 1,501
11% to 11 3/4% to 1998-2000................................ 7,741 7,774
Other...................................................... 735 794
------- -------
13,797 14,008
Less current maturities.................................... 873 873
------- -------
$12,924 $ 13,135
======= =======
</TABLE>
Annual maturities of other long-term debt for each of the five fiscal years
subsequent to September 29, 1994 are as follows:
<TABLE>
<S> <C>
Nine months ending June 1995...................................... $ 667
Year ending June 1996............................................. 958
Year ending June 1997............................................. 1,043
Year ending June 1998............................................. 2,236
Year ending June 1999............................................. 4,990
Thereafter........................................................ 3,903
-------
$ 13,797
=======
</TABLE>
At September 29, 1994, the carrying value of property and equipment
securing mortgages on real property and equipment was approximately $31,800.
The estimated fair values of other long-term debt approximate the carrying
values.
NOTE 8 -- ADVANCES FROM ENTERTAINMENT
During fiscal 1994, Fair Lanes obtained approximately $5,380 in cash
advances from Entertainment which was used primarily for operating needs. The
payables reported in the consolidated balance sheets of $3,002 and $2,969 at
September 29, 1994 and June 30, 1994, respectively, are net of prior year
amounts advanced to Entertainment for costs paid by Fair Lanes on behalf of
Entertainment. The Plan, described in Note 3, did not provide for repayment of
the net advances from Entertainment, and Fair Lanes has reflected the net
advances as an addition to equity.
F-97
<PAGE> 173
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
NOTE 9 -- REORGANIZATION COSTS
Reorganization costs for the three months ended September 29, 1994 and the
year ended June 30, 1994 consist of the following:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
SEPTEMBER 29, JUNE 30,
1994 1994
------------- ----------
<S> <C> <C>
Professional fees................................. $ 1,288 $1,759
Write-off unamortized discount and deferred
financing costs associated with pre-petition
debt............................................ -- 3,618
------ ------
$ 1,288 $5,377
====== ======
</TABLE>
NOTE 10 -- COMMITMENTS
Fair Lanes occupies various premises subject to long-term leases. In
addition to minimum annual rentals, certain leases provide for additional rents
based on a percentage of sales in excess of specified amounts. The majority of
the leases require Fair Lanes to pay all real estate taxes and to maintain
adequate insurance coverage in addition to other terms that vary with the
individual leases.
In addition, Fair Lanes leases automatic scoring and computerized control
center equipment installed in certain bowling centers under capital lease
agreements, which expire on various dates during 1996 to 1999.
Future minimum lease payments under capital leases, noncancellable
operating leases and operating subleases are as follows at September 29, 1994:
<TABLE>
<CAPTION>
OPERATING
CAPITAL ---------------------
LEASES LEASES SUBLEASES
------- ------- ---------
<S> <C> <C> <C>
FISCAL YEAR
Nine months ending June 1995......................... $ 2,059 $ 2,227 $ 65
Year ending June 1996................................ 2,655 2,584 83
Year ending June 1997................................ 2,316 2,292 83
Year ending June 1998................................ 2,175 1,648 83
Year ending June 1999................................ 1,275 1,292 52
Thereafter........................................... 104 5,650 551
------- ------- ----
Total minimum lease payments......................... 10,584 $15,693 $ 917
======= ====
Less amount representing interest.................... (2,159)
-------
Obligations under capital leases................... $ 8,425
=======
</TABLE>
F-98
<PAGE> 174
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
Accumulated depreciation and amortization includes accumulated amortization
of $7,241 and $6,809 on property leased under capital leases at September 29,
1994 and June 30, 1994, respectively.
Rent expense consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
SEPTEMBER 29, JUNE 30,
1994 1994
------------- ----------
<S> <C> <C>
Minimum rentals............................................. $ 732 $2,834
Contingent rentals.......................................... 254 2,002
Less sublease rentals....................................... (19) (74)
---- ------
$ 967 $4,762
==== ======
</TABLE>
NOTE 11 -- PENSION AND PROFIT SHARING PLANS
Fair Lanes had a defined benefit pension plan covering substantially all
employees. The benefits were based on years of service and the employees'
highest compensation during five consecutive years in the last 10 years of
employment. Fair Lanes' funding policy was to contribute annually the amount
that could be deducted for federal income tax purposes, assuming a 30-year
amortization of the unfunded accrued liability. Subsequent to the reorganization
of Fair Lanes, the defined benefit plan was frozen.
The following table sets forth the plan's funded status and the prepaid
pension cost included in the consolidated balance sheets at September 29, 1994
and June 30, 1994 based upon calculations made by consulting actuaries. Fair
Lanes obtains actuarial studies on an annual basis and an updated study for the
three months ended September 29, 1994 was not warranted.
<TABLE>
<S> <C>
Actuarial present value of obligations:
Accumulated benefit obligation including vested benefits of $7,339...... $ 7,537
----
Projected benefit obligation for services rendered to date................ $(8,597)
Plan assets at fair value, primarily listed stocks, corporate bonds and
U.S. government obligations............................................. 7,752
----
Plan assets (less than) in excess of projected benefit obligation......... (845)
Unrecognized prior service costs.......................................... (764)
Unrecognized net gain from past experience different from that assumed and
effect of changes in assumptions........................................ 1,757
----
Prepaid pension costs included in other assets $ 148
====
</TABLE>
F-99
<PAGE> 175
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
Net periodic pension cost, as determined by consulting actuaries, included
the following for the year ended June 30, 1994. Pension expense for the three
months ended September 29, 1994 was estimated to be $94.
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
1994
----------
<S> <C>
Service costs -- benefits earned during the period....................... $ 357
Interest cost on projected benefit obligation............................ 545
Actual return on plan assets............................................. 145
Net amortization and deferral............................................ (731)
----
$ 316
====
</TABLE>
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation was 6.46% and 4.5% in 1994. The expected long-term
rate of return on assets was 8%.
Fair Lanes has a profit sharing plan which covers substantially all
employees with at least one year of service. Generally, contributions are made
at the discretion of the Board of Directors. No contributions were made by Fair
Lanes for the three months ended September 29, 1994 or the year ended June 30,
1994.
NOTE 12 -- INCOME TAXES
Fair Lanes files consolidated federal income tax returns with Entertainment
and prior to fiscal 1994 recorded its provision for federal income taxes for
financial reporting purposes in accordance with a tax allocation agreement with
Entertainment and Bowling. Such agreement provides that Fair Lanes will record
as expense its share of the federal income taxes payable by the consolidated
group in an amount that is based upon the ratio of the taxable income of Fair
Lanes and its subsidiaries to the taxable income of the consolidated group.
At June 25, 1993, Fair Lanes adopted the provisions of SFAS No. 109,
"Accounting for Income Taxes," which required Fair Lanes to record its income
tax provisions on a stand alone basis using the asset and liability method to
account for deferred income taxes. The cumulative effect of this change in
accounting method as of the date of adoption was to increase stockholder's
equity by $3,902. The change in accounting method required Fair Lanes to restate
the carrying values of assets acquired in prior business combinations by
increasing such values by approximately $18,000. The increase in carrying values
increased the loss before income tax benefit for the year ended June 30, 1994 by
$1,522 due to additional depreciation expense and a reduction of the gain on
sales of bowling centers. In addition, the change in accounting allowed Fair
Lanes to recognize a deferred income tax benefit of $11,914 related to the net
operating loss for the year ended June 30, 1994. Prior years' financial
statements were not restated to apply the provisions of SFAS No. 109.
F-100
<PAGE> 176
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
The tax effect of temporary differences between the financial reporting basis
and income tax basis of assets and liabilities that are included in the net
deferred tax liability relate to the following:
<TABLE>
<CAPTION>
SEPTEMBER 29, JUNE 30,
1994 1994
------------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward......................... $ 16,300 $ 13,400
Accrued interest and deferred financing costs........... 7,458 6,883
Obligations under long-term consulting and noncompete
agreements........................................... 1,100 1,053
Other................................................... 3,741 3,460
------ ------
Gross deferred tax assets....................... 28,599 24,796
Gross deferred tax asset valuation allowance............ (290) --
------ ------
Gross deferred tax assets, net.................. 28,309 24,796
------ ------
Deferred tax liabilities:
Property and equipment and leasehold interest, primarily
due to differences in basis from business
combinations and depreciation and amortization....... (27,898) (28,358)
Other................................................... (411) (714)
------ ------
Gross deferred tax liabilities....................... (28,309) (29,072)
------ ------
Net deferred tax liability........................... $ -- $ (4,276)
====== ======
</TABLE>
The income tax benefit for the three months ended September 29, 1994 and
the year ended June 30, 1994 differed from the amounts computed by applying the
U.S. federal income tax rate of 34% to loss before income taxes as a result of
the following:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
SEPTEMBER 29, JUNE 30,
1994 1994
------------- ----------
<S> <C> <C>
Expected tax benefit...................................... $ 4,085 $ 10,561
(Increase) reduction income tax benefit resulting from:
State and local tax benefit, net of federal taxes....... 481 1,243
Change in deferred tax asset valuation allowance........ (290) --
------ -------
$ 4,276 $ 11,804
====== =======
</TABLE>
F-101
<PAGE> 177
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
The income tax benefit (provision) consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
SEPTEMBER 29, JUNE 30,
1994 1994
------------- ----------
<S> <C> <C>
Federal
Current................................................. $ -- $ --
Deferred................................................ 3,826 9,940
------ -------
3,826 9,940
------ -------
State
Current................................................. -- (110)
Deferred................................................ 450 1,974
------ -------
450 1,864
------ -------
$ 4,276 $ 11,804
====== =======
</TABLE>
The provisions for current state income taxes result from certain of Fair
Lanes' subsidiaries having taxable income in certain states. At June 30, 1994,
the consolidated group had a net operating loss carryforward available to reduce
future federal taxable income for income tax reporting purposes of approximately
$65,400, of which approximately $35,200 relates to Fair Lanes. Such amounts
expire in various amounts during the years 2002 to 2009. The Plan discussed in
Note 3 could have a significant effect on the amount and availability of net
operating loss carryforwards available to offset taxable income after the date
of the reorganization.
NOTE 13 -- OBLIGATIONS OF ENTERTAINMENT
In fiscal 1994, Fair Lanes distributed dividends to Bowling of $1,565.
Bowling distributed such amounts to Entertainment to enable it to pay interest
due on the variable rate notes.
NOTE 14 -- LITIGATION
Fair Lanes is subject to various lawsuits in the ordinary course of its
business, including employment-related matters. In the opinion of management,
none of the pending actions will have a material impact on Fair Lanes' financial
position or results of operations.
NOTE 15 -- BOWLING CENTER DISPOSITIONS
In the fourth quarter of fiscal 1993, Fair Lanes elected not to exercise
lease renewal options on two bowling centers. In the first quarter of fiscal
1994, Fair Lanes entered into a swap transaction in which it exchanged four
bowling centers in North Carolina for two bowling centers in each of Florida and
Texas. The swap transaction was accounted for at book value and, accordingly, no
gain or loss was recognized. Fair Lanes also sold four additional bowling
centers during the first quarter of fiscal 1994. The sale resulted in a loss of
$640 which is included in other income (expense), net in fiscal 1994.
F-102
<PAGE> 178
REPORT OF INDEPENDENT AUDITORS
Board of Directors
BCA & Affiliates
We have audited the accompanying balance sheet of BCA & Affiliates as of
August 31, 1996, and the related statement of income and cash flows for the year
then ended. 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, the financial statements referred to above present fairly,
in all material respects, the financial position of BCA & Affiliates as of
August 31, 1996, and the results of their operations and their cash flows for
the year then ended in conformity with generally accepted accounting principles.
Todres & Sheiffer
Westbury, New York
December 4, 1996
F-103
<PAGE> 179
BCA & AFFILIATES
BALANCE SHEET
AUGUST 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 598,000
Accounts receivable......................................................... 203,000
Inventories................................................................. 642,000
Prepaid expenses............................................................ 509,000
-----------
Total current assets................................................ 1,952,000
Property, plant and equipment -- net (Notes 1 and 2).......................... 42,892,000
Other assets (Note 8)......................................................... 613,000
-----------
$45,457,000
===========
LIABILITIES AND EXCESS OF ASSETS OVER LIABILITIES
Liabilities:
Current liabilities:
Accounts payable and accrued expenses.................................... $ 2,156,000
Current portion of long-term debt (Note 3)............................... 17,901,000
Bank line of credit (Note 4)............................................. 4,677,000
Capital lease obligation (Note 5)........................................ 811,000
-----------
Total current liabilities........................................... 25,545,000
Long-term liabilities:
Long-term debt (Note 3)..................................................... --
-----------
Total liabilities................................................... 25,545,000
Contingencies (Note 6)...................................................... --
Excess of assets over liabilities........................................... 19,912,000
-----------
$45,457,000
===========
</TABLE>
See notes to financial statements
F-104
<PAGE> 180
BCA & AFFILIATES
STATEMENT OF INCOME
YEAR ENDED AUGUST 31, 1996
<TABLE>
<S> <C>
Revenues:
Bowling..................................................................... $63,818,000
Other....................................................................... 178,000
-----------
Total revenues...................................................... 63,996,000
Cost of sales............................................................... 7,219,000
-----------
Gross profit........................................................ 56,777,000
-----------
Operating expenses:
Payroll and related costs................................................... 17,522,000
Parts and supplies.......................................................... 4,270,000
Repairs and maintenance..................................................... 1,301,000
Occupancy costs............................................................. 7,239,000
Promotional and marketing................................................... 4,531,000
Insurance and other costs................................................... 3,215,000
General and administrative -- home office................................... 6,146,000
Interest.................................................................... 2,003,000
-----------
Total operating expenses............................................ 46,227,000
-----------
Income before depreciation expense............................................ 10,550,000
Depreciation expense.......................................................... 7,093,000
-----------
Net income.......................................................... $ 3,457,000
===========
</TABLE>
See notes to financial statements
F-105
<PAGE> 181
BCA & AFFILIATES
STATEMENT OF CASH FLOWS
YEAR ENDED AUGUST 31, 1996
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net income.................................................................. $ 3,457,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................ 7,093,000
(Increase) decrease in:
Accounts receivable.................................................... 75,000
Inventories............................................................ (19,000)
Prepaid expenses....................................................... (51,000)
Other.................................................................. 55,000
Increase (decrease) in:
Accounts payable and accrued expenses.................................. (554,000)
-----------
Net cash from operating activities.......................................... 10,056,000
-----------
Cash Flows for Investing Activities:
Additions to property, plant and equipment, net............................. (4,997,000)
-----------
Net cash used for investing activities........................................ (4,997,000)
-----------
Cash flows for financing activities:
Principal payments on long-term debt........................................ (1,661,000)
Transfers to home office.................................................... (3,075,000)
-----------
Net cash used for financing activities...................................... (4,736,000)
-----------
Net increase in cash and cash equivalents..................................... 323,000
Cash and cash equivalents at beginning of year................................ 275,000
-----------
Cash and cash equivalents at end of year...................................... $ 598,000
===========
Supplemental Schedule of Cash Flow Information:
Cash paid during the year for:
Interest................................................................. $ 2,003,000
===========
Income taxes............................................................. $ 183,000
===========
</TABLE>
See notes to financial statements
F-106
<PAGE> 182
BCA & AFFILIATES
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996
DESCRIPTION OF THE BUSINESS
ORGANIZATION
The financial statements of BCA and Affiliates (the "Company") consists of
the operations of 50 bowling centers, one golf course, and certain related
recreational activities. BCA is a division of Charan Industries, Inc. The
affiliates of BCA include two partnerships which are owned primarily by the
principal shareholders of Charan Industries, Inc.
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers cash in the operating bank accounts, overnight
investments, and money market accounts to be cash and cash equivalents.
INVENTORIES
Inventories consists of food, liquor, and various bowling equipment at the
lower of cost (first-in, first-out method) or market.
PROPERTY, PLANT AND EQUIPMENT
Depreciation for financial reporting is computed using the straight-line
method over the estimated useful life of the asset beginning in the year of
acquisition. Accelerated methods are used for income tax reporting. When assets
are disposed of, the related costs and accumulated depreciation are removed from
the accounts and any gain or loss is reflected in income for the period. The
installment sales method for reporting gains is used where applicable.
LEASES
Leases which meet certain criteria are classified as capital leases, and
assets and liabilities are recorded at amounts equal to the lesser of the
present value of the minimum lease payments or the fair value of the leased
properties at the beginning of the lease term. Such assets are amortized evenly
over the related lease terms or their economic lives. Interest expense relating
to the lease liabilities is recorded to effect constant rates of interest over
the terms of the leases. Leases which do not meet such criteria are classified
as operating leases and the related rentals are charged to expense as incurred.
INCOME TAXES
On September 1, 1988 the Charan Industries, Inc. elected to be taxed under
the provisions of Subchapter "S" of the Internal Revenue Code. Under those
provisions, Charan Industries, Inc. is not subject to federal corporate income
taxes, other than on certain types of transactions. The stockholders are liable
for individual federal and state income taxes on their proportionate shares of
Charan's income. Accordingly, there is no provision for income taxes for BCA &
Affiliates.
ALLOCATION OF GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses of Charan Industries, Inc. (consisting
primarily of home office payroll costs, rent, professional fees, and general
insurance) are allocated to the company on the basis of revenues, which
approximate 90% of the total amount, unless the expenses are specifically
related to either bowling or non-bowling activities. Interest expense for the
term loan is
F-107
<PAGE> 183
BCA & AFFILIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
allocated to the Company on the basis of the proportional values of the
collateralized assets between non-bowling and bowling assets. All other interest
expense is specific to the bowling operation.
EXCESS OF ASSETS OVER LIABILITIES
The excess of assets over liabilities represents the net asset value of BCA
and Affiliates. Charan Industries, Inc. and two partnerships primarily owned by
the shareholders of Charan Industries, Inc., own the equity interests in BCA and
affiliates.
NOTE 2 -- PROPERTY, PLANT AND EQUIPMENT
The estimated useful lives of the various classes of fixed assets are as
follows:
<TABLE>
<S> <C>
Buildings and building improvements............................. 31.5 years
Bowling lanes and equipment..................................... 7 years
Pinspotter equipment............................................ 7 years
Restaurant and bar equipment.................................... 7 years
Furniture, fixtures and other equipment......................... 3-7 years
Leasehold improvements.......................................... 31.5 years
</TABLE>
Property, plant and equipment consists of the following:
<TABLE>
<S> <C>
Land........................................................ $ 5,072,000
Buildings................................................... 33,533,000
Bowling lanes/pinspotters................................... 23,574,000
Other equipment............................................. 43,187,000
------------
105,366,000
Less: Accumulated depreciation.............................. (62,474,000)
------------
$ 42,892,000
============
</TABLE>
Leased property under capital leases included in property, plant and
equipment is as follows:
<TABLE>
<S> <C>
Land and buildings -- bowling properties......................... $815,000
Less: accumulated amortization................................... 268,000
--------
$547,000
========
</TABLE>
NOTE 3 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<S> <C>
Bowling properties:
various 7% - 10% debt instruments requiring monthly payments
of interest and principal maturing at various dates
through 2007............................................. $ 4,324,000
(A) Term loans:
Two term loans with independent banks. Bank prime rate
requiring quarterly payments through May, 2000........... 13,577,000
-----------
17,901,000
Less: Current portion of long-term debt....................... 17,901,000
-----------
Total............................................... $ 0
===========
</TABLE>
F-108
<PAGE> 184
BCA & AFFILIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The total long-term principal balance of $17,901,000 is classified as a
current liability since all debt attributable to bowling was repaid in October
1996. See Note 9 in connection with the sale of the Company.
(A) On May 27, 1993 Charan Industries, Inc. borrowed $35,500,000, the
proceeds of which were used for the refinancing of existing debt in the amount
of $28,675,000, with the balance used for working capital. The borrowing
consisted of two separate term loan agreements executed simultaneously with two
independent banking institutions. The principal amount of each term loan was
$23,000,000 and $12,500,000. The term notes require twenty-eight quarterly
principal payments the first of which was paid on August 31, 1993 with
succeeding quarterly installments due on the last day of each succeeding
November, February, and May thereafter until May 31, 2000 when the principal
amount of $14,200,000 shall be due and payable together with any remaining
interest. Interest is payable monthly at each bank's prime rate. The term notes
are secured by first mortgages upon certain assets. The loan agreements contain
covenants, that the Company maintain certain minimum requirements of net worth,
debt to equity ratio and certain other earnings and cash flow ratios. At August
31, 1996 the balance of $29,349,000 was allocated to BCA & Affiliates on the
basis of the collateralized assets pledged resulting in a balance outstanding to
the Company totaling $13,577,000.
NOTE 4 -- BANK LINE OF CREDIT
On May 27, 1993, Charan Industries, Inc. entered into a three-year
revolving credit agreement which enables the Company to borrow up to $5,000,000
through October 1996. Interest is payable monthly at the bank prime rate. The
note is secured by first mortgages on certain assets. The loan agreement
contains covenants requiring the Company to satisfy certain minimum requirements
of net worth, debt to equity, earnings and cash flow rates.
This facility was utilized to the extent of $4,677,000 for the year ended
August 31, 1996.
NOTE 5 -- LEASES
The Company is committed under a number of long-term leases expiring at
various dates through the year 2058. Certain operating leases contain provisions
for a percentage of gross sales to be paid as rent, should sales exceed an
agreed amount, otherwise base rents are to be paid. The agreements generally
require the payment of utilities, real estate taxes, insurance and repairs. The
following is a schedule of future minimum lease payments for all noncancellable
leases together with the present value of the net minimum lease payments for
capital leases.
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
------------------------------------------------- ---------- ----------
<S> <C> <C>
1997............................................. $ 98,000 $1,220,000
1998............................................. 98,000 1,193,000
1999............................................. 98,000 1,138,000
2000............................................. 98,000 984,000
2001............................................. 98,000 444,000
2002 and thereafter.............................. 3,990,000 4,949,000
---------- ----------
Total minimum lease payments..................... 4,480,000 $9,928,000
==========
Less imputed interest............................ 3,669,000
----------
Present value of minimum lease payments.......... $ 811,000
==========
</TABLE>
F-109
<PAGE> 185
BCA & AFFILIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Total rent expense for the years ended August 31, 1996 amounted to
$1,785,000.
NOTE 6 -- CONTINGENCIES
The Company is involved in litigation on a number of matters and is subject
to certain claims which arise in the normal course of business, none of which,
in the opinion of management, is expected to have a materially adverse effect on
the Company's financial position.
NOTE 7 -- 401(K) RETIREMENT/PROFIT SHARING PLAN
In January 1991, Charan Industries, Inc. established a 401(K) Retirement
Profit Sharing Plan. The Board of Directors established a matching contribution
equal to a maximum of 50% of the first 2% of the employee contribution. The
profit sharing plan contribution is subject to annual determination and is not
mandatory.
NOTE 8 -- OTHER ASSETS
Other assets are as follows:
<TABLE>
<S> <C>
Non-compete agreements (net)..................................... $485,000
Mortgage acquisition costs (net)................................. 53,000
Other............................................................ 75,000
--------
$613,000
========
</TABLE>
Non-compete agreements and mortgage acquisition costs are shown net of
amortization.
NOTE 9 -- SUBSEQUENT EVENTS
All of the assets of the Company were sold to AMF Bowling Centers Inc. on
October 9, 1996, under the provisions of an asset purchase agreement dated
September 10, 1996. A portion of the proceeds of the sale were used by the
Company to satisfy its outstanding debt.
F-110
<PAGE> 186
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, AMF
Bowling has agreed to sell to each of the U.S. Underwriters named below, and
each of such U.S. Underwriters, for whom Goldman Sachs, Morgan Stanley & Co.
Incorporated, Cowen & Company and Schroder & Co. Inc. are acting as
representatives, has severally agreed to purchase from AMF Bowling the
respective number of shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON
UNDERWRITER STOCK
---------------------------------------------------------------- ----------
<S> <C>
Goldman, Sachs & Co. ...........................................
Morgan Stanley & Co. Incorporated...............................
Cowen & Company.................................................
Schroder & Co. Inc..............................................
-------
Total................................................. 10,000,000
=======
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at such
price less a concession of $ per share. The U.S. Underwriters may
allow, and such dealers may reallow, a concession not in excess of $
per share to certain brokers and dealers. After the shares of Common Stock are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the representatives.
AMF Bowling has entered into an underwriting agreement (the "International
Underwriting Agreement") with the underwriters of the International Offering
(the "International Underwriters") providing for the concurrent offer and sale
of 2,500,000 shares of Common Stock in an international offering outside the
United States. The offering price and aggregate underwriting discounts and
commissions per share for the two Offerings are identical. The closing of the
offering made hereby is a condition to the closing of the International
Offering, and vice versa. The representatives of the International Underwriters
are Goldman Sachs International, Morgan Stanley & Co. International Limited,
Cowen International L.P. and J. Henry Schroder & Co. Limited.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two Offerings, each of the
U.S. Underwriters named herein has agreed that, as a part of the distribution of
the shares offered hereby and subject to certain exceptions, it will offer, sell
or deliver the shares of Common Stock, directly or indirectly, only in the
United States of America (including the States and the District of Columbia),
its territories, its possessions and other areas subject to its jurisdiction
(the "United States") and to U.S. persons, which term shall mean, for purposes
of this paragraph: (a) any individual who is a resident of the United States or
(b) any corporation, partnership or other entity organized in or under the laws
of the United States or any political subdivision thereof and whose office most
directly involved with the purchase is located in the United States. Each of the
International Underwriters has agreed pursuant to the Agreement Between that, as
a part of the distribution of the shares offered as a part of the International
Offering, and subject to certain exceptions, it will (i) not, directly or
indirectly, offer, sell
U-1
<PAGE> 187
or deliver shares of Common Stock (a) in the United States or to any U.S.
persons or (b) to any person who it believes intends to reoffer, resell or
deliver the shares in the United States or to any U.S. persons, and (ii) cause
any dealer to whom it may sell such shares at any concession to agree to observe
a similar restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall be
the initial public offering price, less an amount not greater than the selling
concession.
AMF Bowling has granted the U.S. Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of
1,500,000 additional shares of Common Stock solely to cover over-allotments, if
any. If the U.S. Underwriters exercise their over-allotment option, the U.S.
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
10,000,000 shares of Common Stock offered hereby. AMF Bowling has granted the
International Underwriters a similar option to purchase up to an aggregate of
375,000 additional shares of Common Stock.
AMF Bowling and certain of its existing stockholders (who in the aggregate
hold 44,005,000 shares of the Common Stock) have agreed that, during the period
beginning from the date of this Prospectus and continuing to and including the
date 180 days after the date of the Prospectus, they will not offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock or any
securities of AMF Bowling (other than pursuant to employee stock option plans
existing, or on the conversion or exchange of convertible or exchangeable
securities outstanding, on the date of this Prospectus) which are substantially
similar to the shares of the Common Stock or which are convertible into or
exchangeable for shares of Common Stock or any securities which are
substantially similar to the shares of the Common Stock without the prior
written consent of the representatives, except for the shares of Common Stock
offered in connection with the concurrent U.S. and International Offerings.
Prior to this offering, there has been no public market for the shares. The
initial public offering price was negotiated among AMF Bowling and the
representatives of the U.S. Underwriters and the International Underwriters.
Among the factors considered in determining the initial public offering price of
the Common Stock, in addition to prevailing market conditions, were AMF
Bowling's historical performance, estimates of the business potential and
earnings prospects of AMF Bowling, an assessment of AMF Bowling's management and
the consideration of the above factors in relation to market valuation of
companies in related businesses.
The Common Stock has been approved for listing on the NYSE under the symbol
"PIN" subject to official notice of issuance.
AMF Bowling has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act.
This Prospectus may be used by underwriters and dealers in connection with
offers and sales of the Common Stock, including shares initially sold in the
International Offering, to persons located in the United States.
In connection with the Offerings, the U.S. Underwriters may purchase and
sell the Common Stock in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover syndicate
short positions created in connection with the Offerings. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the Common Stock; and syndicate
short positions involve the sale by the U.S. Underwriters of a greater number of
shares of Common Stock than they are required to purchase from AMF Bowling in
the Offerings. The U.S. Underwriters also may impose a penalty bid, whereby
selling concessions allowed to syndicate members or other broker-dealers in
U-2
<PAGE> 188
respect of the securities sold in the Offerings for their account may be
reclaimed by the syndicate if such shares of Common Stock are repurchased by the
syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Common Stock,
which may be higher than the price that might otherwise prevail in the open
market; and these activities, if commenced, may be discontinued at any time.
These transactions may be effected on the New York Stock Exchange, in the
over-the-counter market or otherwise.
Under Rule 2720 of the National Association of Securities Dealers, Inc.
(the "NASD"), AMF Bowling may be deemed an affiliate of Goldman Sachs. The
Offerings are being conducted in accordance with Rule 2720, which provides that,
among other things, when an NASD member participates in the underwriting of an
affiliate's equity securities, the initial public offering price can be no
higher than that recommended by a "qualified independent underwriter" meeting
certain standards. In accordance with this requirement, Morgan Stanley & Co.
Incorporated has served in such role and has recommended a price in compliance
with the requirements of Rule 2720. In connection with the Offerings, Morgan
Stanley & Co. Incorporated, in its role as qualified independent underwriter,
has performed due diligence investigations and reviewed and participated in the
preparation of this Prospectus and the Registration Statement of which this
Prospectus forms a part. In addition, the U.S. Underwriters may not confirm
sales to any discretionary account without the prior written approval of the
customer.
Richard A. Friedman and Terence M. O'Toole, each of whom is a Managing
Director of Goldman Sachs, and Peter M. Sacerdote, who is a limited partner of
The Goldman Sachs Group, L.P., are directors of AMF Bowling, and Mr. Friedman is
Chairman of AMF Bowling. See "Management" and "Certain Transactions".
At the request of the Company, the Underwriters have reserved for sale, at
the initial offering price, up to 85,000 shares offered hereby for directors,
officers and employees of the Company and certain other persons designated by
the Company. The number of shares of Common Stock available for sale to the
general public will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares which are not so purchased will be offered by the
Underwriters to the general public on the same basis as the other shares offered
hereby.
U-3
<PAGE> 189
=======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR
MADE, SUCH INFORMATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT 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 ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................. 3
Forward-Looking Statements............. 3
Prospectus Summary..................... 5
Risk Factors........................... 13
Use of Proceeds........................ 18
Dividend Policy........................ 18
Capitalization......................... 19
Dilution............................... 20
Pro Forma Consolidated Financial
Statements........................... 21
Selected Financial Data................ 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 24
Business............................... 39
Management............................. 52
Principal Stockholders................. 60
Certain Transactions................... 64
Description of Capital Stock........... 65
Description of Certain Indebtedness.... 68
Shares Eligible for Future Sale........ 73
Validity of Shares..................... 74
Experts................................ 74
Index to Financial Statements.......... F-1
Underwriting........................... U-1
</TABLE>
THROUGH AND INCLUDING , 1997 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, 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
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
=======================================================
=======================================================
12,500,000 SHARES
AMF BOWLING, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------
[AMF LOGO]
------------------
GOLDMAN, SACHS & CO.
MORGAN STANLEY DEAN WITTER
COWEN & COMPANY
SCHRODER & CO. INC.
REPRESENTATIVES OF THE UNDERWRITERS
=======================================================
<PAGE> 190
Description of Artwork for Purposes of the AMF Prospectus
---------------------------------------------------------
(Front Fold-Out Cover)
Artwork depicts (i) map of AMF bowling center locations (ii) the AMF logo and
(iii) people bowling.
(Back Cover Page)
Artwork depicts AMF logo and various AMF bowling products.
<PAGE> 191
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of estimated expenses incurred in connection
with the shares of Common Stock being registered hereby, other than underwriting
discounts and commissions:
<TABLE>
<S> <C>
SEC Registration Fee.......................................... $ 91,500
NASD Filing Fee............................................... 30,500
New York Stock Exchange Listing Fee........................... 272,800
Printing and Engraving Expenses............................... 500,000
Legal Fees and Expenses....................................... 1,000,000
Accounting Fees and Expenses.................................. 200,000
Transfer Agent and Registrar Fees and Expenses................ 11,000
Blue Sky Fees and Expenses (including legal fees)............. 10,000*
Miscellaneous................................................. 333,000
----------
Total............................................... $2,448,800*
==========
</TABLE>
- ---------------
* Estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102(b)(7) of the General Corporation Law of the State of Delaware
(the "DGCL"), provides that a corporation may eliminate or limit the personal
liability of a director (or certain persons who, pursuant to the provisions of
the certificate of incorporation, exercise or perform duties conferred or
imposed upon directors by the DGCL) to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provisions may not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL
(which provides for liability of directors for unlawful payments of dividends or
unlawful stock purchases or redemptions) or (iv) for any transaction from which
the director derived an improper personal benefit. Article VIII, Section 1 of
the Company's Certificate of Incorporation limits the liability of directors
thereof to the full extent permitted by Section 102(b)(7) of the DGCL.
Under Section 145 of the DGCL, in general, a corporation may indemnify its
directors, officers, employees or agents against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties to which they may be made parties by reason of their being or
having been directors, officers, employees or agents of the corporation, if such
persons acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interest of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was unlawful. In addition, a corporation may indemnify any such person for
expenses (including attorneys' fees) actually and reasonably incurred by the
person in connection with the defense or settlement of any such action or suit
by or in the right of the corporation if the person acted in good faith and in a
manner that the person reasonably believed to be in or not opposed to the best
interests of the corporation; however, the corporation may not indemnify the
person for such expenses in a suit or action by or on behalf of the corporation
unless the Delaware Court of Chancery or the court hearing the action or
proceeding determines that the person is fairly and reasonably entitled to
indemnity for such expenses. A corporation is required to provide the foregoing
indemnity to a director if the director is successful (on the merits or
otherwise) in his or her defense of the claim or proceeding. Article VIII,
Section 2(a) of the Certificate of Incorporation
II-1
<PAGE> 192
of the Company provides that the Company shall indemnify its officers and
directors to the full extent permitted by Delaware law.
Article VIII, Section 2(a) of the Company's Certificate of Incorporation
also provides that the Company shall indemnify any such person seeking
indemnification in connection with a proceeding initiated by such person only if
such proceeding was authorized by the Board, except as otherwise provided in the
Certificate of Incorporation. Any rights to indemnification conferred in Section
2 are contract rights, and include the right to be paid by the Company the
expenses incurred in defending any such proceeding in advance of its final
disposition, except that, if the DGCL requires, the payment of such expenses
incurred by a director or officer in such capacity in advance of final
disposition shall be made only upon delivery to the Company of an undertaking by
or on behalf of such director or officer, to repay all amounts so advanced if it
is ultimately determined that such director or officer is not entitled to be
indemnified under Section 2 or otherwise. By action of the board of directors,
the Company may extend such indemnification to employees and agents of the
Company.
Section 9(b) of the Underwriting Agreement relating to the U.S. Offering
and Section 8(b) of the Underwriting Agreement relating to the International
Offering provide for indemnification by the Underwriters of directors, officers
and controlling persons of the Company against certain liabilities, including
liabilities under the Securities Act, under certain limited circumstances.
An insurance policy obtained by the Registrant provides for indemnification
of officers and directors of the Registrant and certain other persons against
liabilities and expenses incurred by any of them in certain stated proceedings
and under certain stated conditions.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information is furnished with regard to all securities sold
by the Registrant within the past three years which were not registered under
the Securities Act:
(1) Pursuant to certain subscription agreements with the Registrant,
on February 15, 1996, The Goldman Sachs Group, L.P. ("GS Group"), GS
Capital Partners II, L.P. ("GSCP II"), GS Capital Partners II Offshore,
L.P. ("GSCP Offshore"), and Goldman, Sachs & Co. Verwaltungs GmbH ("GSV")
were issued 30 shares, 292.80 shares, 116.40 shares, and 10.80 shares of
Common Stock, par value $.01 per share ("Common Stock"), respectively, in
each case for $2.67 per share in cash.
(2) In connection with a recapitalization of the Registrant, on March
19, 1996, (i) each share issued as described in the immediately preceding
paragraph was exchanged for an equivalent number of shares of Common Stock
divided by 3.75, (ii) GSCP II was issued 6,532,797.80 additional shares,
(iii) GSCP Offshore was issued 2,597,054.90 additional shares, (iv) GSV was
issued 240,963.90 additional shares, (v) Stone Street Fund 1995, L.P.
("1995 Stone") was issued 125,976.70 shares, (vi) Bridge Street Fund 1995,
L.P. ("1995 Bridge") was issued 141,760.90 shares, (vii) Stone Street Fund
1996, L.P. ("1996 Stone") was issued 215,380.80 shares and (viii) Bridge
Street Fund 1996, L.P. was issued 146,065.00 shares. The aggregate purchase
price of the shares issued as described in this paragraph was $100 million
in cash.
(3) In connection with the Acquisition and the Subscription Agreement,
(i) GSCP II was issued 16,648,611.00 additional shares of Common Stock on
May 1, 1996 and 111,865.20 additional shares on May 2, 1996 and surrendered
6,532,875.88 shares, (ii) GSCP Offshore was issued 6,618,505.20 additional
shares on May 1, 1996 and 44,471.00 additional shares on May 2, 1996 and
surrendered 2,597,085.94 shares, (iii) GSV was issued 614,088.10 additional
shares on May 1, 1996 and 4,126.20 additional shares on May 2, 1996 and
surrendered 240,966.78 shares, (iv) 1995 Stone was issued 389,191.70
additional shares on May 1, 1996 and 2,910.80 additional shares on May 2,
1996 and surrendered 125,976.70 shares, (v) 1996 Stone was issued
665,396.20 additional shares on May 1, 1996 and 4,976.50 additional shares
II-2
<PAGE> 193
on May 2, 1996 and surrendered 215,380.80 shares, (vi) 1995 Bridge was
issued 437,955.40 additional shares on May 1, 1996 and 3,275.40 additional
shares on May 2, 1996 and surrendered 141,760.90 shares, (vii) 1996 Bridge
was issued 451,252.40 additional shares on May 1, 1996 and 3,374.90
additional shares on May 2, 1996 and surrendered 146,065.00 shares, (ix)
Bain Capital Fund V-B, L.P. ("Bain 1") was issued 916,077.70 shares on May
1, 1996, (x) Bain Capital Fund V, L.P. ("Bain 2") was issued 348,472.30
shares on May 1, 1996, (xi) BCIP Associates ("Bain 3") was issued
157,110.00 shares on May 1, 1996, (xii) BCIP Trust Associates, L.P. was
issued 78,340.00 shares on May 1, 1996, (xiii) Blackstone Capital Partners
II Merchant Banking Fund, L.P. ("Blackstone 1") was issued 3,593,528.00
shares on May 1, 1996, (xiv) Blackstone Offshore Capital Partners II, L.P.
("Blackstone 2") was issued 1,050,133.00 shares on May 1, 1996, (xv)
Blackstone Family Investment Partnership L.P. was issued 356,339 shares on
May 1, 1996, (xvi) Kelso Investment Associates V, L.P. ("KIA") was issued
4,700,000.00 shares on May 1, 1996, (xvii) Kelso Equity Partners V, L.P.
("KEP") was issued 300,000.00 shares on May 1, 1996, (xviii) Citicorp North
America, Inc. ("Citicorp") was issued 300,000.00 shares on May 1, 1996 and
(xix) a director of the Registrant was issued 125,000.00 shares on May 1,
1996. The Registrant issued the shares described in this paragraph pursuant
to the Subscription Agreement for an aggregate of $279,248,800 in cash.
(4) Also in connection with the Acquisition and their respective
employment agreements, an executive officer of the Registrant and a former
officer of AMF (i) each were issued an aggregate of 150,000 shares on May
1, 1996 and May 2, 1996, in each case, for $1.5 million, comprised of
$500,000 in cash and a non-recourse promissory note for $1,000,000 and (ii)
were granted options to purchase 130,000 and 110,000 shares of Common
Stock, respectively, for $10 per share.
(5) In connection with the Acquisition, the Registrant entered into a
Warrant Agreement with an affiliate of GS Group. The Warrant Agreement
provides for the issuance of warrants (the "Warrants") to such affiliate to
purchase 870,000 shares of Common Stock at $.01 per share, subject to
adjustment, as payment of Goldman Sachs' fee for serving as financial
adviser to the prior owner of AMF in connection with the Acquisition.
(6) In connection with the Acquisition and his purchase of shares
pursuant to the Subscription Agreement, a director of the Registrant was
granted an option to purchase 100,000 shares of Common Stock at $10 per
share.
(7) In connection with his employment agreement, an executive officer
of the Registrant was issued 150,000 shares on May 28, 1996 for $500,000 in
cash and a non-recourse promissory note for $1,000,000.
(8) Pursuant to the "overcall" provisions of the Stockholders
Agreement and a stock subscription agreement, on October 9, 1996, (i) GSCP
II was issued 1,767,749.63 additional shares, (ii) GSCP Offshore was issued
702,752.93 additional shares, (iii) GSV was issued 65,203.88 additional
shares, (iv) 1996 Stone was issued 70,705.10 additional shares, (v) 1995
Stone was issued 41,355.57 additional shares, (vi) 1996 Bridge was issued
additional 47,950.14 shares, (vii) 1995 Bridge was issued 46,537.20
additional shares, (viii) Bain 1 was issued 96,366.45 additional shares,
(ix) Bain 2 was issued 37,007.32 additional shares, (x) Bain 3 was issued
24,833.22 additional shares, (xi) Blackstone 1 was issued 379,014.12
additional shares, (xii) Blackstone 2 was issued 110,758.90 additional
shares, (xiii) Blackstone Family Investment Partnership II, L.P. was issued
37,583.60 shares, (xiv) KIA was issued 495,715.22 additional shares, (xv)
KEP was issued 31,641.40 additional shares, (xvi) Citicorp was issued
31,641.40 additional shares and (xvii) a director of the Registrant was
issued 13,183.92 additional shares. The Registrant issued the shares
described in this paragraph for an aggregate of $40 million in cash.
II-3
<PAGE> 194
(9) Pursuant to the Stock Incentive Plan, options to purchase
1,418,000 shares have been granted to officers and other employees of AMF,
in each case exercisable for $10 per share. These options have not been
exercised.
(10) Pursuant to the "overcall" provisions of the Stockholders
Agreement and a stock subscription agreement, on September 10, 1997, (i)
GSCP II was issued 789,249.93 additional shares, (ii) GSCP Offshore was
issued 313,759.18 additional shares, (iii) GSV was issued 29,111.59
additional shares, (iv) 1995 Stone was issued 18,464.13 additional shares,
(v) 1996 Stone was issued 31,567.86 additional shares, (vi) 1995 Bridge was
issued 20,777.51 additional shares, (vii) 1996 Bridge was issued 21,408.42
additional shares, (viii) Bain 1 was issued 16,522.53 additional shares,
(ix) Bain 2 was issued 43,024.39 additional shares, (x) Bain 3 was issued
11,088.00 additional shares, (xi) Blackstone 1 was issued 169,219.04
additional shares, (xii) Blackstone 2 was issued 49,450.70 additional
shares, (xiii) Blackstone Family Investment Partnership II, L.P. was issued
16,780.00 shares, (xiv) KIA was issued 214,259.26 additional shares, (xv)
KEP was issued 21,190.48 additional shares and (xvi) Citicorp was issued
14,126.98 additional shares. The Registrant issued the shares described in
this paragraph for an aggregate of $35.6 million in cash, or $20.00 per
share.
(11) Pursuant to a Stock Purchase Agreement, dated as of October 20,
1997, by and between the Company and Michael J. Jordan, Mr. Jordan
purchased 100,000 shares of Common Stock for an aggregate of $1 million in
cash, or $10.00 per share. Pursuant to a Stock Option Agreement, dated as
of October 20, 1997, by and between the Company and Mr. Jordan, Mr. Jordan
was granted options to purchase 250,000 shares under the Stock Incentive
Plan, exercisable for $10 per share.
The sales described in this Item 15 were made in reliance upon the
exemption from registration set forth in Section 4(2) of the Securities Act
relating to sales by an issuer not involving any public offering. The foregoing
transactions did not involve a distribution or public offering. No underwriters
were engaged in connection with the foregoing issuance of securities and no
commissions or discounts were paid.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<C> <S>
1.1 Form of U.S. Underwriting Agreement.
2.1 Stock Purchase Agreement, dated as of February 16, 1996, by and among AMF Group
Holdings Inc. and the owners of the Predecessor Company.(1)
2.2 Agreement, dated as of April 11, 1996, by and among AMF Group Holdings Inc. and the
owners of the Predecessor Company amending certain terms of the Stock Purchase
Agreement.(2)
3.1 Restated Certificate of Incorporation of the Company.
3.2 By-Laws of the Company.
4.1 Specimen of Common Stock Certificate
4.2 Indenture, dated as of March 21, 1996, as supplemented, by and among AMF Group Inc.,
the parties listed on Exhibit C thereto, as guarantors, and IBJ Schroder Bank & Trust
Company with respect to the Senior Subordinated Notes.(3)
4.3 Indenture, dated as of March 21, 1996, as supplemented, by and among AMF Group Inc.,
the parties listed on Exhibit C thereto, as guarantors, and American Bank National
Association with respect to the Senior Subordinated Discount Notes.(4)
4.4 Form of Senior Subordinated Note.(5)
4.5 Form of Senior Subordinated Discount Note.(6)
5.1 Opinion of Wachtell, Lipton, Rosen & Katz regarding the legality of the Common Stock.
</TABLE>
II-4
<PAGE> 195
<TABLE>
<C> <S>
10.1 Registration Rights Agreement, dated as of March 21, 1996, by and among the Company,
the Guarantors and Goldman, Sachs & Co.(7)
10.2 Form of Third Amended and Restated Credit Agreement among AMF Group Inc. and the
Initial Lenders and Initial Issuing Banks and Goldman, Sachs & Co., as Syndication
Agent, and Citibank, N.A., as Administrative Agent.
10.3 AMF Holdings Inc. 1996 Stock Incentive Plan.(8)
10.4 Stockholders Agreement, dated as of April 30, 1996, by and among the Company and the
Stockholders.(9)
10.5 Amendment No. 1, dated as of May 28, 1996, to the Stockholders Agreement.**
10.6 Amendment No. 2, dated as of May 31, 1996, to the Stockholders Agreement.**
10.7 Amendment No. 3, dated as of January 17, 1997, to the Stockholders Agreement.**
10.8 Amendment No. 4, dated as of January 17, 1997, to the Stockholders Agreement.**
10.9 Amendment No. 5, dated as of July 31, 1997, to the Stockholders Agreement.**
10.10 Registration Rights Agreement, dated as of April 30, 1996, by and among the Company
and the Stockholders.(10)
10.11 Amendment No. 1, dated as of May 28, 1996, to the Registration Rights Agreement.**
10.12 Amendment No. 2, dated as of January 17, 1997, to the Registration Rights
Agreement.**
10.13 Amendment No. 3, dated as of January 17, 1997, to the Registration Rights
Agreement.**
10.14 Amendment No. 4, dated as of July 31, 1997, to the Registration Rights Agreement.**
10.15 Warrant Agreement, dated as of May 1, 1996, between the Company and The Goldman Sachs
Group, L.P.(11)
10.16 Employment Agreement, dated as of May 1, 1996, by and among the Company, AMF Bowling,
Inc. and Robert L. Morin.(12)
10.17 Employment Agreement, dated as of May 1, 1996, by and among the Company, the Company
and Douglas Stanard.(13)
10.18 Stock Option Agreement, dated as of May 1, 1996, between the Company and Charles M.
Diker.(14)
10.19 Employment Agreement, dated as of May 28, 1996, by and among the Company, AMF Group
Inc. and Stephen E. Hare.(15)
10.20 Asset Purchase Agreement, dated as of September 10, 1996, by and between AMF Bowling
Centers, Inc. and Charan Industries, Inc.(16)
10.21 Termination Agreement, dated as of February 28, 1997, by and among the Company, AMF
Bowling, Inc. and Robert L. Morin.(17)
10.22 Stock Subscription Agreement, dated as of October 9, 1996, by and among the Company
and the Purchasers (as defined therein).(18)
10.23 Agreement and Plan of Merger, dated as of January 17, 1997, by and among AMF Bowling
Centers, Inc., Noah Acquisition and American Recreation Centers, Inc.(19)
10.24 Waiver and Amendment No. 1, dated as of March 24, 1997, to Amended and Restated
Credit Agreement dated as of December 20, 1996.(20)
10.25 Amendment No. 2 to the Amended and Restated Credit Agreement, dated as of June 30,
1997.(21)
10.26 Interest Rate Cap Agreement, dated July 2, 1997.(22)
11.1 Computation of earnings per share.**
21.1 Subsidiaries of the Company.**
23.1 Consent of Arthur Andersen LLP.
</TABLE>
II-5
<PAGE> 196
<TABLE>
<C> <S>
23.2 Consent of Price Waterhouse LLP.
23.3 Consent of Todres & Sheiffer.
23.4 Consent of Wachtell, Lipton, Rosen & Katz (contained in Exhibit 5.1).
24.1 Powers of Attorney (included on Signature Page).
27.1 Financial Data Schedule.**
</TABLE>
- ---------------
** Previously filed
(1) Incorporated by reference to Exhibit 2.1 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(2) Incorporated by reference to Exhibit 2.2 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(3) Incorporated by reference to Exhibit 4.1 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(4) Incorporated by reference to Exhibit 4.2 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(5) Incorporated by reference to Exhibit 4.3 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(6) Incorporated by reference to Exhibit 4.4 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(7) Incorporated by reference to Exhibit 10.1 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(8) Incorporated by reference to Exhibit 10.3 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(9) Incorporated by reference to Exhibit 10.4 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(10) Incorporated by reference to Exhibit 10.5 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(11) Incorporated by reference to Exhibit 10.6 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(12) Incorporated by reference to Exhibit 10.7 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(13) Incorporated by reference to Exhibit 10.8 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(14) Incorporated by reference to Exhibit 10.9 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(15) Incorporated by reference to Exhibit 10.10 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(16) Incorporated by reference to Exhibit 1 to the Current report on Form 8-K of
AMF Group Inc., dated October 24, 1996 (File No. 001-12131).
(17) Incorporated by reference to Exhibit 10.12 to the Annual Report on Form
10-K of AMF Group Inc. for the fiscal year ended December 31, 1996 (File
No. 001-12131).
(18) Incorporated by reference to Exhibit 10.14 to the Annual Report on Form
10-K of AMF Group Inc. for the fiscal year ended December 31, 1996 (File
No. 001-12131).
(19) Incorporated by reference to Exhibit 1 to the Current report on Form 8-K of
AMF Group Inc., dated January 17, 1997 (File No. 001-12131).
II-6
<PAGE> 197
(20) Incorporated by reference to Exhibit 10.16 to Post-Effective Amendment No.
2 to the Registration Statement on Form S-4 of AMF Group Inc. (File No.
333-4877).
(21) Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form
10-Q of AMF Group Inc. for the quarterly period ended June 30, 1997 (File
No. 001-12131).
(22) Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form
10-Q of AMF Group Inc. for the quarterly period ended June 30, 1997 (File
No. 001-12131).
(b) Financial Statement Schedules
Schedule I -- Condensed Financial Information of AMF Bowling, Inc.
Schedule II -- AMF Bowling Group Valuation and Qualifying Accounts and Reserves
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that:
The Registrant will provide to the Underwriters at the closing
specified in the Underwriting Agreement, certificates in such denominations
and registered in such names as required by the Underwriters to permit
prompt delivery to each purchaser.
(b) The undersigned Registrant hereby undertakes that:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant as described in Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-7
<PAGE> 198
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 29th day of October, 1997.
AMF BOWLING, INC.
By: /s/ DOUGLAS J. STANARD
--------------------------------------
Name: Douglas J. Stanard
Title: President and Chief Executive
Officer
POWER OF ATTORNEY
Each of the undersigned officers and directors of AMF Bowling, Inc., a
Delaware corporation, hereby constitutes and appoints Douglas J. Stanard and
Stephen E. Hare and each of them, severally, as his attorney-in-fact and agent,
with full power of substitution and resubstitution, in his name and on his
behalf, to sign in any and all capacities this Registration Statement and any
and all amendments (including post-effective amendments) and exhibits to this
Registration Statement, any subsequent Registration Statement for the same
offering which may be filed under Rule 462(b) under the Securities Act of 1933,
as amended, and any and all amendments (including posteffective amendments) and
exhibits thereto, and any and all applications and other documents relating
thereto, with the Securities and Exchange Commission, with full power and
authority to perform and do any and all acts and things whatsoever which any
such attorney or substitute may deem necessary or advisable to be performed or
done in connection with any or all of the above-described matters, as fully as
each of the undersigned could do if personally present and acting, hereby
ratifying and approving all acts of any such attorney or substitute.
II-8
<PAGE> 199
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------ ----------------------------- ------------------
<C> <S> <C>
* Chairman and Director October 29, 1997
- ------------------------------------------
Richard A. Friedman
* Director October 29, 1997
- ------------------------------------------
Terence M. O'Toole
* Director October 29, 1997
- ------------------------------------------
Peter M. Sacerdote
* President, Chief Executive October 29, 1997
- ------------------------------------------ Officer and Director
Douglas J. Stanard
* Executive Vice President, October 29, 1997
- ------------------------------------------ Chief Financial Officer,
Stephen E. Hare and Treasurer (Principal
Financial Officer and
Principal Accounting
Officer) and Director
* Director October 29, 1997
- ------------------------------------------
Charles M. Diker
* Director October 29, 1997
- ------------------------------------------
Paul B. Edgerley
Director
- ------------------------------------------
Howard A. Lipson
* Director October 29, 1997
- ------------------------------------------
Thomas R. Wall IV
*By: /s/ DOUGLAS J. STANARD
- ------------------------------------------
Attorney-In-Fact
</TABLE>
II-9
<PAGE> 200
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE I
To the Board of Directors of
AMF Bowling, Inc.:
We have audited in accordance with generally accepted auditing standards the
consolidated financial statements of AMF Bowling, Inc. (formerly named AMF
Holdings Inc.) and subsidiaries included in the Pre-Effective Amendment No. 2 to
the Registration Statement on Form S-1 (the "Registration Statement") for the
period from inception (January 12, 1996) through December 31, 1996, and have
issued our report thereon dated February 28, 1997. Our audit was made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. Schedule I filed as part of the Registration Statement is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. The schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Richmond, Virginia
February 28, 1997
S-1
<PAGE> 201
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF AMF BOWLING, INC.
BALANCE SHEET
AS OF DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Investment in subsidiary......................................................... $ 408,734
Other noncurrent assets.......................................................... 137
---------
Total assets................................................................ $ 408,871
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Total current liabilities........................................................ $ 56
---------
Stockholders' equity............................................................. 408,815
---------
Total liabilities and stockholders' equity.................................. $ 408,871
=========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
S-2
<PAGE> 202
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF AMF BOWLING, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1996 (NOTE 3)
(IN THOUSANDS)
<TABLE>
<S> <C>
Other income................................................................... $ 137
Provision for income taxes..................................................... 56
---------
Income before equity in loss of subsidiary..................................... 81
Equity in loss of subsidiary................................................... (19,565)
---------
Net loss....................................................................... $ (19,484)
=========
</TABLE>
The accompanying notes are an integral part of this financial statement.
S-3
<PAGE> 203
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF AMF BOWLING, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED DECEMBER 31, 1996 (NOTE 3)
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.................................................................... $ (19,484)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Interest income on notes receivable.................................... (137)
Equity in loss of subsidiary........................................... 19,565
Changes in current liabilities......................................... 56
---------
Net cash provided by operating activities.............................. --
Net cash used in investing activities:
Investment in subsidiary.................................................... (420,750)
Net cash provided by financing activities:
Capital contributions....................................................... 420,750
---------
Net change in cash..................................................... --
Cash and cash equivalents at beginning of period....................... --
---------
Cash and cash equivalents at end of period............................. $ --
=========
</TABLE>
The accompanying notes are an integral part of this financial statement.
S-4
<PAGE> 204
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF AMF BOWLING, INC.
NOTES TO AMF BOWLING, INC. FINANCIAL STATEMENTS
1. The Notes to AMF Bowling, Inc. ("AMF Bowling") financial statements should be
read in conjunction with the Notes to Consolidated Financial Statements of
AMF Bowling and its subsidiaries as of December 31, 1996 included in this
Pre-Effective Amendment No. 1 to the Registration Statement on Form S-1 (the
"Registration Statement"). AMF Group Holdings Inc. ("AMF Group Holdings") is
a wholly owned subsidiary of AMF Bowling. AMF Bowling Worldwide, Inc.,
formerly named AMF Group Inc. ("Bowling Worldwide"), is a wholly owned
subsidiary of AMF Group Holdings.
2. The Notes are jointly and severally guaranteed on a full and unconditional
basis by AMF Group Holdings and by the first and second-tier subsidiaries of
Bowling Worldwide, as discussed in "Note 20. Consolidating Financial
Statements".
3. The results of operations for the period ended December 31, 1996, reflect the
results of AMF Bowling since its inception date of January 12, 1996. All
dollar amounts are in thousands, except where otherwise indicated.
4. Restricted assets of AMF Group Holdings and Bowling Worldwide:
The Bank Credit Agreement and AMF Group Holdings' guarantee contain certain
covenants, including, but not limited to, covenants related to cash
interest coverage, fixed charge coverage, payments on other debt, mergers
and acquisitions, sales of assets, guarantees and investments. The Bank
Credit Agreement also contains certain provisions which limit the amount of
funds available for transfer from Bowling Worldwide to AMF Group Holdings,
and from AMF Group Holdings to AMF Bowling. Limits exist on, among other
things, the declaration or payment of dividends, distribution of assets,
and issuance or sale of capital stock.
So long as Bowling Worldwide is not in default of the covenants contained
in the Bank Credit Agreement, it may, i) declare and pay dividends in
common stock; ii) declare and pay cash dividends to the extent necessary to
make payments of approximately $0.15 million due in May 1997 under certain
noncompete agreements with the Prior Owners; iii) declare and pay cash
dividends for general administrative expenses not to exceed $0.25 million;
and iv) declare and pay cash dividends not to exceed $2.0 million for the
repurchase of Common Stock.
S-5
<PAGE> 205
SCHEDULE II
AMF BOWLING GROUP
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------- ---------- --------------------------- ----------- ----------
ADDITIONS
---------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS -- END OF
DESCRIPTION OF PERIOD EXPENSES -- DESCRIBE WRITE-OFFS PERIOD
- ----------------------------------- ---------- ---------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
ACCOUNTS RECEIVABLE - ALLOWANCE
FOR DOUBTFUL ACCOUNTS
Year ended December 31,
1995.......................... $1,898 $2,118 $ (643) $3,373
1994.......................... 1,$793... $ 886 $ (781) $1,898
Four months ended April 30,
1996.......................... $3,373 $ (17) $ (246) $3,110
INVENTORY - RESERVES
Year ended December 31,
1995.......................... $ 800 $ 954 $ (498) $1,256
1994.......................... $ 769 $1,080 $(1,049) $ 800
Four months ended April 30,
1996.......................... $1,256 $ 104 $ (553) $ 807
</TABLE>
S-6
<PAGE> 206
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------ ------------
<C> <S> <C>
1.1 Form of U.S. Underwriting Agreement.
2.1 Stock Purchase Agreement, dated as of February 16, 1996, by and among
AMF Group Holdings Inc. and the owners of the Predecessor Company.(1)
2.2 Agreement, dated as of April 11, 1996, by and among AMF Group Holdings
Inc. and the owners of the Predecessor Company amending certain terms of
the Stock Purchase Agreement.(2)
3.1 Restated Certificate of Incorporation of the Company.
3.2 By-Laws of the Company.
4.1 Specimen of Common Stock Certificate
4.2 Indenture, dated as of March 21, 1996, as supplemented, by and among AMF
Group Inc., the parties listed on Exhibit C thereto, as guarantors, and
IBJ Schroder Bank & Trust Company with respect to the Senior
Subordinated Notes.(3)
4.3 Indenture, dated as of March 21, 1996, as supplemented, by and among AMF
Group Inc., the parties listed on Exhibit C thereto, as guarantors, and
American Bank National Association with respect to the Senior
Subordinated Discount Notes.(4)
4.4 Form of Senior Subordinated Note.(5)
4.5 Form of Senior Subordinated Discount Note.(6)
5.1 Opinion of Wachtell, Lipton, Rosen & Katz regarding the legality of the
Common Stock.
10.1 Registration Rights Agreement, dated as of March 21, 1996, by and among
the Company, the Guarantors and Goldman, Sachs & Co.(7)
10.2 Form of Third Amended and Restated Credit Agreement among AMF Group Inc.
and the Initial Lenders and Initial Issuing Banks and Goldman, Sachs &
Co., as Syndication Agent, and Citibank, N.A., as Administrative Agent.
10.3 AMF Holdings Inc. 1996 Stock Incentive Plan.(8)
10.4 Stockholders Agreement, dated as of April 30, 1996, by and among the
Company and the Stockholders.(9)
10.5 Amendment No. 1, dated as of May 28, 1996, to the Stockholders
Agreement.**
10.6 Amendment No. 2, dated as of May 31, 1996, to the Stockholders
Agreement.**
10.7 Amendment No. 3, dated as of January 17, 1997, to the Stockholders
Agreement.**
10.8 Amendment No. 4, dated as of January 17, 1997, to the Stockholders
Agreement.**
10.9 Amendment No. 5, dated as of July 31, 1997, to the Stockholders
Agreement.**
10.10 Registration Rights Agreement, dated as of April 30, 1996, by and among
the Company and the Stockholders.(10)
10.11 Amendment No. 1, dated as of May 28, 1996, to the Registration Rights
Agreement.**
</TABLE>
<PAGE> 207
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------ ------------
<C> <S> <C>
10.12 Amendment No. 2, dated as of January 17, 1997, to the Registration
Rights Agreement.**
10.13 Amendment No. 3, dated as of January 17, 1997, to the Registration
Rights Agreement.**
10.14 Amendment No. 4, dated as of July 31, 1997, to the Registration Rights
Agreement.**
10.15 Warrant Agreement, dated as of May 1, 1996, between the Company and The
Goldman Sachs Group, L.P.(11)
10.16 Employment Agreement, dated as of May 1, 1996, by and among the Company,
AMF Bowling, Inc. and Robert L. Morin.(12)
10.17 Employment Agreement, dated as of May 1, 1996, by and among the Company,
the Company and Douglas Stanard.(13)
10.18 Stock Option Agreement, dated as of May 1, 1996, between the Company and
Charles M. Diker.(14)
10.19 Employment Agreement, dated as of May 28, 1996, by and among the
Company, AMF Group Inc. and Stephen E. Hare.(15)
10.20 Asset Purchase Agreement, dated as of September 10, 1996, by and between
AMF Bowling Centers, Inc. and Charan Industries, Inc.(16)
10.21 Termination Agreement, dated as of February 28, 1997, by and among the
Company, AMF Bowling, Inc. and Robert L. Morin.(17)
10.22 Stock Subscription Agreement, dated as of October 9, 1996, by and among
the Company and the Purchasers (as defined therein).(18)
10.23 Agreement and Plan of Merger, dated as of January 17, 1997, by and among
AMF Bowling Centers, Inc., Noah Acquisition and American Recreation
Centers, Inc.(19)
10.24 Waiver and Amendment No. 1, dated as of March 24, 1997, to Amended and
Restated Credit Agreement dated as of December 20, 1996.(20)
10.25 Amendment No. 2 to the Amended and Restated Credit Agreement, dated as
of June 30, 1997.(21)
10.26 Interest Rate Cap Agreement, dated July 2, 1997.(22)
11.1 Computation of earnings per share.**
21.1 Subsidiaries of the Company.**
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Price Waterhouse LLP.
23.3 Consent of Todres & Sheiffer.
23.4 Consent of Wachtell, Lipton, Rosen & Katz (contained in Exhibit 5.1).
24.1 Powers of Attorney (included on Signature Page).
27.1 Financial Data Schedule.**
</TABLE>
- ---------------
** Previously filed
(1) Incorporated by reference to Exhibit 2.1 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(2) Incorporated by reference to Exhibit 2.2 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(3) Incorporated by reference to Exhibit 4.1 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
<PAGE> 208
(4) Incorporated by reference to Exhibit 4.2 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(5) Incorporated by reference to Exhibit 4.3 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(6) Incorporated by reference to Exhibit 4.4 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(7) Incorporated by reference to Exhibit 10.1 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(8) Incorporated by reference to Exhibit 10.3 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(9) Incorporated by reference to Exhibit 10.4 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(10) Incorporated by reference to Exhibit 10.5 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(11) Incorporated by reference to Exhibit 10.6 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(12) Incorporated by reference to Exhibit 10.7 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(13) Incorporated by reference to Exhibit 10.8 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(14) Incorporated by reference to Exhibit 10.9 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(15) Incorporated by reference to Exhibit 10.10 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(16) Incorporated by reference to Exhibit 1 to the Current report on Form 8-K of
AMF Group Inc., dated October 24, 1996 (File No. 001-12131).
(17) Incorporated by reference to Exhibit 10.12 to the Annual Report on Form
10-K of AMF Group Inc. for the fiscal year ended December 31, 1996 (File
No. 001-12131).
(18) Incorporated by reference to Exhibit 10.14 to the Annual Report on Form
10-K of AMF Group Inc. for the fiscal year ended December 31, 1996 (File
No. 001-12131).
(19) Incorporated by reference to Exhibit 1 to the Current report on Form 8-K of
AMF Group Inc., dated January 17, 1997 (File No. 001-12131).
(20) Incorporated by reference to Exhibit 10.16 to Post-Effective Amendment No.
2 to the Registration Statement on Form S-4 of AMF Group Inc. (File No.
333-4877).
(21) Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form
10-Q of AMF Group Inc. for the quarterly period ended June 30, 1997 (File
No. 001-12131).
(22) Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form
10-Q of AMF Group Inc. for the quarterly period ended June 30, 1997 (File
No. 001-12131).
(b) Financial Statement Schedules
Schedule I -- Condensed Financial Information of AMF Bowling, Inc.
Schedule II -- AMF Bowling Group Valuation and Qualifying Accounts and Reserves
<PAGE> 1
EXHIBIT 1.1
AMF BOWLING, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
----------------------
UNDERWRITING AGREEMENT
(U.S. VERSION)
................., 1997
Goldman, Sachs & Co.,
Morgan Stanley & Co. Incorporated,
Cowen & Company,
Schroder & Co. Inc.,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
AMF Bowling, Inc., a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
10,000,000 shares (the "Firm Shares") and, at the election of the Underwriters,
up to 1,500,000 additional shares (the "Optional Shares") of Common Stock, par
value $.01 per share ("Stock"), of the Company (the Firm Shares and the Optional
Shares that the Underwriters elect to purchase pursuant to Section 2 hereof
being collectively called the "Shares"). As part of the offering contemplated by
this Agreement, Morgan Stanley & Co. Incorporated ("Morgan Stanley") has agreed
to reserve out of the Shares set forth opposite its name on Schedule I to this
Agreement up to 85,000 shares for sale to the Company's employees, officers,
directors and certain other individuals designated by the Company (collectively,
"Participants"), as set forth in the Prospectus (as defined below) under the
heading "Underwriting" (the "Directed Share Program"). The Shares to be sold by
Morgan Stanley pursuant to the Directed Share Program (the "Directed Shares")
will be sold by Morgan Stanley pursuant to this Agreement at the public offering
price. Any Directed Shares not orally confirmed for purchase by any Participants
by the end of the first business day after the date on which this Agreement is
executed will be offered to the public by Morgan Stanley as set forth in the
Prospectus.
It is understood and agreed to by all parties that the Company is
concurrently entering into an agreement (the "International Underwriting
Agreement") providing for the sale by the Company of up to a total of 2,875,000
shares of Stock (the "International Shares"), including the overallotment option
thereunder, through arrangements with certain underwriters outside the United
States (the "International Underwriters"), for whom Goldman Sachs International,
Morgan Stanley & Co. International Limited, Cowen International L.P. and J.
Henry Schroder & Co. Limited are acting as lead managers. Anything herein or
therein to the contrary notwithstanding, the respective closings under this
Agreement and the International Agreement are hereby expressly made conditional
on one another. The Underwriters hereunder and the International Underwriters
are simultaneously entering into an Agreement between U.S. and International
Underwriting Syndicates (the "Agreement between Syndicates") which provides,
among other things, for the transfer of shares of Stock between the two
syndicates. Two forms of prospectus are to be used in connection with the
<PAGE> 2
offering and sale of shares of Stock contemplated by the foregoing, one relating
to the Shares hereunder and the other relating to the International Shares. The
latter form of prospectus will be identical to the former except for certain
substitute pages. Except as used in Sections 2, 4, 5, 12 and 14 herein, and
except as the context may otherwise require, references hereinafter to the
Shares shall include all of the shares of Stock which may be sold pursuant to
either this Agreement or the International Underwriting Agreement, and
references herein to any prospectus whether in preliminary or final form, and
whether as amended or supplemented, shall include both the U.S. and the
international versions thereof.
1. The Company represents and warrants to, and agrees with, each
of the Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-34099)
(as amended by any pre-effective amendments, the "Initial Registration
Statement") in respect of the Shares has been filed with the Securities
and Exchange Commission (the "Commission"); the Initial Registration
Statement and any post-effective amendment thereto, each in the form
heretofore delivered to you, and, excluding exhibits thereto, to you
for each of the other Underwriters, have been declared effective by the
Commission in such form; other than a registration statement, if any,
increasing the size of the offering (a "Rule 462(b) Registration
Statement"), filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended (the "Act"), which became effective upon filing, no
other document with respect to the Initial Registration Statement has
heretofore been filed with the Commission; and no stop order suspending
the effectiveness of the Initial Registration Statement, any
post-effective amendment thereto or the Rule 462(b) Registration
Statement, if any, has been issued and no proceeding for that purpose
has been initiated or threatened by the Commission (any preliminary
prospectus included in the Initial Registration Statement or filed with
the Commission pursuant to Rule 424(a) of the rules and regulations of
the Commission under the Act is hereinafter called a "Preliminary
Prospectus"; the various parts of the Initial Registration Statement
and the Rule 462(b) Registration Statement, if any, including all
exhibits thereto and including the information contained in the form of
final prospectus filed with the Commission pursuant to Rule 424(b)
under the Act in accordance with Section 6(a) hereof and deemed by
virtue of Rule 430A under the Act to be part of the Initial
Registration Statement at the time it was declared effective, each as
amended at the time such part of the registration statement became
effective or such part of the Rule 462(b) Registration Statement, if
any, became or hereafter becomes effective, are hereinafter
collectively called the "Registration Statement"; and such final
prospectus, in the form first filed pursuant to Rule 424(b) under the
Act, is hereinafter called the "Prospectus");
(b) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and each
Preliminary Prospectus, at the time of filing thereof, conformed in all
material respects to the requirements of the Act and the rules and
regulations of the Commission thereunder, and did not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon
and in conformity with information furnished in writing to the Company
by an Underwriter through Goldman, Sachs & Co. expressly for use
therein;
(c) The Registration Statement conforms, and the Prospectus
and any further amendments or supplements to the Registration Statement
or the Prospectus will conform, in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder and do not and will not, as of the applicable effective date
as to the Registration Statement and any amendment thereto and as of
the applicable filing date as to the Prospectus and any amendment or
supplement thereto, contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided,
however, that this representation and warranty shall not apply to any
2
<PAGE> 3
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter
through Goldman, Sachs & Co. expressly for use therein;
(d) Neither the Company nor any of its subsidiaries has
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental
action, order or decree, which would, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the general
affairs, management, properties, financial position, stockholders'
equity, results of operations or prospects of the Company and its
subsidiaries taken as a whole (a "Material Adverse Effect"), otherwise
than as set forth or contemplated in the Prospectus; and, since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, there has not been any change in the
capital stock, short-term debt or long-term debt of the Company or any
of its subsidiaries or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, properties,
stockholders' equity or results of operations of the Company and its
subsidiaries taken as a whole, otherwise than as set forth or
contemplated in the Prospectus;
(e) Each of the Company and each of its subsidiaries has good
and marketable title in fee simple to all real property and good and
marketable title to all personal property owned by it, in each case
free and clear of all liens, encumbrances and defects except such as
are described in the Prospectus or such as would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse
Effect and do not interfere with the use made and proposed to be made
of such property by the Company or any of its subsidiaries; and any
real property and buildings held under lease by the Company or any of
its subsidiaries are held by it under valid, subsisting and enforceable
leases with such exceptions as would not, individually or in the
aggregate, reasonably be expected, to have a Material Adverse Effect
and do not interfere with the use made and proposed to be made of such
property and buildings by the Company or any of its subsidiaries;
(f) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus, and
has been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties or conducts any
business so as to require such qualification, except for such failure
to be so qualified or in good standing as would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse
Effect;
(g) Each subsidiary of the Company has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, with power and authority
(corporate and other) to own its properties and conduct its business as
described in the Prospectus, and has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties or conducts any business so as to require such
qualification, except for such failure to be so qualified or in good
standing as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect;
(h) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully
paid and non-assessable and conform to the description of the Stock
contained in the Prospectus; and all of the issued shares of capital
stock of each subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and are owned
directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims,
3
<PAGE> 4
except the pledge of the shares of certain subsidiaries of the Company
as collateral security for the obligations of AMF Bowling Worldwide,
Inc., a Delaware Corporation and indirect wholly owned subsidiary of
the Company ("AMF Bowling Worldwide") pursuant to the Second Amended
and Restated Credit Agreement, dated as of June 30, 1997, among AMF
Bowling Worldwide, the lenders parties thereto, Goldman Sachs Credit
Partners L.P. and Citicorp Securities, Inc., as Arrangers, Goldman
Sachs Credit Partners L.P., as Syndication Agent, Citibank, N.A., as
Administrative Agent, and Citicorp USA, Inc., as Collateral Agent, as
in effect on the date hereof (the "Second Amended and Restated Credit
Agreement") and as amended and restated as the Third Amended and
Restated Credit Agreement, dated as of November 3, 1997, among AMF
Bowling Worldwide, such lenders and such agents (the "Third Amended and
Restated Credit Agreement"); and except as set forth in the Prospectus,
there are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens related to
or entitling any person to purchase or otherwise to acquire any shares
of the capital stock of, or other ownership interest in, the Company or
any of its subsidiaries;
(i) The unissued Shares to be issued and sold by the Company
to the Underwriters hereunder and under the International Underwriting
Agreement have been duly and validly authorized and, when issued and
delivered against payment therefor as provided herein and in the
International Underwriting Agreement, will be duly and validly issued
and fully paid and non-assessable and will conform to the description
of the Stock contained in the Prospectus;
(j) Each of the Company and each of the subsidiaries of the
Company listed on the signature pages hereof (the "Designated
Subsidiaries") has all requisite corporate power and authority to
execute, deliver and perform their obligations under this Agreement and
the International Underwriting Agreement and to consummate the
transactions contemplated hereby and thereby, including without
limitation, in the case of the Company, the corporate power and
authority to issue, sell and deliver the Shares, as provided herein and
therein;
(k) The issue and sale of the Shares by the Company hereunder
and under the International Underwriting Agreement and the compliance
by the Company and each of the Designated Subsidiaries with all of the
provisions of this Agreement and the International Underwriting
Agreement and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation
of any of the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, sale/leaseback agreement, loan
agreement or other similar financing agreement or instrument or other
agreement or instrument to which the Company, any Designated Subsidiary
or any of their respective subsidiaries is a party or by which the
Company, any Designated Subsidiary or any of their respective
subsidiaries is bound or to which any of the property or assets of the
Company, any Designated Subsidiary or any of their respective
subsidiaries is subject, which conflict, breach, violation or default
could, individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect, nor will such action result in any violation
of the provisions of the Certificate of Incorporation, By-laws or other
organizational documents of the Company, any Designated Subsidiary or
any of their respective subsidiaries or any statute or any order, rule
or regulation of any court or governmental agency or body having
jurisdiction over the Company, any Designated Subsidiary or any of
their respective subsidiaries or any of their properties; and no
consent, approval, authorization, order, registration or qualification
of or with any such court or governmental agency or body is required
for the issue and sale of the Shares or the consummation by the Company
or any Designated Subsidiary of the transactions contemplated by this
Agreement and the International Underwriting Agreement, except (i) the
registration under the Act of the Shares and such consents, approvals,
authorizations, registrations or qualifications as may be required
under state securities or Blue Sky laws in connection with the purchase
and distribution of the Shares by the Underwriters and the
International Underwriters and (ii) such consents, approvals,
authorizations, registrations or qualifications as may
4
<PAGE> 5
be required to permit the Company to retain its existing liquor and
gaming, lottery and gambling licenses;
(l) Each of the Company and each of its subsidiaries has
complied in all respects with all laws, regulations and orders
applicable to it or its businesses the violation of which would have a
Material Adverse Effect;
(m) Neither the Company nor any of its subsidiaries is (i) in
violation of its Certificate of Incorporation, By-laws or other
organizational documents or (ii) in default in the performance or
observance of any obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement,
sale/leaseback agreement, lease or other agreement or instrument to
which it is a party or by which it or any of its properties may be
bound, which default would, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect;
(n) Except as would not, individually or in the aggregate,
have a Material Adverse Effect, (i) each of the Company and each of its
subsidiaries has all certificates, consents, exemptions, orders,
permits, licenses, authorizations or other approvals (each, an
"Authorization") of and from, and has made all declarations and filings
with, all Federal, state, local and other governmental authorities, all
self-regulatory organizations and all courts and other tribunals,
necessary or required to engage in the business currently conducted by
it in the manner described in the Prospectus; (ii) all Authorizations
required pursuant to clause (i) of this paragraph are valid and in full
force and effect; and (iii) each of the Company and each of its
subsidiaries is in compliance in all material respects with the terms
and conditions of all such Authorizations and with the rules and
regulations of the regulatory authorities and governing bodies having
jurisdiction with respect thereto;
(o) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport to
constitute a summary of the terms of the Stock, under the caption
"Certain United States Federal Tax Consequences to Non-United States
Holders of Common Stock" in the prospectus relating to the
International Shares, and under the captions "Certain Transactions",
"Description of Certain Indebtedness" and "Underwriting", insofar as
they purport to describe the provisions of the laws and documents
referred to therein, are accurate in all material respects and
represent a fair summary of such laws and documents;
(p) Other than as set forth or contemplated in the Prospectus,
there are no legal or governmental proceedings pending to which the
Company or any of its subsidiaries is a party or of which any property
of the Company or any of its subsidiaries is the subject which,
individually or in the aggregate, could reasonably be expected to have
a Material Adverse Effect, would interfere with or adversely affect the
issuance and sale of the Shares or would affect the validity of this
Agreement or the International Underwriting Agreement; and, to the best
of the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(q) Neither the Company nor any of its subsidiaries is and,
after giving effect to the offering and sale of the Shares, neither the
Company nor any of its subsidiaries will be an "investment company" or
an entity "controlled" by an "investment company", as such terms are
defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act");
(r) The consolidated historical financial statements, together
with related schedules and notes, set forth in the Prospectus fairly
present, in all material respects, the consolidated financial position
and condition of the Company and its subsidiaries at the respective
dates indicated and the results of their operations and their cash
flows for the respective periods indicated, in accordance with United
States generally accepted accounting principles consistently applied
throughout such periods. The pro forma financial statements contained
in the Prospectus have been prepared on a
5
<PAGE> 6
basis consistent with such historical statements, except for the pro
forma adjustments specified therein, and give effect to assumptions
made on a reasonable basis and present fairly, in all material respects
and in accordance with such assumptions, the historical and proposed
transactions described in the Prospectus or contemplated by this
Agreement or the International Underwriting Agreement. The other
financial information and data included in the Prospectus, historical
and pro forma, are, in all material respects, accurately presented and
prepared on a basis consistent with such financial statements and the
books and records of the Company and its subsidiaries;
(s) Except as set forth in the Prospectus, neither the Company
or any of its subsidiaries has violated any applicable existing
federal, state, local or international laws and regulations relating to
protection of human health or the environment or imposing liability or
standards of conduct concerning any Hazardous Material ("Environmental
Laws"); lacks any permits, licenses or other approvals required of it
under applicable Environmental Laws; or is violating any term or
condition of any such permit, license or approval, except, in each
case, for any instances of violation, lack or noncompliance that,
either individually or in the aggregate, would not have a Material
Adverse Effect. The term "Hazardous Material" means (i) any "hazardous
substance" as defined by the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, (ii) any "hazardous
waste" as defined by the Resource Conservation and Recovery Act, as
amended, (iii) any petroleum or petroleum product, (iv) any
polychlorinated biphenyl, and (v) any pollutant or contaminant or
hazardous, dangerous or toxic chemical, material, waste or substance
regulated under or within the meaning of any other law relating to
protection of human health or the environment or imposing liability or
standards of conduct concerning any such chemical material, waste or
substance;
(t) Each of the Company and each of its subsidiaries owns or
possesses or has the right to use the patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names
(collectively, the "Intellectual Property") presently employed by it in
connection with, and material to, individually or in the aggregate, the
operation of the businesses now operated by it, and, except as
described in the Prospectus, none of the Company or any of its
subsidiaries has received any notice of infringement of or conflict
with asserted rights of others with respect to the foregoing which,
individually or in the aggregate, would reasonably be expected to
result in a Material Adverse Effect. The use of such Intellectual
Property in connection with the business and operations of the Company
and each of its subsidiaries does not infringe on the rights of any
person, except any such infringements that, individually or in the
aggregate, would not result in a Material Adverse Effect;
(u) All tax returns required to be filed by the Company or any
of its subsidiaries in any jurisdiction have been timely and duly
filed, other than those filings being contested in good faith, except
where the failure to so file any such returns, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect. There are no tax returns of the Company or any of its
subsidiaries that are currently being audited by state, local or
federal taxing authorities or agencies (and with respect to which the
Company or any of its subsidiaries has received notice), where the
findings of such audit would reasonably be expected to result in a
Material Adverse Effect. All taxes, including withholding taxes,
penalties and interest, assessments, fees and other charges due or
claimed to be due from such entities have been paid, other than those
being contested in good faith and for which adequate reserves have been
provided or those currently payable without penalty or interest and
other than those that are not material or that would not result in a
Material Adverse Effect;
(v) Each of the Company and each of its subsidiaries maintains
insurance covering its properties, operations, personnel and businesses
which insures against such losses and risks as are adequate in
accordance with its reasonable business judgment to protect the Company
and each
6
<PAGE> 7
of its subsidiaries and their businesses. None of the Company or any of
its subsidiaries has received notice from any insurer or agent of such
insurer that substantial capital improvements or other expenditures
will have to be made in order to continue such insurance. All such
insurance is outstanding and duly in force on the date hereof and will
be outstanding and duly in force at each Time of Delivery, except for
any failures to be so in force as would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse
Effect;
(w) No labor dispute with the employees of the Company or any
of its subsidiaries exists or, to the knowledge of the Company or any
of its subsidiaries, is imminent except any such disputes as could not,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect; and neither the Company nor or any of its
subsidiaries is aware of any existing or imminent labor disturbance by
the employees of any of its principal suppliers, manufacturers or
contractors which could reasonably be expected to result in a Material
Adverse Effect;
(x) There are no holders of securities of the Company or any
of its subsidiaries who, by reason of the execution of this Agreement
or the International Underwriting Agreement by the Company or any of
its subsidiaries, as the case may be, or the consummation of the
transactions contemplated hereby and thereby, have the right to request
or demand the Company or any of its subsidiaries to register under the
Act or analogous foreign laws and regulations any securities held by
them, except (i) the Registration Rights Agreement, dated as of March
21, 1996, by and among the Company, certain guarantors of the
securities referred to therein and Goldman, Sachs & Co., and (ii) the
Registration Rights Agreement, dated as of April 30, 1996, by and among
the Company and certain of its stockholders as of such date, as amended
to the date hereof; and
(y) Each of Arthur Andersen LLP, who have certified certain
financial statements of the Company and its subsidiaries, Price
Waterhouse LLP, who have certified certain financial statements of the
predecessor to the Company and its subsidiaries and of Fair Lanes, Inc.
and its subsidiaries, and Todres & Scheiffer, who have certified
certain financial statements of Charan Industries, Inc., are
independent public accountants as required by the Act and the rules and
regulations of the Commission thereunder.
Furthermore, the Company represents and warrants to Morgan Stanley that
(i) the Registration Statement, the Prospectus and any preliminary prospectus
comply, and any further amendments or supplements thereto will comply, with any
applicable laws or regulations of foreign jurisdictions in which the Prospectus
or any preliminary prospectus, as amended, or supplemented, if applicable, are
distributed in connection with the Directed Share Program, and (ii) no
authorization, approval, consent, license, order, registration or qualification
of or with any government, governmental instrumentality or court, other than
such as have been obtained, is necessary under the securities laws and
regulations of foreign jurisdictions in which the Directed Shares are offered
outside the United States.
2. Subject to the terms and conditions herein set forth, (a) the
Company agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $........................, the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I hereto and
(b) in the event and to the extent that the Underwriters shall exercise the
election to purchase Optional Shares as provided below, the Company agrees to
issue and sell to each of the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company, at the purchase price
per share set forth in clause (a) of this Section 2, that portion of the number
of Optional Shares as to which such election shall have been exercised (to be
adjusted by you so as to eliminate fractional shares) determined by multiplying
such number of Optional Shares by a fraction, the numerator of which is the
maximum number of Optional Shares which such Underwriter is entitled to purchase
as set forth opposite the name of such Underwriter in Schedule I hereto and the
denominator of which is the maximum number of Optional Shares that all of the
Underwriters are entitled to purchase hereunder.
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<PAGE> 8
The Company hereby grants to the Underwriters the right to purchase at
their election up to 1,500,000 Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement,
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 5
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
3. The Company hereby confirms its engagement of Morgan Stanley as, and
Morgan Stanley hereby confirms its agreement with the Company to render services
as, a "qualified independent underwriter" within the meaning of Section 2(o) of
Rule 2720 of the National Association of Securities Dealers, Inc. (the "NASD")
with respect to the offering and sale of the Shares. Morgan Stanley in its
capacity as qualified independent underwriter and not otherwise, is referred to
herein as the "QIU".
4. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
5. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in
such names as Goldman, Sachs & Co. may request upon at least
forty-eight hours' prior notice to the Company, shall be delivered by
or on behalf of the Company to Goldman, Sachs & Co., for the account of
such Underwriter, against payment by or on behalf of such Underwriter
of the purchase price therefor by certified or official bank check or
checks, payable to the order of the Company in Federal (same day)
funds. The Company will cause the certificates representing the Shares
to be made available for checking and packaging at least twenty-four
hours prior to the Time of Delivery (as defined below) with respect
thereto at the office of Goldman, Sachs & Co., 85 Broad Street, New
York, New York 10004 (the "Designated Office"). The time and date of
such delivery and payment shall be, with respect to the Firm Shares,
9:30 a.m., New York City time, on ............., 1997 or such other
time and date as Goldman, Sachs & Co. and the Company may agree upon in
writing, and, with respect to the Optional Shares, 9:30 a.m., New York
City time, on the date specified by Goldman, Sachs & Co. in the written
notice given by Goldman, Sachs & Co. of the Underwriters' election to
purchase such Optional Shares, or such other time and date as Goldman,
Sachs & Co. and the Company may agree upon in writing. Such time and
date for delivery of the Firm Shares is herein called the "First Time
of Delivery", such time and date for delivery of the Optional Shares,
if not the First Time of Delivery, is herein called the "Second Time of
Delivery", and each such time and date for delivery is herein called a
"Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by
or on behalf of the parties hereto pursuant to Section 8 hereof,
including the cross receipt for the Shares and any additional documents
reasonably requested by the Underwriters pursuant to Section 8(j)
hereof, will be delivered at the offices of Sullivan & Cromwell, 125
Broad Street, New York, New York 10004 (the "Closing Location"), and
the Shares will be delivered at the Designated Office, all at such Time
of Delivery. A meeting will be held at the Closing Location at
.......p.m., New York City time, on the New York Business Day next
preceding such Time of Delivery, at which meeting the final drafts of
the documents to be delivered pursuant to the preceding sentence will
be available for review by the parties hereto. For the purposes of this
Section 5, "New York Business Day" shall mean each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which banking
institutions in New York are generally authorized or obligated by law
or executive order to close.
6. The Company agrees with each of the Underwriters:
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<PAGE> 9
(a) To prepare the Prospectus in a form approved by you and to
file such Prospectus pursuant to Rule 424(b) under the Act not later
than the Commission's close of business on the second business day
following the execution and delivery of this Agreement, or, if
applicable, such earlier time as may be required by Rule 430A(a)(3)
under the Act; to make no further amendment or any supplement to the
Registration Statement or Prospectus which shall be disapproved by you
promptly after reasonable notice thereof; to advise you, promptly after
it receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed
and to furnish you with copies thereof; to advise you, promptly after
it receives notice thereof, of the issuance by the Commission of any
stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or prospectus, of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction,
of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for
additional information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or prospectus or suspending any such
qualification, promptly to use its best efforts to obtain the
withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under
the securities laws of such jurisdictions as you may request and to
comply with such laws so as to permit the continuance of sales and
dealings therein in such jurisdictions for as long as may be necessary
to complete the distribution of the Shares, provided that in connection
therewith the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York
Business Day next succeeding the date of this Agreement and from time
to time, to furnish the Underwriters with copies of the Prospectus in
New York City in such quantities as you may reasonably request, and, if
the delivery of a prospectus is required at any time prior to the
expiration of nine months after the time of issue of the Prospectus in
connection with the offering or sale of the Shares and if at such time
any event shall have occurred as a result of which the Prospectus as
then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not misleading,
or, if for any other reason it shall be necessary during such period to
amend or supplement the Prospectus in order to comply with the Act, to
notify you and upon your request to prepare and furnish without charge
to each Underwriter and to any dealer in securities as many copies as
you may from time to time reasonably request of an amended Prospectus
or a supplement to the Prospectus which will correct such statement or
omission or effect such compliance, and in case any Underwriter is
required to deliver a prospectus in connection with sales of any of the
Shares at any time nine months or more after the time of issue of the
Prospectus, upon your request but at the expense of such Underwriter,
to prepare and deliver to such Underwriter as many copies as you may
request of an amended or supplemented Prospectus complying with Section
10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon
as practicable, but in any event not later than eighteen months after
the effective date of the Registration Statement (as defined in Rule
158(c) under the Act), an earnings statement of the Company and its
subsidiaries (which need not be audited) complying with Section 11(a)
of the Act and the rules and regulations thereunder (including, at the
option of the Company, Rule 158);
(e) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus, directly or indirectly, not to offer, sell, contract to
sell or otherwise dispose of, except as provided hereunder and under
the International Underwriting Agreement, any shares of Stock or any
securities of the Company that are substantially
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<PAGE> 10
similar to the Shares, including but not limited to any securities that
are convertible into or exchangeable for, or that represent the right
to receive, Stock or any such substantially similar securities (other
than pursuant to the AMF Bowling, Inc. 1996 Stock Incentive Plan as in
effect on, or upon the conversion or exchange of convertible or
exchangeable securities outstanding as of, the date of this Agreement),
and including but not limited to entering into any cash-settled or
physically settled hedging transaction relating to the Stock, without
your prior written consent;
(f) To furnish to its stockholders as soon as practicable
after the end of each fiscal year an annual report (including a balance
sheet and statements of income, stockholders' equity and cash flows of
the Company and its consolidated subsidiaries certified by independent
public accountants) and, as soon as practicable after the end of each
of the first three quarters of each fiscal year (beginning with the
fiscal quarter ending after the effective date of the Registration
Statement), consolidated summary financial information of the Company
and its subsidiaries for such quarter in reasonable detail;
(g) During a period of five years from the effective date of
the Registration Statement, to furnish to you copies of all reports or
other communications (financial or other) furnished to stockholders,
and to deliver to you (i) as soon as they are available, copies of any
reports and financial statements furnished to or filed with the
Commission or any national securities exchange on which any class of
securities of the Company is listed; and (ii) such additional
information concerning the business and financial condition of the
Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of
the Company and its subsidiaries are consolidated in reports furnished
to its stockholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of
the Shares pursuant to this Agreement and the International
Underwriting Agreement in the manner specified in the Prospectus under
the caption "Use of Proceeds";
(i) To use its best efforts to list, subject to notice of
issuance, the Shares on the New York Stock Exchange (the "Exchange");
(j) To file with the Commission such reports on Form SR as may
be required by Rule 463 under the Act;
(k) If the Company elects to rely upon Rule 462(b), to file a
Rule 462(b) Registration Statement with the Commission in compliance
with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of
this Agreement, and at the time of filing either to pay to the
Commission the filing fee for the Rule 462(b) Registration Statement or
to give irrevocable instructions for the payment of such fee pursuant
to Rule 111(b) under the Act;
(l) In connection with the Directed Share Program, to ensure
that the Directed Shares will be restricted to the extent required by
the NASD or the NASD rules from sale, transfer, assignment, pledge or
hypothecation for a period of three months following the date of the
effectiveness of the Registration Statement. Morgan Stanley will notify
the Company as to which Participants will need to be so restricted. The
Company will direct the transfer agent to place stop transfer
restrictions upon such securities for such period of time; and
(m) To pay all fees and disbursements of counsel incurred by
the Underwriters in connection with the Directed Share Program and all
stamp duties, similar taxes or duties or other taxes, if any, incurred
by the Underwriters in connection with the Directed Share Program.
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<PAGE> 11
Furthermore, the Company covenants with Morgan Stanley that the Company
will comply with all applicable securities and other applicable laws, rules and
regulations in each foreign jurisdiction in which the Directed Shares are
offered in connection with the Directed Share Program.
7. The Company covenants and agrees with the several Underwriters that
the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers, except as otherwise specified in
Section 6(c) hereof; (ii) the cost of printing or producing any Agreement among
Underwriters, this Agreement, the International Underwriting Agreement, the
Agreement between Syndicates, the Selling Agreement, the Blue Sky Memorandum,
closing documents (including compilations thereof) and any other documents in
connection with the offering, purchase, sale and delivery of the Shares; (iii)
all expenses in connection with the qualification of the Shares for offering and
sale under state securities laws as provided in Section 6(b) hereof, including
the fees and disbursements of counsel for the Underwriters in connection with
such qualification and in connection with the Blue Sky survey; (iv) all fees and
expenses in connection with listing the Shares on the Exchange; (v) the filing
fees incident to, and the fees and disbursements of counsel for the Underwriters
in connection with, securing any required review by the National Association of
Securities Dealers, Inc. of the terms of the sale of the Shares; (vi) the cost
of preparing stock certificates; (vii) the cost and charges of any transfer
agent or registrar; and (viii) all other costs and expenses incident to the
performance of its obligations hereunder which are not otherwise specifically
provided for in this Section. It is understood, however, that, except as
provided in this Section, and Sections 9 and 14 hereof, the Underwriters will
pay all of their own costs and expenses, including the fees of their counsel,
stock transfer taxes on resale of any of the Shares by them, and any advertising
expenses connected with any offers they may make.
8. The obligations of the Underwriters hereunder, as to the Shares to
be delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed
for such filing by the rules and regulations under the Act and in
accordance with Section 6(a) hereof; if the Company has elected to rely
upon Rule 462(b), the Rule 462(b) Registration Statement shall have
become effective by 10:00 P.M., Washington, D.C. time, on the date of
this Agreement; no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and
no proceeding for that purpose shall have been initiated or threatened
by the Commission; and all requests for additional information on the
part of the Commission shall have been complied with to your reasonable
satisfaction;
(b) Sullivan & Cromwell, counsel for the Underwriters, shall
have furnished to you such opinion or opinions, dated such Time of
Delivery, with respect to such matters as you may reasonably request,
and such counsel shall have received such papers and information as
they may reasonably request to enable them to pass upon such matters;
(c) Wachtell, Lipton, Rosen & Katz, counsel for the Company,
shall have furnished to you their written opinion, dated such Time of
Delivery, in form and substance satisfactory to you, to the effect
that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Delaware, with power and
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<PAGE> 12
authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as
set forth in the Prospectus, and all of the issued shares of
capital stock of the Company (including the Shares being
delivered at such Time of Delivery) have been duly and validly
authorized and issued and are fully paid and nonassessable;
except as set forth in the Prospectus and except for the
options granted to Michael Jordan pursuant to the Stock Option
Agreement, dated as of October 20, 1997, between the Company
and Mr. Jordan, to such counsel's knowledge, there are no
outstanding subscriptions, rights, warrants, options, calls,
convertible securities, commitments of sale or liens related
to or entitling any person to purchase or otherwise to acquire
any shares of the capital stock of, or other ownership
interest in, the Company; and the Shares conform to the
description of the Stock contained in the Prospectus;
(iii) The Company has been duly qualified as a
foreign corporation for the transaction of business and is in
good standing under the laws of each other jurisdiction in
which it owns or leases properties or conducts any business so
as to require such qualification, except for such failures to
be so qualified or in good standing as would not, individually
or in the aggregate, reasonably be expected to have a Material
Adverse Effect (such counsel being entitled to rely in respect
of the opinion in this clause upon opinions of local counsel
and in respect of matters of fact upon certificates of
officers of the Company, provided that such counsel shall
state that they believe that both you and they are justified
in relying upon such opinions and certificates);
(iv) Each of the Company and each of AMF Bowling
Worldwide, AMF Group Holdings Inc., a Delaware corporation,
AMF Bowling Holdings Inc., a Delaware corporation, AMF Bowling
Centers Holdings Inc., a Delaware corporation, and AMF
Worldwide Bowling Centers Holdings Inc., a Delaware
corporation (collectively, the "Delaware Subsidiaries"), has
been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of
Delaware;
(v) To such counsel's knowledge and other than as set
forth or contemplated in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any
of its subsidiaries is a party or of which any property of the
Company or any of its subsidiaries is the subject which,
individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect, would interfere with or
adversely affect the issuance and sale of the Shares or would
affect the validity of this Agreement or the International
Underwriting Agreement;
(vi) This Agreement and the International
Underwriting Agreement have been duly authorized, executed and
delivered by each of the Company and each of the Delaware
Subsidiaries;
(vii) The issue and sale of the Shares being
delivered at such Time of Delivery by the Company and the
compliance by the Company with all of the provisions of this
Agreement and the International Underwriting Agreement and the
consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute
a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument (a) known to such
counsel and (b) to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or
assets of the Company or any of its subsidiaries is subject
and which is a "material contract" within
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<PAGE> 13
the meaning of Item 601 of Regulation S-K promulgated under
the Exchange Act, nor will such action result in any violation
of the provisions of the Certificate of Incorporation or
By-laws of the Company or any statute or any order, rule or
regulation known to such counsel of any court or governmental
agency or body having jurisdiction over the Company or any of
its subsidiaries or any of their properties, except that such
counsel need express no opinion as to any statute, order, rule
or regulation relating to liquor and gaming, lottery and
gambling licenses;
(viii) No consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required under federal or New
York law or the General Corporation Law of the State of
Delaware for the issue and sale of the Shares or the
consummation by the Company of the transactions contemplated
by this Agreement and the International Underwriting
Agreement, except (i) the registration under the Act of the
Shares, and such consents, approvals, authorizations,
registrations or qualifications as may be required under state
securities or Blue Sky laws in connection with the purchase
and distribution of the Shares by the Underwriters and the
International Underwriters and (ii) such consents, approvals,
authorizations, orders, registrations or qualifications as may
be required to permit the Company to retain its existing
liquor and gaming, lottery and gambling licenses;
(ix) Each of the Company and each of the Delaware
Subsidiaries has all requisite corporate power and authority
to execute, deliver and perform its obligations under this
Agreement and the International Underwriting Agreement and to
consummate the transactions contemplated hereby and thereby,
including without limitation the corporate power and authority
to issue, sell and deliver the Shares as provided herein and
therein;
(x) To such counsel's knowledge, neither the Company
nor any of the Delaware Subsidiaries is in violation of its
Certificate of Incorporation or By-laws;
(xi) The statements set forth in the Prospectus under
the caption "Description of Capital Stock", insofar as they
purport to constitute a summary of the terms of the Stock,
under the caption "Certain United States Federal Tax
Consequences to Non-United States Holders of Common Stock" in
the prospectus relating to the International Shares, and under
the caption "Description of Certain Indebtedness", insofar as
they purport to describe the provisions of the laws and
documents referred to therein, are accurate in all material
respects and represent a fair summary of such provisions;
(xii) Neither the Company nor any of its subsidiaries
is an "investment company" or an entity "controlled" by an
"investment company", as such terms are defined in the
Investment Company Act; and
(xiii) The Registration Statement and the Prospectus
and any further amendments and supplements thereto made by the
Company prior to such Time of Delivery (other than the
financial statements and related schedules therein, as to
which such counsel need express no opinion) comply as to form
in all material respects with the requirements of the Act and
the rules and regulations thereunder, although they do not
assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration
Statement or the Prospectus, except for those referred to in
the opinion in subsection (xi) of this Section 8(c); they have
no reason to believe that, as of its effective date, the
Registration Statement or any further amendment thereto made
by the Company prior to such Time of Delivery (other than the
financial statements and related statements and related
schedules and other financial data therein, as to which such
counsel need express no opinion) contained an untrue statement
of a material fact or omitted to state a
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<PAGE> 14
material fact required to be stated therein or necessary to
make the statements therein not misleading or that, as of its
date, the Prospectus or any further amendment or supplement
thereto made by the Company prior to such Time of Delivery
(other than the financial statements and related schedules and
other financial data therein, as to which such counsel need
express no opinion) contained an untrue statement of a
material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances
under which they were made, not misleading or that, as of such
Time of Delivery, either the Registration Statement or the
Prospectus or any further amendment or supplement thereto made
by the Company prior to such Time of Delivery (other than the
financial statements and related schedules and other financial
data therein, as to which such counsel need express no
opinion) contains an untrue statement of a material fact or
omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under
which they were made, not misleading; and they do not know of
any amendment to the Registration Statement required to be
filed or of any contracts or other documents of a character
required to be filed as an exhibit to the Registration
Statement or required to be described in the Registration
Statement or the Prospectus which are not filed or described
as required;
In rendering such opinion, such counsel may state that they
express no opinion as to the laws of any jurisdiction other than the
laws of the State of New York, the General Corporation Law of the State
of Delaware, and the federal laws of the United States.
(d) Hirschler, Fleischer, Weinberg, Cox & Allen P.C., counsel
for the Company, shall have furnished to you their written opinion,
dated such Time of Delivery, in form and substance satisfactory to you,
to the effect that:
(i) Each of the Designated Subsidiaries incorporated
in the State of Virginia has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation; each such
subsidiary has been duly qualified as a foreign corporation
for the transaction of business and is in good standing under
the laws of each other jurisdiction in which it owns or leases
properties or conducts any business so as to require such
qualification, or is subject to no material liability or
disability by reason of the failure to be so qualified in any
such jurisdiction; all of the issued shares of capital stock
of each such subsidiary have been duly and validly authorized
and issued, are fully paid and non-assessable, and are owned
directly or indirectly by the Company, free and clear of all
liens, encumbrances, equities or claims, except the pledge of
the shares of certain subsidiaries of the Company as
collateral security for the obligations of AMF Bowling
Worldwide pursuant to the Second Amended and Restated Credit
Agreement as in effect on the date hereof and as amended and
restated as the Third Amended and Restated Credit Agreement;
and except as set forth in the Prospectus, based on an
examination of the corporate records and minute books, there
are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens
related to or entitling any person to purchase or otherwise to
acquire any shares of the capital stock of, or other ownership
interest in, any such subsidiary (such counsel being entitled
to rely in respect of the opinion in this clause upon opinions
of local counsel and in respect to matters of fact upon
certificates of officers of the Company or its subsidiaries,
provided that such counsel shall state that they believe that
both you and they are justified in relying upon such opinions
and certificates);
(ii) This Agreement and the International
Underwriting Agreement have been duly authorized, executed and
delivered by each of the Designated Subsidiaries incorporated
in the Commonwealth of Virginia;
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<PAGE> 15
(iii) Each of the Designated Subsidiaries
incorporated in the Commonwealth of Virginia has all requisite
corporate power and authority to execute, deliver and perform
its obligations under this Agreement and the International
Underwriting Agreement and to consummate the transactions
contemplated hereby and thereby;
(iv) To such counsel's knowledge, none of the
Designated Subsidiaries incorporated in the Commonwealth of
Virginia is in violation of its Certificate of Incorporation,
By-laws or other organizational documents;
In rendering such opinion, such counsel may state that they
express no opinion as to the laws of any jurisdiction other than the
laws of the Commonwealth of Virginia and the federal laws of the United
States.
(e) On the date of the Prospectus at a time prior to the
execution of this Agreement, at 9:30 a.m., New York City time, on the
effective date of any post-effective amendment to the Registration
Statement filed subsequent to the date of this Agreement and also at
each Time of Delivery, Arthur Andersen LLP shall have furnished to you
a letter or letters, dated the respective dates of delivery thereof, in
form and substance satisfactory to you, to the effect set forth in
Annex I hereto (an executed copy of the letter delivered prior to the
execution of this Agreement is attached as Annex I(a) hereto and a
draft of the form of letter to be delivered on the effective date of
any post-effective amendment to the Registration Statement and as of
each Time of Delivery is attached as Annex I(b) hereto), and each of
Price Waterhouse LLP and Todres & Scheiffer, shall have furnished to
you a letter or letters, dated the respective dates of delivery
thereof, in form and substance satisfactory to you, to the effect set
forth in Annex II hereto (executed copies of the letters delivered
prior to the execution of this Agreement are attached as Annexes
II(a)(1) and (2) hereto and drafts of the forms of letters to be
delivered on the effective date of any post-effective amendment to the
Registration Statement and as of each Time of Delivery are attached as
Annexes II(b)(1) and (2) hereto);
(f) (i) Neither the Company nor any of its subsidiaries shall
have sustained since the date of the latest audited financial
statements included in the Prospectus any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus, and (ii) since the respective dates as
of which information is given in the Prospectus there shall not have
been any change in the capital stock, short-term debt or long-term debt
of the Company or any of its subsidiaries or any change, or any
development involving a prospective change, in or affecting the general
affairs, management, financial position, stockholders' equity or
results of operations of the Company and its subsidiaries, otherwise
than as set forth or contemplated in the Prospectus, the effect of
which, in any such case described in Clause (i) or (ii), is in the
judgment of the Representatives so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares being delivered at such Time of Delivery on the
terms and in the manner contemplated in the Prospectus;
(g) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the Company's debt securities by any
"nationally recognized statistical rating organization", as that term
is defined by the Commission for purposes of Rule 436(g)(2) under the
Act, and (ii) no such organization shall have publicly announced that
it has under surveillance or review, with possible negative
implications, its rating of any of the Company's debt securities;
(h) On or after the date hereof there shall not have occurred
any of the following: (i) a suspension or material limitation in
trading in securities generally on the Exchange; (ii) a suspension or
material limitation in trading in the Company's securities on the
Exchange; (iii) a general moratorium on commercial banking activities
declared by either Federal or New York State
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<PAGE> 16
authorities; or (iv) the outbreak or escalation of hostilities
involving the United States or the declaration by the United States of
a national emergency or war, if the effect of any such event specified
in this Clause (iv) in the judgment of the Representatives makes it
impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares being delivered at such Time of Delivery on the
terms and in the manner contemplated in the Prospectus;
(i) The Shares to be sold at such Time of Delivery shall have
been duly listed, subject to notice of issuance, on the Exchange;
(j) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from each officer or director of the
Company or any of its subsidiaries who holds, directly or indirectly,
any shares of Stock (or any securities that are convertible into or
exchangeable for, or that represent the right to receive, Stock), and
each other person or entity that holds, directly or indirectly, any
shares of Stock (or any securities that are convertible into or
exchangeable for, or that represent the right to receive, Stock)
constituting more than 1% of the shares of the Stock outstanding on the
date of this Agreement, substantially to the effect set forth in
Subsection 6(e) hereof in form and substance satisfactory to you;
(k) The Third Amended and Restated Credit Agreement shall have
become effective at or before the First Time of Delivery;
(l) The Company shall have complied with the provisions of
Section 6(c) hereof with respect to the furnishing of prospectuses on
the New York Business Day next succeeding the date of this Agreement;
and
(m) The Company shall have furnished or caused to be furnished
to you at such Time of Delivery certificates of officers of the Company
satisfactory to you as to the accuracy of the representations and
warranties of the Company herein at and as of such Time of Delivery, as
to the performance by the Company of all of its obligations hereunder
to be performed at or prior to such Time of Delivery, as to the matters
set forth in subsections (a) and (e) of this Section and as to such
other matters as you may reasonably request.
9. (a) The Company and the Designated Subsidiaries, jointly and
severally, will indemnify and hold harmless each Underwriter against
any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus,
or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any
legal or other expenses reasonably incurred by such Underwriter in
connection with investigating or defending any such action or claim as
such expenses are incurred; provided, however, that the Company and the
Designated Subsidiaries shall not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any such amendment or
supplement in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through Goldman, Sachs &
Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the
Company and the Designated Subsidiaries against any losses, claims,
damages or liabilities to which the Company or the Designated
Subsidiaries may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon
16
<PAGE> 17
an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or
the Prospectus, or any amendment or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement
or omission or alleged omission was made in any Preliminary Prospectus,
the Registration Statement or the Prospectus or any such amendment or
supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through Goldman, Sachs &
Co. expressly for use therein; and will reimburse the Company and the
Designated Subsidiaries for any legal or other expenses reasonably
incurred by the Company and the Designated Subsidiaries in connection
with investigating or defending any such action or claim as such
expenses are incurred.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any
action, such indemnified party shall, if a claim in respect thereof is
to be made against the indemnifying party under such subsection, notify
the indemnifying party in writing of the commencement thereof; but the
omission so to notify the indemnifying party shall not relieve it from
any liability which it may have to any indemnified party otherwise than
under such subsection. In case any such action shall be brought against
any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall
not, except with the consent of the indemnified party, which consent
shall not be unreasonably withheld, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under
such subsection for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party,
in connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the written consent
of the indemnified party, which consent shall not be unreasonably
withheld, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action
or claim in respect of which indemnification or contribution may be
sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement,
compromise or judgment (i) includes an unconditional release of the
indemnified party from all liability arising out of such action or
claim and (ii) does not include a statement as to or an admission of
fault, culpability or a failure to act, by or on behalf of any
indemnified party.
(d) If the indemnification provided for in this Section 9 is
unavailable to or insufficient to hold harmless an indemnified party
under subsection (a) or (b) above in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative benefits received
by the Company and the Designated Subsidiaries on the one hand and the
Underwriters on the other from the offering of the Shares. If, however,
the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give
the notice required under subsection (c) above, then each indemnifying
party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company
and the Designated Subsidiaries on the one hand and the Underwriters on
the other in connection with the statements or omissions which resulted
in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds
17
<PAGE> 18
from the offering of the Shares purchased under this Agreement (before
deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters
with respect to the Shares purchased under this Agreement, in each case
as set forth in the table on the cover page of the Prospectus relating
to such Shares. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material
fact relates to information supplied by the Company and the Designated
Subsidiaries on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The
Company, the Designated Subsidiaries and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this
subsection (d) were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to above in this subsection (d). The amount
paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred
to above in this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), no Underwriter
shall be required to contribute any amount in excess of the amount by
which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount
of any damages which such Underwriter has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d)
to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company and the Designated
Subsidiaries under this Section 9 shall be in addition to any liability
which the Company and the Designated Subsidiaries may otherwise have
and shall extend, upon the same terms and conditions, to each person,
if any, who controls any Underwriter within the meaning of the Act; and
the obligations of the Underwriters under this Section 9 shall be in
addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to
each officer and director of the Company and to each person, if any,
who controls the Company or any Designated Subsidiary within the
meaning of the Act.
10. The Company and the Designated Subsidiaries, jointly and severally,
will indemnify and hold harmless Morgan Stanley and each person, if any, who
controls Morgan Stanley within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act ("Morgan Stanley Entities")
from and against any and all losses, claims, damages and liabilities (i) caused
by any untrue statement or alleged untrue statement of a material fact contained
in the prospectus wrapper material prepared by or with the consent of the
Company for distribution in foreign jurisdictions in connection with the
Directed Share Program attached to the Prospectus or any preliminary prospectus,
or caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement therein, when
considered in conjunction with the Prospectus or any applicable preliminary
prospectus, not misleading, (ii) caused by the failure of any Participant to pay
for and accept delivery of the Shares which, immediately following the
effectiveness of the Registration Statement, were subject to a properly
confirmed agreement to purchase, or (iii) arising out of or in connection with
the Directed Share Program, and will reimburse Morgan Stanley for any legal or
other expenses reasonably incurred by Morgan Stanley in connection with
investigating or defending any action or claim relating to the foregoing as such
expenses are incurred, provided that, the Company shall not be responsible under
this subparagraph (iii) for any losses, claim, damages or liabilities (or
expenses relating thereto) that are finally judicially determined to have
resulted from the bad faith or gross negligence of Morgan Stanley Entities.
Notwithstanding anything contained in this Agreement to the contrary, if
indemnity may be sought pursuant to this Section 10 in respect
18
<PAGE> 19
of any action or proceeding, then in addition to any separate firm for the
indemnified parties pursuant to Section 9 or Section 11 hereof, the indemnifying
party shall be liable for the reasonable fees and expenses of not more than one
separate firm (in addition to any local counsel) for Morgan Stanley for the
defense of any losses, claims, damages and liabilities arising out of the
Directed Share Program, and all persons, if any, who control Morgan Stanley
within the meaning of either Section 15 of the Act or Section 20 of the Exchange
Act.
11. (a) The Company and the Designated Subsidiaries, jointly and
severally, will indemnify and hold harmless Morgan Stanley, in its
capacity as QIU, against any losses, claims, damages or liabilities,
joint or several, to which the QIU may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in
any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the QIU for any
legal or other expenses reasonably incurred by the QIU in connection
with investigating or defending any such action or claim as such
expenses are incurred.
(b) The Company and the Designated Subsidiaries, jointly and
severally, will also indemnify and hold harmless Morgan Stanley from
and against any and all losses, claims, damages, liabilities and
judgments incurred as a result of Morgan Stanley's participation as a
"qualified independent underwriter" within the meaning of Rule 2720 of
the NASD's Conduct Rules in connection with the offering of the Shares
except for any losses, claims, damages, liabilities and judgments found
in a final judgment by a court to have resulted from Morgan Stanley's
or such controlling person's, willful misconduct or gross negligence.
(c) Promptly after receipt by the QIU under subsection (a) or
(b) above of notice of the commencement of any action, the QIU shall,
if a claim in respect thereof is to be made against the Company or any
Designated Subsidiary under such subsection, notify the Company in
writing of the commencement thereof; but the omission so to notify the
Company shall not relieve the Company or any Designated Subsidiary from
any liability which it may have to the QIU otherwise than under such
subsection. In case any such action shall be brought against the QIU
and it shall notify the Company of the commencement thereof, the
Company and the Designated Subsidiaries shall be entitled to
participate therein and, to the extent that they shall wish, jointly
with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to the QIU (who shall not,
except with the consent of the QIU, which consent shall not be
unreasonably withheld, be counsel to the Company or any Designated
Subsidiary), and, after notice from the Company or any Designated
Subsidiary to the QIU of its election so to assume the defense thereof,
the Company or such Designated Subsidiary, as the case may be, shall
not be liable to the QIU under such subsection for any legal expenses
of other counsel or any other expenses, in each case subsequently
incurred by the QIU, in connection with the defense thereof other than
reasonable costs of investigation. Neither the Company nor any
Designated Subsidiary shall, without the written consent of the QIU,
which consent shall not be unreasonably withheld, effect the settlement
or compromise of, or consent to the entry of any judgment with respect
to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not
the QIU is an actual or potential party to such action or claim) unless
such settlement, compromise or judgment (i) includes an unconditional
release of the QIU from all liability arising out of such action or
claim and (ii) does not include a statement as to or an admission of
fault, culpability or a failure to act, by or on behalf of the QIU.
(d) If the indemnification provided for in this Section 11 is
unavailable to or insufficient to hold harmless Morgan Stanley, in its
capacity as QIU, under subsection (a) or (b) above in respect of any
losses, claims, damages or liabilities (or actions in respect thereof)
referred to therein, then
19
<PAGE> 20
the Company and the Designated Subsidiaries shall contribute to the
amount paid or payable by the QIU as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative benefits received
by the Company and the Designated Subsidiaries on the one hand and the
QIU on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the QIU failed to give the notice
required under subsection (c) above, then the Company and the
Designated Subsidiaries shall contribute to such amount paid or payable
by the QIU in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company and
the Designated Subsidiaries on the one hand and the QIU on the other in
connection with the statements, acts or omissions which resulted in
such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Designated
Subsidiaries on the one hand and the QIU on the other shall be deemed
to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company, as set
forth in the table on the cover page of the Prospectus, bear to the fee
payable to the QIU. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one
hand or the QIU on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company, the Designated Subsidiaries
and the QIU agree that it would not be just and equitable if
contributions pursuant to this subsection (d) were determined by pro
rata allocation or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (d). The amount paid or payable by the QIU as a result of
the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by the QIU in
connection with investigating or defending any such action or claim. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
(e) The obligations of the Company and the Designated
Subsidiaries under this Section 11 shall be in addition to any
liability which the Company or the Designated Subsidiaries may
otherwise have and shall extend, upon the same terms and conditions, to
each person, if any, who controls the QIU within the meaning of the
Act.
12. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of
Delivery, you may in your discretion arrange for you or another party
or other parties to purchase such Shares on the terms contained herein.
If within thirty-six hours after such default by any Underwriter you do
not arrange for the purchase of such Shares, then the Company shall be
entitled to a further period of thirty-six hours within which to
procure another party or other parties satisfactory to you to purchase
such Shares on such terms. In the event that, within the respective
prescribed periods, you notify the Company that you have so arranged
for the purchase of such Shares, or the Company notifies you that it
has so arranged for the purchase of such Shares, you or the Company
shall have the right to postpone such Time of Delivery for a period of
not more than seven days, in order to effect whatever changes may
thereby be made necessary in the Registration Statement or the
Prospectus, or in any other documents or arrangements, and the Company
agrees to file promptly any amendments to the Registration Statement or
the Prospectus which in your opinion may thereby be made necessary. The
term "Underwriter" as used in this Agreement shall include any person
substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters by
you and the Company as provided in subsection (a) above,
20
<PAGE> 21
the aggregate number of such Shares which remains unpurchased does not
exceed one-eleventh of the aggregate number of all the Shares to be
purchased at such Time of Delivery, then the Company shall have the
right to require each non-defaulting Underwriter to purchase the number
of Shares which such Underwriter agreed to purchase hereunder at such
Time of Delivery and, in addition, to require each non-defaulting
Underwriter to purchase its pro rata share (based on the number of
Shares which such Underwriter agreed to purchase hereunder) of the
Shares of such defaulting Underwriter or Underwriters for which such
arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters by
you and the Company as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased exceeds one-eleventh of
the aggregate number of all the Shares to be purchased at such Time of
Delivery, or if the Company shall not exercise the right described in
subsection (b) above to require non-defaulting Underwriters to purchase
Shares of a defaulting Underwriter or Underwriters, then this Agreement
(or, with respect to the Second Time of Delivery, the obligations of
the Underwriters to purchase and of the Company to sell the Optional
Shares) shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company, except for the expenses to
be borne by the Company and the Underwriters as provided in Section 7
hereof and the indemnity and contribution agreements in Section 9
hereof; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
13. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
14. If this Agreement shall be terminated pursuant to Section 12
hereof, the Company shall not then be under any liability to any Underwriter
except as provided in Sections 7 and 9 hereof; but if for any other reason any
Shares are not delivered by or on behalf of the Company as provided herein, the
Company will reimburse the Underwriters through you for all out-of-pocket
expenses approved in writing by you, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Shares not so delivered, but the Company
shall then be under no further liability to any Underwriter in respect of the
Shares not so delivered except as provided in Sections 7 and 9 hereof.
15. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives of the Underwriters.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 85 Broad Street, New York, New York 10004, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Secretary with copies sent to GS Capital
Partners II, L.P., 85 Broad Street, New York, New York 10004, Attention: David
J. Greenwald, Esq., and Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New
York, New York 10019, Attention: Daniel A. Neff, Esq.; provided, however, that
any notice to an Underwriter pursuant to Section 9(c) hereof shall be delivered
or sent by mail, telex or facsimile transmission to such Underwriter at its
address set forth in its Underwriters' Questionnaire, or telex constituting such
Questionnaire, which address will be supplied
21
<PAGE> 22
to the Company by you upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof.
16. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and, to the extent provided in
Sections 9 and 13 hereof, the officers and directors of the Company and each
person who controls the Company or any Underwriter, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. No purchaser of
any of the Shares from any Underwriter shall be deemed a successor or assign by
reason merely of such purchase.
17. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
18. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
19. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
22
<PAGE> 23
If the foregoing is in accordance with your understanding, please sign
and return to us seven counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement between each of the Underwriters and
the Company. It is understood that your acceptance of this letter on behalf of
each of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters (U.S. Version), the form of which shall be
furnished to the Company for examination upon request, but without warranty on
your part as to the authority of the signers thereof.
Very truly yours,
AMF Bowling, Inc.
By:.........................................
Name:
Title:
AMF Group Holdings Inc.
By:.........................................
Name:
Title:
AMF Bowling Worldwide, Inc.
By:.........................................
Name:
Title:
AMF BCO-China, Inc.
By:.........................................
Name:
Title:
AMF BCO-France One, Inc.
By:.........................................
Name:
Title:
AMF BCO-France Two, Inc.
By:.........................................
Name:
Title:
23
<PAGE> 24
AMF BCO-UK One, Inc.
By:.........................................
Name:
Title:
AMF BCO-UK Two, Inc.
By:.........................................
Name:
Title:
AMF Beverage Company of Oregon, Inc.
By:.........................................
Name:
Title:
AMF Beverage Company of W. Va., Inc.
By:.........................................
Name:
Title:
AMF Bowling Centers, Inc.
By:.........................................
Name:
Title:
AMF Bowling Centers China, Inc.
By:.........................................
Name:
Title:
AMF Bowling Centers International Inc.
By:.........................................
Name:
Title:
24
<PAGE> 25
AMF Bowling Centers (Aust)
International Inc.
By:.........................................
Name:
Title:
AMF Bowling Centers (Canada)
International Inc.
By:.........................................
Name:
Title:
AMF Bowling Centers (Hong Kong)
International Inc.
By:.........................................
Name:
Title:
AMF Bowling Centers Holdings Inc.
By:.........................................
Name:
Title:
AMF Bowling Centers Spain Inc.
By:.........................................
Name:
Title:
AMF Bowling Centers Switzerland Inc.
By:.........................................
Name:
Title:
AMF Bowling Products, Inc.
By:.........................................
Name:
Title:
25
<PAGE> 26
AMF Bowling Holdings Inc.
By:.........................................
Name:
Title:
AMF Bowling Mexico Holdings, Inc.
By:.........................................
Name:
Title:
AMF Worldwide Bowling Centers Holdings Inc.
By:.........................................
Name:
Title:
Boliches AMF, Inc.
By:.........................................
Name:
Title:
Bush River Corporation
By:.........................................
Name:
Title:
King Louie Lenaxa, Inc.
By:.........................................
Name:
Title:
American Recreation Centers Inc.
By:.........................................
Name:
Title:
26
<PAGE> 27
ARC Properties, Inc.
By:.........................................
Name:
Title:
ARC Games, Inc.
By:.........................................
Name:
Title:
Belmont Catering, Inc.
By:.........................................
Name:
Title:
Peninsula Bowling Corporation
By:.........................................
Name:
Title:
Burleigh Recreation, Inc.
By:.........................................
Name:
Title:
Lapham Recreation, Inc.
By:.........................................
Name:
Title:
Thunder Bowl, Inc.
By:.........................................
Name:
Title:
27
<PAGE> 28
H & B, Inc.
By:.........................................
Name:
Title:
Florist Recreation, Inc.
By:.........................................
Name:
Title:
Waukesha Lanes, Inc.
By:.........................................
Name:
Title:
Mid-America ARC, Inc.
By:.........................................
Name:
Title:
300, Inc.
By:.........................................
Name:
Title:
American Red Carpet
By:.........................................
Name:
Title:
Triangle Bowl Associates
By:.........................................
Name:
Title:
28
<PAGE> 29
Mid-America Associates
By:.........................................
Name:
Title:
Michael Jordan Golf Company, Inc.
By:.........................................
Name:
Title:
Michael Jordan Golf-Water Tower, Inc.
By:.........................................
Name:
Title:
MJG-O'Hare, Inc.
By:.........................................
Name:
Title:
29
<PAGE> 30
Accepted as of the date hereof:
Goldman, Sachs & Co.
Morgan Stanley & Co. Incorporated
Cowen & Company
Schroder & Co. Inc.
By:.........................................
(Goldman, Sachs & Co.)
30
<PAGE> 31
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
-------------------------- ------------------------------
<S> <C> <C>
Goldman, Sachs & Co...............................
Morgan Stanley & Co. Incorporated.................
Cowen & Company...................................
Schroder & Co. Inc................................
[NAMES OF OTHER UNDERWRITERS].....................
-------------------------- ------------------------------
Total.................................... ========================== ==============================
</TABLE>
31
<PAGE> 32
ANNEX I
Pursuant to Section 8(e) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the
Act and the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined by
them and included in the Prospectus or the Registration Statement
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations thereunder; and, if applicable, they have made a review in
accordance with standards established by the American Institute of
Certified Public Accountants of the unaudited consolidated interim
financial statements, selected financial data, pro forma financial
information, financial forecasts and/or condensed financial statements
derived from audited financial statements of the Company for the
periods specified in such letter, as indicated in their reports
thereon, copies of which have been furnished to the representatives of
the Underwriters (the "Representatives") and are attached hereto;
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants
of the unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus as indicated in their reports thereon copies
of which are attached hereto and on the basis of specified procedures
including inquiries of officials of the Company who have responsibility
for financial and accounting matters regarding whether the unaudited
condensed consolidated financial statements referred to in paragraph
(vi)(A)(i) below comply as to form in all material respects with the
applicable accounting requirements of the Act and the related published
rules and regulations, nothing came to their attention that caused them
to believe that the unaudited condensed consolidated financial
statements do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the related published
rules and regulations;
(iv) The unaudited selected financial information with respect
to the consolidated results of operations and financial position of the
Company for the five most recent fiscal years included in the
Prospectus agrees with the corresponding amounts (after restatements
where applicable) in the audited consolidated financial statements for
such five fiscal years which were included or incorporated by reference
in the Company's Annual Reports on Form 10-K for such fiscal years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K
and on the basis of limited procedures specified in such letter nothing
came to their attention as a result of the foregoing procedures that
caused them to believe that this information does not conform in all
material respects with the disclosure requirements of Items 301, 302,
402 and 503(d), respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available
interim financial statements of the Company and its subsidiaries,
inspection of the minute books of the Company and its subsidiaries
since the date of the latest audited financial statements included in
the Prospectus, inquiries of officials of the Company and its
subsidiaries responsible for financial and accounting matters and such
other inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that:
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<PAGE> 33
(A) (i) the unaudited consolidated statements of
income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus do not
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published
rules and regulations, or (ii) any material modifications
should be made to the unaudited condensed consolidated
statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the
Prospectus for them to be in conformity with generally
accepted accounting principles;
(B) any other unaudited income statement data and
balance sheet items included in the Prospectus do not agree
with the corresponding items in the unaudited consolidated
financial statements from which such data and items were
derived, and any such unaudited data and items were not
determined on a basis substantially consistent with the basis
for the corresponding amounts in the audited consolidated
financial statements included in the Prospectus;
(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived any
unaudited condensed financial statements referred to in Clause
(A) and any unaudited income statement data and balance sheet
items included in the Prospectus and referred to in Clause (B)
were not determined on a basis substantially consistent with
the basis for the audited consolidated financial statements
included in the Prospectus;
(D) any unaudited pro forma consolidated condensed
financial statements included in the Prospectus do not comply
as to form in all material respects with the applicable
accounting requirements of the Act and the published rules and
regulations thereunder or the pro forma adjustments have not
been properly applied to the historical amounts in the
compilation of those statements;
(E) as of a specified date not more than five days
prior to the date of such letter, there have been any changes
in the consolidated capital stock (other than issuances of
capital stock upon exercise of options and stock appreciation
rights, upon earn-outs of performance shares and upon
conversions of convertible securities, in each case which were
outstanding on the date of the latest financial statements
included in the Prospectus) or any increase in the
consolidated long-term debt of the Company and its
subsidiaries, or any decreases in consolidated net current
assets or stockholders' equity or other items specified by the
Representatives, or any increases in any items specified by
the Representatives, in each case as compared with amounts
shown in the latest balance sheet included in the Prospectus,
except in each case for changes, increases or decreases which
the Prospectus discloses have occurred or may occur or which
are described in such letter; and
(F) for the period from the date of the latest
financial statements included in the Prospectus to the
specified date referred to in Clause (E) there were any
decreases in consolidated net revenues or operating profit or
the total or per share amounts of consolidated net income or
other items specified by the Representatives, or any increases
in any items specified by the Representatives, in each case as
compared with the comparable period of the preceding year and
with any other period of corresponding length specified by the
Representatives, except in each case for decreases or
increases which the Prospectus discloses have occurred or may
occur or which are described in such letter; and
(vii) In addition to the examination referred to in their
report(s) included in the Prospectus and the limited procedures,
inspection of minute books, inquiries and other procedures referred to
in paragraphs (iii) and (vi) above, they have carried out certain
specified procedures, not constituting
2
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an examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Representatives, which are derived from
the general accounting records of the Company and its subsidiaries,
which appear in the Prospectus, or in Part II of, or in exhibits and
schedules to, the Registration Statement specified by the
Representatives, and have compared certain of such amounts, percentages
and financial information with the accounting records of the Company
and its subsidiaries and have found them to be in agreement.
3
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ANNEX II
Pursuant to Section 8(e) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the
Act and the applicable published rules and regulations thereunder; and
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined by
them and included in the Prospectus or the Registration Statement
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations thereunder; and, if applicable, they have made a review in
accordance with standards established by the American Institute of
Certified Public Accountants of the unaudited consolidated interim
financial statements, selected financial data, pro forma financial
information, financial forecasts and/or condensed financial statements
derived from audited financial statements of the Company for the
periods specified in such letter, as indicated in their reports
thereon, copies of which have been furnished to the representatives of
the Underwriters (the "Representatives") and are attached hereto.
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<PAGE> 1
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
AMF BOWLING, INC.
I, the undersigned, for the purpose of amending and restating the
certificate of incorporation of AMF Bowling, Inc., originally incorporated under
the name AMF Holdings Inc., the original certificate of incorporation of which
was filed with the Secretary of State on February 15, 1996, under the General
Corporation Law of the State of Delaware, do hereby certify that AMF Bowling,
Inc. has duly adopted the following Restated Certificate of Incorporation
pursuant to Sections 242 and 245 of the General Corporation Law of the State of
Delaware:
ARTICLE I
The name of the corporation (which is hereinafter referred to as the
"Corporation") is:
AMF Bowling, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is The Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of the Corporation's registered agent
at such address is The Corporation Trust Company.
<PAGE> 2
ARTICLE III
The purpose of the Corporation shall be to engage in any lawful act
or activity for which corporations may be organized and incorporated under the
General Corporation Law of the State of Delaware.
ARTICLE IV
Section 1. The Corporation shall be authorized to issue 250 million
shares of capital stock, of which 200 million shares shall be shares of Common
Stock, par value $.01 per share ("Common Stock") and 50 million shares shall be
shares of Preferred Stock, $.01 par value ("Preferred Stock").
Section 2. Except as otherwise provided by law, or as otherwise
provided in or pursuant to this Article IV, the Common Stock shall have the
exclusive right to vote for the election of directors and for all other
purposes. Each share of Common Stock shall have one vote, and the Common Stock
shall vote together as a single class.
Section 3. The Board of Directors of the Corporation (the "Board")
is expressly authorized to provide for the issue of all or any shares of the
Preferred Stock, in one or more series, and to fix for each such series such
voting powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, optional or other special rights, and
such qualifications, limitations or restrictions thereof, as shall
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be stated and expressed in the resolution or resolutions adopted by the Board
providing for the issue of such series (a "Preferred Stock Designation") and as
may be permitted by the General Corporation Law of the State of Delaware. The
number of authorized shares of Preferred Stock may be increased or decreased
(but not below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the voting power of all of the then
outstanding shares of the capital stock of the corporation entitled to vote
generally in the election of directors, voting together as a single class,
without a separate vote of the holders of the Preferred Stock, or any series
thereof, unless a vote of any such holders is required pursuant to any Preferred
Stock Designation.
Section 4. The Board is hereby authorized to cause the Corporation
to create and issue, whether or not in connection with the issuance and sale of
any of its stock or other securities or property, rights or options entitling
the holders thereof to purchase from the Corporation shares of stock or other
securities of the Corporation or any other corporation. The times at which and
the terms upon which such rights or options are to be issued may be determined
by the Board and set forth in the contracts or instruments that evidence such
rights or options. The authority of the Board with respect to such rights or
options shall include, but not be limited to, determination of the following:
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<PAGE> 4
(A) The initial purchase price per share or other unit of the stock
or other securities or property to be purchased upon exercise of such
rights or options.
(B) Provisions relating to the times at which and the circumstances
under which such rights or options may be exercised or sold or otherwise
transferred, either together with or separately from, any other stock or
other securities of the Corporation.
(C) Provisions which adjust the number or exercise price of such
rights or options or amount or nature of the stock or other securities or
property receivable upon exercise of such rights or options in the event
of a combination, split or re-capitalization of any stock of the
Corporation, a change in ownership of the Corporation's stock or other
securities or a reorganization, merger, consolidation, sale of assets or
other occurrence relating to the Corporation or any stock of the
Corporation, and provisions restricting the ability of the Corporation to
enter into any such transaction absent an assumption by the other party or
parties thereto of the obligations of the Corporation under such rights or
options.
(D) Provisions which deny the holder of a specified percentage of
the outstanding stock or other securities of the Corporation the right to
exercise such rights or options and/or cause the rights or options held by
such holder to become void.
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<PAGE> 5
(E) Provisions which permit the Corporation to redeem or exchange
such rights or options.
(F) The appointment of a rights agent with respect to such rights or
options.
Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of at least 80 percent of
the voting power of the then outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of Directors, voting
together as a single class, shall be required to amend or repeal, or adopt any
provisions inconsistent with, this Section 4.
ARTICLE V
Unless and except to the extent that the By-Laws of the Corporation
shall so require, the election of directors of the Corporation need not be by
written ballot.
ARTICLE VI
In furtherance and not in limitation of the powers conferred by law,
the Board is expressly authorized and empowered to make, alter and repeal the
By-Laws of the Corporation by a majority vote at any regular or special meeting
of the Board or by written consent, subject to the power of the stockholders of
the Corporation to alter or repeal any By-Laws made by the Board.
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ARTICLE VII
The Corporation reserves the right at any time from time to time to
amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, and any other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law; and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the right reserved in this
Article.
ARTICLE VIII
Section 1. Elimination of Certain Liability of Directors. A director
of the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of the State of Delaware, or (iv) for
any transaction from which the director derived an improper personal benefit.
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<PAGE> 7
Section 2. Indemnification and Insurance.
(a) Right to Indemnification. Each person who was or is made a party
or is threatened to be made a party to or is involved in any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (hereinafter a "proceeding"), by reason of the fact that he or
she, or a person of whom he or she is the legal representative, is or was a
director or officer of the Corporation or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or agent
or in any other capacity while serving as a director, officer, employee or
agent, shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the General Corporation Law of the State of Delaware, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than said law permitted the Corporation
to provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, amounts paid or to be paid in
settlement, and excise taxes or penalties arising under the Employee Retirement
Income Security Act of 1974) reasonably incurred or suffered by such person in
connection therewith and such indemnification shall
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<PAGE> 8
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that, except as provided in paragraph (b)
hereof, the Corporation shall indemnify any such person seeking indemnification
in connection with a proceeding (or part thereof) initiated by such person only
if such proceeding (or part thereof) was authorized by the Board. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the General Corporation Law of the State of Delaware requires,
the payment of such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Section or
otherwise. The Corporation may, by action of the Board, provide indemnification
to employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
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(b) Right of Claimant to Bring Suit. If a claim under paragraph (a)
of this Section is not paid in full by the Corporation within thirty days after
a written claim has been received by the Corporation, the claimant may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim and, if successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the General Corporation Law of the State
of Delaware for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the General Corporation Law of the State of Delaware, nor an actual
determination by the Corporation (including its Board, independent legal
counsel, or its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the
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<PAGE> 10
action or create a presumption that the claimant has not met the applicable
standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
this Certificate of Incorporation, By-law, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the General Corporation Law of the State of Delaware.
ARTICLE IX
The Corporation shall not be governed by Section 203 of the General
Corporation Law of the State of Delaware.
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IN WITNESS WHEREOF, said AMF Bowling, Inc. has caused this
certificate to be signed by its President, this ______ day of ____________,
1997.
By:______________________________
Name: Douglas J. Stanard
Title: President
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EXHIBIT 3.2
RESTATED BY-LAWS
of
AMF BOWLING, INC.
(as of October 22, 1997)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE -- The registered office of AMF
Bowling, Inc. (the "Corporation") shall be established and maintained at the
office of The Corporation Trust Company at The Corporation Trust Center, 1209
Orange Street in the City of Wilmington, County of New Castle, State of
Delaware, and said Corporation Trust Company shall be the registered agent of
the Corporation in charge thereof.
SECTION 2. OTHER OFFICES -- The Corporation may have other
offices, either within or without the State of Delaware, at such place or places
as the Board of Directors may from time to time select or the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS -- Annual meetings of stockholders
for the election of directors, and for such other business as may be stated in
the notice of the meeting, shall be held at such place, either within or without
the State of Delaware, and at such time and date as the Board of Directors, by
resolution, shall determine and as set forth in the notice of the meeting. If
the Board of Directors fails so to determine the time, date and place of
meeting, the annual meeting of stockholders shall be held at the registered
office of the Corporation on the first Tuesday in April. If the date of the
annual meeting shall fall upon a legal holiday, the meeting shall be held on the
next succeeding business day. At each annual meeting, the stockholders entitled
to vote shall elect a
<PAGE> 2
Board of Directors and they may transact such other corporate business as shall
be stated in the notice of the meeting.
SECTION 2. SPECIAL MEETINGS -- Special meetings of the
stockholders for any purpose or purposes may be called by the Chairman of the
Board, the President or the Secretary, or by resolution of the Board of
Directors, and shall be called by the Secretary at the request of a stockholder
having the right to do so under the Stockholders Agreement, dated as of April
30, 1996, by and among AMF Holdings Inc., a Delaware corporation ("Holdings")
and the parties listed on the signature pages thereto (as amended, the
"Stockholders Agreement").
SECTION 3. VOTING -- Each stockholder entitled to vote in
accordance with the terms of the Certificate of Incorporation of the Corporation
and these By-Laws may vote in person or by proxy, but no proxy shall be voted
after three years from its date unless such proxy provides for a longer period.
All elections for directors shall be decided by plurality vote; all other
questions shall be decided by majority vote except as otherwise provided by the
Certificate of Incorporation or the laws of the State of Delaware.
A complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, with the address of each, and the
number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is entitled to be present.
SECTION 4. QUORUM -- Except as otherwise required by law, by
the Certificate of Incorporation of the Corporation or by these By-Laws, the
presence, in person or by proxy, of stockholders holding shares constituting a
majority of the voting power of the Corporation shall constitute a quorum at all
meetings of the stockholders. In case a quorum shall not be present at any
meeting, a majority in interest of the stockholders entitled to vote thereat,
present in person or by proxy, shall have the power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until the
requisite amount of stock entitled to vote shall be present. At any such
adjourned meeting at which the requisite amount of stock entitled to vote shall
be represented, any business may be transacted that might have been transacted
at
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the meeting as originally noticed; but only those stockholders entitled to vote
at the meeting as originally noticed shall be entitled to vote at any
adjournment or adjournments thereof.
SECTION 5. NOTICE OF MEETINGS -- Written notice, stating the
place, date and time of the meeting, and the general nature of the business to
be considered, shall be given to each stockholder entitled to vote thereat, at
his or her address as it appears on the records of the Corporation, not less
than ten nor more than sixty days before the date of the meeting. No business
other than that stated in the notice shall be transacted at any meeting without
the unanimous consent of all the stockholders entitled to vote thereat.
SECTION 6. ACTION WITHOUT MEETING -- Unless otherwise provided
by the Certificate of Incorporation of the Corporation, any action required or
permitted to be taken at any annual or special meeting of stockholders may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM -- The business and affairs of the
Corporation shall be managed under the direction of a Board of Directors which
shall consist of not less than two persons. The exact number of directors shall
initially be nine and may thereafter be fixed from time to time by the Board of
Directors. Directors shall be elected at the annual meeting of stockholders and
each director shall be elected to serve until his or her successor shall be
elected and shall qualify. A director need not be a stockholder.
SECTION 2. RESIGNATIONS -- Any director may resign at any
time. Such resignation shall be made in writing, and shall take effect at the
time specified therein, and if no time be specified, at the time of its receipt
by the Chairman of the Board, the President or the Secretary. The acceptance of
a resignation shall not be necessary to make it effective.
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SECTION 3. VACANCIES -- If the office of any director becomes
vacant, the remaining directors in office, though less than a quorum, by a
majority vote, may, subject to the rights of the parties to the Stockholders
Agreement, as provided therein, appoint any qualified person to fill such
vacancy, who shall hold office for the unexpired term and until his or her
successor shall be duly chosen. If the office of any director becomes vacant and
there are no remaining directors, the stockholders, by the affirmative vote of
the holders of shares constituting a majority of the voting power of the
Corporation, at a special meeting called for such purpose, may appoint any
qualified person to fill such vacancy.
SECTION 4. REMOVAL -- Any director or directors may be removed
either for or without cause at any time by the affirmative vote of the holders
of a majority of the voting power entitled to vote for the election of
directors, at an annual meeting or a special meeting called for the purpose, and
the vacancy thus created may, subject to the rights of the parties to the
Stockholders Agreement, as provided therein, be filled, at such meeting, by the
affirmative vote of holders of shares constituting a majority of the voting
power of the Corporation. Directors may also be removed pursuant to the
procedures provided in the Stockholders Agreement.
SECTION 5. COMMITTEES -- The Board of Directors may, by
resolution or resolutions passed by a majority of the whole Board of Directors,
designate one or more committees, each committee to consist of one or more
directors of the Corporation.
Any such committee, to the extent provided in the resolution
of the Board of Directors, or in these By-Laws, shall have and may exercise all
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it.
At all times during the term of the Stockholders Agreement
there shall be an "Executive Committee" of the Board which shall consist of two
members, each of whom shall be a GSCP Director (as defined in the Stockholders
Agreement). The Executive Committee shall be authorized to exercise all of the
powers and authority of the Board to the fullest extent permitted under the
Delaware Law, including the power and authority to declare a dividend, to
authorize the issuance of stock and to adopt a certificate of ownership and
merger pursuant to Section 253 of the Delaware Law, except as otherwise
expressly provided in Section 1.1.8(b) of the Stockholders Agreement and, in the
case of the matters referred to in Section 1.1.8(c) of
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the Stockholders Agreement, only after a meeting of the Board with respect to
such matters.
SECTION 6. MEETINGS -- The newly elected directors may hold
their first meeting for the purpose of organization and the transaction of
business, if a quorum be present, immediately after the annual meeting of the
stockholders; or the time and place of such meeting may be fixed by consent of
all the Directors.
A regular meeting of the Board shall be held in each fiscal
quarter on such date and at such time and place as fixed by the Chairman of the
Board at the last preceding meeting of the Board (or, in his absence, a majority
of the directors present), provided that if not then so fixed, then as
thereafter fixed by the Chairman of the Board. A special meeting of the Board
may be called only by the Chairman of the Board. At least one day's notice shall
be given to each member of the Board prior to any meeting (annual, regular or
special) of the Board unless such notice shall have been waived in accordance
with the General Corporation Law of the State of Delaware ("Delaware Law").
Unless otherwise restricted by the Certificate of
Incorporation of the Corporation or these By-Laws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in any meeting of the Board of Directors or any committee thereof by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
SECTION 7. QUORUM -- A majority of the number of Directors
then in office, but not less than one-third the number of Directors constituting
the whole Board of Directors (including vacancies), including, in any case, at
least one GSCP Director (as defined in the Stockholders Agreement) shall
constitute a quorum for the transaction of business. If at any meeting of the
Board of Directors there shall be less than a quorum present, a majority of
those present may adjourn the meeting from time to time until a quorum is
obtained, and no further notice thereof need be given other than by announcement
at the meeting which shall be so adjourned. The vote of the majority of the
Directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors unless the Certificate of Incorporation of the
Corporation, these By-Laws or the Stockholders Agreement shall require the vote
of a greater number.
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SECTION 8. ACTION WITHOUT MEETING -- Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if a written consent thereto is
signed by all members of the Board of Directors or of such committee, as the
case may be, and such written consent is filed with the minutes of proceedings
of the Board of Directors or such committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS -- The officers of the Corporation shall
be a President, one or more Vice Presidents, a Treasurer and a Secretary, all of
whom shall be elected by the Board of Directors and shall hold office until
their successors are duly elected and qualified. In addition, the Board of
Directors may elect such Assistant Secretaries and Assistant Treasurers as they
may deem proper. The Board of Directors may appoint such other officers and
agents as it may deem advisable, who shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be determined from
time to time by the Board of Directors.
SECTION 2. CHAIRMAN OF THE BOARD -- The Chairman of the Board
shall not be an officer of the corporation. He or she shall preside at all
meetings of the Board of Directors and shall have and perform such other duties
as may be assigned to him or her by the Board of Directors.
SECTION 3. PRESIDENT -- The President shall be the Chief
Executive Officer of the Corporation. He or she shall have the general powers
and duties of supervision and management usually vested in the office of
President of a corporation. The President shall have the power to execute bonds,
mortgages and other contracts on behalf of the Corporation, and to cause the
seal to be affixed to any instrument requiring it, and when so affixed the seal
shall be attested to by the signature of the Secretary or the Treasurer or an
Assistant Secretary or an Assistant Treasurer.
SECTION 4. VICE PRESIDENTS -- Each Vice President shall have
such powers and shall perform such duties as shall be assigned to him or her by
the Board of Directors.
SECTION 5. TREASURER -- The Treasurer shall be the Chief
Financial Officer of the Corporation. He or she shall have the custody of the
Corporate funds and securities and
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<PAGE> 7
shall keep full and accurate account of receipts and disbursements in books
belonging to the Corporation. He or she shall deposit all moneys and other
valuables in the name and to the credit of the Corporation in such depositaries
as may be designated by the Board of Directors. He or she shall disburse the
funds of the Corporation as may be ordered by the Board of Directors or the
President, taking proper vouchers for such disbursements. He or she shall render
to the Chairman of the Board, the President and Board of Directors at the
regular meetings of the Board of Directors, or whenever they may request it, an
account of all his or her transactions as Treasurer and of the financial
condition of the Corporation. If required by the Board of Directors, he or she
shall give the Corporation a bond for the faithful discharge of his or her
duties in such amount and with such surety as the Board of Directors shall
prescribe.
SECTION 6. SECRETARY -- The Secretary shall give, or cause to
be given, notice of all meetings of stockholders and of the Board of Directors
and all other notices required by law or by these By-Laws, and in case of his or
her absence or refusal or neglect so to do, any such notice may be given by any
person thereunto directed by the Chairman of the Board or the President, or by
the Board of Directors, upon whose request the meeting is called as provided in
these By-Laws. He or she shall record all the proceedings of the meetings of the
Board of Directors, any committees thereof and the stockholders of the
Corporation in a book to be kept for that purpose, and shall perform such other
duties as may be assigned to him or her by the Board of Directors, the Chairman
of the Board or the President. He or she shall have the custody of the seal of
the Corporation and shall affix the same to all instruments requiring it, when
authorized by the Board of Directors, the Chairman of the Board or the
President, and attest to the same.
SECTION 7. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES
- --Assistant Treasurers and Assistant Secretaries, if any, shall be elected and
shall have such powers and shall perform such duties as shall be assigned to
them, respectively, by the Board of Directors.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK -- A certificate of stock
shall be issued to each stockholder certifying the number of shares owned by
such stockholder in the Corporation. Certificates of stock of the Corporation
shall be of such form and
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<PAGE> 8
device as the Board of Directors may from time to time determine.
SECTION 2. LOST CERTIFICATES -- A new certificate of stock may
be issued in the place of any certificate theretofore issued by the Corporation,
alleged to have been lost or destroyed, and the Board of Directors may, in its
discretion, require the owner of the lost or destroyed certificate, or such
owner's legal representatives, to give the Corporation a bond, in such sum as
they may direct, not exceeding double the value of the stock, to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss of any such certificate, or the issuance of any such new
certificate.
SECTION 3. TRANSFER OF SHARES -- The shares of stock of the
Corporation shall be transferable only upon its books by the holders thereof in
person or by their duly authorized attorneys or legal representatives, and upon
such transfer the old certificates shall be surrendered to the Corporation by
the delivery thereof to the person in charge of the stock and transfer books and
ledgers, or to such other person as the Board of Directors may designate, by
whom they shall be cancelled, and new certificates shall thereupon be issued. A
record shall be made of each transfer and whenever a transfer shall be made for
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer.
SECTION 4. STOCKHOLDERS RECORD DATE -- In order that the
Corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors and which
record date: (1) in the case of determination of stockholders entitled to vote
at any meeting of stockholders or adjournment thereof, shall, unless otherwise
required by law, not be more than sixty nor less than ten days before the date
of such meeting; (2) in the case of determination of stockholders entitled to
express consent to corporate action in writing without a meeting, shall not be
more than ten days from the date upon which the resolution fixing the record
date is adopted by the Board of Directors; and (3) in the case of any other
action, shall not be more than sixty days prior to such other action. If no
record date is fixed: (1) the record
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<PAGE> 9
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held; (2) the record
date for determining stockholders entitled to express consent to corporate
action in writing without a meeting when no prior action of the Board of
Directors is required by law, shall be the first day on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the Corporation in accordance with applicable law, or, if prior action by the
Board of Directors is required by law, shall be at the close of business on the
day on which the Board of Directors adopts the resolution taking such prior
action; and (3) the record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
SECTION 5. DIVIDENDS -- Subject to the provisions of the
Certificate of Incorporation of the Corporation, the Board of Directors may, out
of funds legally available therefor at any regular or special meeting, declare
dividends upon stock of the Corporation as and when they deem appropriate.
Before declaring any dividend there may be set apart out of any funds of the
Corporation available for dividends, such sum or sums as the Board of Directors
from time to time in their discretion deem proper for working capital or as a
reserve fund to meet contingencies or for equalizing dividends or for such other
purposes as the Board of Directors shall deem conducive to the interests of the
Corporation.
SECTION 6. SEAL -- The corporate seal of the Corporation shall
be in such form as shall be determined by resolution of the Board of Directors.
Said seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise imprinted upon the subject document or paper.
SECTION 7. FISCAL YEAR -- The fiscal year of the Corporation
shall be determined by resolution of the Board of Directors.
SECTION 8. CHECKS -- All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be
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<PAGE> 10
signed by such officer or officers, or agent or agents, of the Corporation, and
in such manner as shall be determined from time to time by resolution of the
Board of Directors.
SECTION 9. NOTICE AND WAIVER OF NOTICE -- Whenever any notice
is required to be given under these By-Laws, personal notice is not required
unless expressly so stated, and any notice so required shall be deemed to be
sufficient if given by depositing the same in the United States mail, postage
prepaid, addressed to the person entitled thereto at his or her address as it
appears on the records of the Corporation, and such notice shall be deemed to
have been given on the day of such mailing. Stockholders not entitled to vote
shall not be entitled to receive notice of any meetings except as otherwise
provided by law. Whenever any notice is required to be given under the
provisions of any law, or under the provisions of the Certificate of
Incorporation of the Corporation or of these By-Laws, a waiver thereof, in
writing and signed by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be deemed equivalent to such
required notice.
ARTICLE VI
AMENDMENTS
These By-Laws may be altered, amended or repealed at any
annual meeting of the stockholders (or at any special meeting thereof if notice
of such proposed alteration, amendment or repeal to be considered is contained
in the notice of such special meeting) by the affirmative vote of the holders of
shares constituting a majority of the voting power of the Corporation. Except as
otherwise provided in the Certificate of Incorporation of the Corporation or in
the Stockholders Agreement, the Board of Directors may by majority vote of those
present at any meeting at which a quorum is present alter, amend or repeal these
By-Laws, or enact such other By-Laws as in their judgment may be advisable for
the regulation and conduct of the affairs of the Corporation.
-10-
<PAGE> 1
EXHIBIT 4.1
[SPECIMEN COMMON STOCK CERTIFICATE]
[FACE OF CERTIFICATE]
NUMBER SHARES
COMMON STOCK
[LOGO]
INCORPORATED UNDER THE LAWS OF
THE STATE OF DELAWARE
CUSIP 03113V 10 9
SEE REVERSE FOR
CERTAIN DEFINITIONS
This Certifies that is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
AMF Bowling, Inc. (hereinafter called the "Corporation"), transferable on the
books of the Corporation by the holder hereof in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
is not valid until countersigned by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
[SEAL]
Dated:
/s/ Stephen E. Hare /s/ Douglas J. Strand
Executive Vice President, Treasurer President and Chief
and Chief Financial Officer Executive Officer
Countersigned and Registered:
ChaseMellon Shareholder Services, L.L.C.
By: _______________________________
Authorized Signature
Transfer Agent and Registrar
<PAGE> 2
[BACK OF CERTIFICATE]
AMF Bowling, Inc.
The Corporation will furnish without charge to each stockholder who so requests
a statement of the powers, designations, preferences and relative participating,
optional or other special rights of each class of stock or series thereof of the
Corporation and the qualifications, limitations or restrictions of such
preferences and/or rights. Such request may be made to the Corporation or the
Transfer Agent.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM ? as tenants in common
TEN ENT ? as tenants by the entireties
JT TEN ? as joint tenants with right of
TEN COM ? survivorship and not as tenants
TEN COM ? in common
UNIF GIFT MIN ACT ? Custodian
(Cust) (Minor)
under Uniform Gifts to Minors
Act
(State)
Additional abbreviations may also be used though not in the above list.
For value received,the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
<PAGE> 3
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
(Signature)
NOTICE:
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 5.1
October 29, 1997
AMF Bowling, Inc.
8100 AMF Drive
Richmond, Virginia 23111
Ladies and Gentlemen:
In connection with the registration of 14,375,000 shares of
common stock, par value $.01 per share (the "Shares"), of AMF Bowling, Inc. (the
"Company") under the Securities Act of 1933, as amended, on Form S-1 filed with
the Securities and Exchange Commission (the "Commission") on August 21, 1997
(File No. 333-34099), as amended by Amendment No. 1 filed with the Commission on
October 6, 1997 (collectively, and as it may be further amended, the
"Registration Statement"), you have requested our opinion with respect to the
following matters.
In connection with the delivery of this opinion, we have
examined originals or copies of the Restated Certificate of Incorporation and
Restated By-Laws of the Company as set forth as exhibits to the Registration
Statement, the Registration Statement, certain resolutions adopted or to be
adopted by the Board of Directors, the form of stock certificate representing
the Shares and such other records, agreements, instruments, certificates and
other documents of public officials, the Company and its officers and
representatives and have made such inquiries of the Company and its officers and
representatives, as we have deemed necessary or appropriate in connection with
the opinions set forth herein. We are familiar with the proceedings heretofore
taken, and with the additional proceedings proposed to be taken, by the Company
in connection with the authorization, registration, issuance and sale of the
Shares. With respect to certain factual matters material to
<PAGE> 2
AMF Bowling, Inc.
October 29, 1997
Page 2
our opinion, we have relied upon representations from, or certificates of,
officers of the Company. In making such examination and rendering the opinions
set forth below, we have assumed without verification the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
authenticity of the originals of such documents submitted to us as certified
copies, the conformity to originals of all documents submitted to us as copies,
the authenticity of the originals of such latter documents, and that all
documents submitted to us as certified copies are true and correct copies of
such originals.
Based on such examination and review, and subject to the
foregoing, we are of the opinion that the Shares have been duly authorized and,
upon issuance, delivery and payment therefor in the manner contemplated by the
Registration Statement, will be validly issued, fully paid and non-assessable.
We are members of the Bar of the State of New York, and we
have not considered, and we express no opinion as to, the laws of any
jurisdiction other than the laws of the United States of America, State of New
York and the General Corporation Law of the State of Delaware.
We consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm in the Prospectus that
is a part of the Registration Statement. In giving such consent, we do not
hereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933.
Very truly yours,
/s/ Wachtell, Lipton, Rosen & Katz
<PAGE> 1
EXHIBIT 10.2
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of November 3, 1997
Among
AMF BOWLING WORLDWIDE, INC.
as Borrower
and
THE INITIAL LENDERS AND INITIAL ISSUING BANKS
and
GOLDMAN SACHS CREDIT PARTNERS L.P.
and
CITICORP SECURITIES, INC.
as Arrangers
and
GOLDMAN SACHS CREDIT PARTNERS L.P.
as Syndication Agent
and
CITIBANK, N.A.
as Administrative Agent
and
CITICORP USA, INC.
as Collateral Agent
<PAGE> 2
T A B L E O F C O N T E N T S
<TABLE>
<CAPTION>
Section Page
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
<S> <C> <C>
1.01. Certain Defined Terms........................................................................... 3
1.02. Computation of Time Periods..................................................................... 39
1.03. Accounting Terms................................................................................ 39
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
AND THE LETTERS OF CREDIT
2.01. The Advances.................................................................................... 39
2.02. Making the Advances............................................................................. 42
2.03. Issuance of and Drawings and Reimbursement Under Letters of Credit.............................. 44
2.04. Repayment of Advances........................................................................... 46
2.05. Termination or Reduction of the Commitments..................................................... 50
2.06. Prepayments..................................................................................... 51
2.07. Interest........................................................................................ 56
2.08. Fees............................................................................................ 57
2.09. Conversion of Advances.......................................................................... 58
2.10. Increased Costs, Etc............................................................................ 59
2.11. Payments and Computations....................................................................... 60
2.12. Taxes........................................................................................... 62
2.13. Sharing of Payments, Etc........................................................................ 64
2.14. Use of Proceeds................................................................................. 65
2.15. Defaulting Lenders.............................................................................. 66
ARTICLE III
CONDITIONS OF LENDING
3.01. Conditions Precedent to Initial Extension of Credit............................................. 68
3.02. Conditions Precedent to Each Borrowing and Issuance............................................. 78
3.03. Determinations Under Section 3.01............................................................... 79
3.04. Conditions Precedent to the Making of the New AXELs Series B Advances........................... 79
3.05. Conditions Precedent to the Effectiveness of the Third Amendment................................ 82
</TABLE>
<PAGE> 3
ii
<TABLE>
<CAPTION>
Section Page
<S> <C> <C>
3.06. Determinations Under Sections 3.04 and 3.05..................................................... 86
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.01. Representations and Warranties of the Borrower.................................................. 86
ARTICLE V
COVENANTS OF THE BORROWER
5.01. Affirmative Covenants........................................................................... 96
5.02. Negative Covenants..............................................................................107
5.03. Reporting Requirements..........................................................................117
5.04. Financial Covenants.............................................................................122
ARTICLE VI
EVENTS OF DEFAULT
6.01. Events of Default...............................................................................127
6.02. Actions in Respect of the Letters of Credit upon Default........................................130
ARTICLE VII
THE AGENTS
7.01. Authorization and Action........................................................................131
7.02. Agents' Reliance, Etc...........................................................................131
7.03. Citibank, Citicorp, Goldman and Affiliates......................................................132
7.04. Lender Party Credit Decision....................................................................132
7.05. Indemnification.................................................................................132
7.06. Successor Agents................................................................................134
ARTICLE VIII
MISCELLANEOUS
8.01. Amendments, Etc.................................................................................135
</TABLE>
<PAGE> 4
iii
<TABLE>
<CAPTION>
Section Page
<S> <C> <C>
8.02. Notices, Etc....................................................................................137
8.03. No Waiver; Remedies.............................................................................137
8.04. Costs and Expenses..............................................................................137
8.05. Right of Set-off................................................................................139
8.06. Binding Effect..................................................................................140
8.07. Assignments and Participations..................................................................140
8.08. Execution in Counterparts.......................................................................144
8.09. No Liability of the Issuing Banks...............................................................144
8.10. Confidentiality.................................................................................144
8.11. Jurisdiction, Etc...............................................................................145
8.12. Release of Collateral...........................................................................145
8.13. Governing Law; Waiver of Jury Trial.............................................................146
</TABLE>
SCHEDULES
<TABLE>
<CAPTION>
<S> <C> <C>
Schedule I - Commitments and Applicable Lending Offices
Schedule II - Subsidiary Guarantors
Schedule III - Stockholders' Agreement
Schedule 3.01(e) - Surviving Debt
Schedule 3.01(p)(xx) - Local Counsel
Schedule 4.01(a) - Equity Investors' Ownership of Parent
Schedule 4.01(b) - Subsidiaries
Schedule 4.01(d) - Authorizations, Approvals, Actions, Notices and Filings
Schedule 4.01(m) - Plans, Multiemployer Plans and Welfare Plans
Schedule 4.01(v) - Environmental Laws Disclosure
Schedule 4.01(w) - Environmental Disclosure
Schedule 4.01(x) - Hazardous Materials Disclosure
</TABLE>
<PAGE> 5
iv
<TABLE>
<CAPTION>
<S> <C> <C>
Schedule 4.01(bb) - Open Years
Schedule 4.01(ff) - Acquisitions by AMF Bowling Centers
Schedule 4.01(ii) - Existing Debt
Schedule 4.01(kk) - Owned Real Property
Schedule 4.01(ll) - Leased Real Property
Schedule 4.01(mm) - Investments
Schedule 4.01(nn) - Intellectual Property
Schedule 5.01(l) - Transactions with Affiliates
Schedule 5.02(a) - Existing Liens
Schedule 5.02(g) - Non-competition Agreements
EXHIBITS
Exhibit A-1 - Form of Term Loan Note
Exhibit A-2 - Form of AXELs Series A Note
Exhibit A-3 - Form of AXELs Series B Note
Exhibit A-4 - Form of Working Capital Note
Exhibit B - Form of Notice of Borrowing
Exhibit C - Form of Assignment and Acceptance
Exhibit D - Form of Security Agreement
Exhibit E - Form of Intellectual Property Security Agreement
Exhibit F - Form of Mortgage
Exhibit G - Form of Holdings Guaranty
</TABLE>
<PAGE> 6
v
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit H - Form of Subsidiary Guaranty
Exhibit I - Form of Solvency Opinion
Exhibit J - Form of Solvency Certificate
Exhibit K - Form of Opinion of Counsel to the Loan Parties
Exhibit L - Form of Opinion of Intellectual Property Counsel
Exhibit M - Form of Mortgage Amendment
Exhibit N - Form of Opinion of Counsel to the Loan Parties regarding
Amendment No. 3 to the Original Credit Agreement
Exhibit O - Form of Opinion of Daniel McCormack, General Counsel for
the Borrower regarding Amendment No. 3 to the Original
Credit Agreement
Exhibit P - Form of Second Mortgage Amendment
Exhibit Q - Form of Opinion of Counsel to the Loan Parties regarding
Amendment No. 2 to the Second Credit Agreement
Exhibit R - Form of Opinion of Counsel to the Loan Parties regarding
Amendment No. 1 to the Existing Credit Agreement
</TABLE>
<PAGE> 7
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of
November 3, 1997 among AMF BOWLING WORLDWIDE, INC. (formerly known as AMF Group
Inc.), a Delaware corporation (the "Borrower"), the banks, financial
institutions and other institutional lenders listed on the signature pages
hereof as the Initial Lenders (the "Initial Lenders") and the banks listed on
the signature pages hereof as the Initial Issuing Banks (the "Initial Issuing
Banks"), GOLDMAN SACHS CREDIT PARTNERS L.P. ("Goldman") and CITICORP SECURITIES,
INC., as arrangers (the "Arrangers"), GOLDMAN, as syndication agent (together
with any successor appointed pursuant to Article VII, the "Syndication Agent"),
CITIBANK, N.A. ("Citibank"), as administrative agent (together with any
successor appointed pursuant to Article VII, the "Administrative Agent") for the
Lender Parties (as hereinafter defined) and CITICORP USA, INC. ("Citicorp") as
collateral agent (together with any successor appointed pursuant to Article VII,
the "Collateral Agent", and together with the Syndication Agent and the
Administrative Agent, the "Agents").
PRELIMINARY STATEMENTS:
(1) The Borrower has previously entered into a Credit
Agreement dated as of May 1, 1996 (as amended, supplemented or otherwise
modified through but not including the Second Closing Date, the "Original Credit
Agreement") with certain Lender Parties and the Agents party thereto.
(2) The Borrower, certain Lender Parties and the Agents
amended and restated the Original Credit Agreement and entered into an Amended
and Restated Credit Agreement dated as of December 20, 1996 (as amended,
supplemented or otherwise modified through but not including the Third Closing
Date (as hereinafter defined), the "Second Credit Agreement").
(3) The Borrower, certain lenders (the "Existing Lenders"),
certain other Lender Parties and the Agents amended and restated the Second
Credit Agreement and entered into a Second Amended and Restated Credit Agreement
dated as of June 30, 1997 (as amended, supplemented or otherwise modified
through but not including the date hereof, the "Existing Credit Agreement").
(4) The Borrower is a direct, wholly owned Subsidiary (as
hereinafter defined) of AMF Group Holdings Inc., a Delaware corporation
("Holdings"), which is a direct, wholly owned Subsidiary of AMF Bowling, Inc.
(formerly known as AMF Holdings Inc.), a Delaware corporation ("Parent").
(5) Parent and Holdings were organized by GS Capital Partners
II, L.P., GS Capital Partners II Offshore, L.P. and Goldman, Sachs & Co.
Verwaltungs GmbH (collectively, together with The Goldman Sachs Group L.P.,
Stone Street Fund 1995 L.P.,
<PAGE> 8
2
Stone Street Fund 1996 L.P., Bridge Street Fund 1995 L.P. and Bridge Street Fund
1996 L.P. and in each case any successor funds, the "Goldman Investors") to
acquire control, together with the other Equity Investors (as hereinafter
defined), of AMF Bowling, Inc., a Virginia corporation, AMF Bowling Centers,
Inc., a Virginia corporation, AMF Worldwide Bowling Centers Group and their
respective Subsidiaries (collectively, the "Company").
(6) Pursuant to the Stock Purchase Agreement dated February
16, 1996 (as amended, supplemented or otherwise modified in accordance with its
terms, to the extent permitted in accordance with the Loan Documents (as
hereinafter defined), the "Purchase Agreement") between Holdings and the Sellers
(as defined therein), Holdings proposed to acquire all of the outstanding common
stock of the Company (the "Stock Acquisition"), in the case of AMF Bowling and
AMF Bowling Centers (each as hereinafter defined), through two intermediate
holding company Subsidiaries (the "Intermediate Companies"), and to acquire from
the Retained Entities and WBB (each as defined in the Purchase Agreement)
certain assets (the "Asset Acquisition", and together with the Stock
Acquisition, the "Acquisition"). Immediately upon the consummation of the
Acquisition, one of the Intermediate Companies was merged into AMF Bowling and
the other Intermediate Company was merged into AMF Bowling Centers.
(7) On August 21, 1997, Parent filed a Form S-1 with the
Securities and Exchange Commission (the "Form S-1") in connection with an
initial public offering (the "IPO") of its common stock for gross cash proceeds
of up to $250,000,000. Parent will use the Net Cash Proceeds from the IPO to
make a capital contribution to the Borrower. The Borrower has requested that the
Existing Lenders and the Agents amend the Existing Credit Agreement in order to,
among other things, permit the Borrower to convert the outstanding Acquisition
Commitments and Acquisition B Commitments and certain outstanding Term Loan
Commitments (each as defined in the Existing Credit Agreement) into Working
Capital Commitments, prepay a portion of outstanding Working Capital Advances on
a temporary basis and prepay a portion of the Subordinated Notes (as hereinafter
defined).
(8) The Existing Lenders and the Agents have agreed to amend
and restate the Existing Credit Agreement on the terms hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements contained herein, the parties hereto hereby
agree as follows:
<PAGE> 9
3
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
"Acquisition" has the meaning specified in the Preliminary
Statements.
"Adjusted EBITDA" means, at any time, in the case of any New
Center, the product of (a) the Average EBITDA Margin calculated as of
the end of the fiscal quarter immediately preceding the fiscal quarter
in which the time of the acquisition or construction of such New Center
(within the meaning of the definition of "New Center" contained in this
Section 1.01) occurs and (b) the Specified Revenues of such New Center.
"Administrative Agent" has the meaning specified in the
recital of parties to this Agreement.
"Administrative Agent's Account" means the account of the
Administrative Agent maintained by the Administrative Agent with
Citibank at its office at 399 Park Avenue, New York, New York 10043,
Account No. 3885-8061, Attention: Alexandra Lozovsky.
"Advance" means a Term Loan Advance, an AXELs Series A
Advance, an AXELs Series B Advance, a Working Capital Advance or a
Letter of Credit Advance.
"Affiliate" means, as to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common
control with such Person or is a director or officer of such Person.
For purposes of this definition, the term "control" (including the
terms "controlling," "controlled by" and "under common control with")
of a Person means the possession, direct or indirect, of the power to
vote 5% or more of the Voting Stock of such Person or to direct or
cause the direction of the management and policies of such Person,
whether through the ownership of Voting Stock, by contract or
otherwise.
"Agents" has the meaning specified in the recital of parties
to this Agreement.
"AMF Bowling Centers" means AMF Bowling Centers, Inc., a
Virginia corporation and an indirect wholly owned Subsidiary of the
Borrower.
<PAGE> 10
4
"AMF Bowling Products" means AMF Bowling Products, Inc., a
Virginia corporation and an indirect wholly owned Subsidiary of the
Borrower.
"AMF Worldwide" means AMF Worldwide Bowling Centers Holdings
Inc., a Delaware corporation and an indirect wholly owned Subsidiary of
the Borrower.
"Applicable Lending Office" means, with respect to each Lender
Party, such Lender Party's Domestic Lending Office in the case of a
Base Rate Advance and such Lender Party's Eurodollar Lending Office in
the case of a Eurodollar Rate Advance.
"Applicable Margin" means (a) from the Fourth Closing Date
until the one-year anniversary of the Fourth Closing Date, a percentage
per annum determined by reference to the Total Debt/EBITDA Ratio as set
forth below:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
APPLICABLE
FACILITY TOTAL APPLICABLE MARGIN MARGIN FOR
DEBT/EBITDA FOR BASE RATE EURODOLLAR RATE
RATIO ADVANCES ADVANCES
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Working Capital Level I
Facility and Term less than or equal to 0.750% 1.750%
Loan Facility 5.50:1
Level II
greater than 5.50:1 0.875% 1.875%
-----------------------------------------------------------------------------------------------------
AXELs Series Level I
A Facility less than or equal to 1.000% 2.000%
5.50:1
Level II
greater than 5.50:1 1.125% 2.125%
-----------------------------------------------------------------------------------------------------
AXELs Series Level I
B Facility and New less than or equal to 1.250% 2.250%
AXELs Series B 5.50:1
Facility
Level II
greater than 5.50:1 1.375% 2.375%
-----------------------------------------------------------------------------------------------------
</TABLE>
and (b) thereafter, a percentage per annum determined by reference to
the Total Debt/EBITDA Ratio as set forth below:
<PAGE> 11
5
<TABLE>
<CAPTION>
===============================================================================================
APPLICABLE
FACILITY TOTAL APPLICABLE MARGIN MARGIN FOR
DEBT/EBITDA FOR BASE RATE EURODOLLAR RATE
RATIO ADVANCES ADVANCES
===============================================================================================
<S> <C> <C> <C> <C>
Working Level I
Capital Facility less than or equal 0.000% 0.750%
and Term Loan to 3.5:1
Facility
Level II
greater than 3.5:1 0.000% 1.000%
but less than or
equal to 4.25:1
Level III
greater than 4.25:1 0.500% 1.500%
but less than or
equal to 4.75:1
Level IV
greater than 4.75:1 0.750% 1.750%
but less than or
equal to 5.50:1
Level V
greater than 5.50:1 0.875% 1.875%
===============================================================================================
</TABLE>
<PAGE> 12
6
<TABLE>
<CAPTION>
================================================================================================
<S> <C> <C> <C> <C>
AXELs Series A Level I
Facility less than or equal 0.875% 1.875%
to 4.00:1
Level II
greater than 4.00:1
but less than or 1.000% 2.000%
equal to 5.50:1
Level III
greater than 5.50:1
1.125% 2.125%
================================================================================================
AXELs Series B Level I
Facility and New less than or equal 1.125% 2.125%
AXELs Series B to 4.00:1
Facility
Level II
greater than 4.00:1
but less than or 1.250% 2.250%
equal to 5.50:1
Level III
greater than 5.50:1
1.375% 2.375%
================================================================================================
</TABLE>
The Applicable Margin for each Base Rate Advance shall be determined by
reference to the ratio in effect from time to time and the Applicable
Margin for each Eurodollar Rate Advance shall be determined by
reference to the ratio in effect on the first day of each Interest
Period for such Advance; provided, however, that (A) no change in the
Applicable Margin shall be effective until three Business Days after
the date on which the Administrative Agent receives the relevant
Financial Statements and a certificate of a Designated Financial
Officer demonstrating such ratio, and (B) the Applicable Margin shall
be at the numerically highest level then applicable for so long as the
Borrower has not submitted to the Administrative Agent the information
described in clause (A) of this proviso as and when required under
Section 5.03(b) or (c), as the case may be.
"Appropriate Lender" means, at any time, with respect to (a)
any of the Term Loan Facility, the AXELs Series A Facility or the
Working Capital Facility, a Lender
<PAGE> 13
7
that has a Commitment with respect to such Facility at such time, (b)
the AXELs Series B Facility, (i) on and prior to the making of the New
AXELs Series B Advances, an Existing AXELs Series B Lender or a New
AXELs Series B Lender, as the context may require, and (ii) thereafter,
an AXELs Series B Lender and (c) the Letter of Credit Facility, (i) any
Issuing Bank and (ii) if the other Working Capital Lenders have made
Letter of Credit Advances pursuant to Section 2.03(c) that are
outstanding at such time, each such other Working Capital Lender.
"Arrangers" has the meaning specified in the recital of
parties to this Agreement.
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender Party and an Eligible Assignee, and accepted
by the Administrative Agent, in accordance with Section 8.07 and in
substantially the form of Exhibit C hereto.
"Available Amount" of any Letter of Credit means, at any time,
the maximum amount available to be drawn under such Letter of Credit at
such time (assuming compliance at such time with all conditions to
drawing).
"Average EBITDA Margin" means, at any time of determination,
an amount equal to (a) the sum of Consolidated EBITDA of AMF Bowling
Centers and its Subsidiaries and Consolidated EBITDA of AMF Worldwide
and its Subsidiaries divided by (b) the sum of Consolidated revenues of
AMF Bowling Centers and its Subsidiaries and Consolidated revenues of
AMF Worldwide and its Subsidiaries, in each case for the 12-month
period reflected in the most recent Financial Statements.
"AXELs Series A Advance" has the meaning specified in Section
2.01(b).
"AXELs Series A Borrowing" means a borrowing consisting of
simultaneous AXELs Series A Advances of the same Type made by the AXELs
Series A Lenders.
"AXELs Series A Commitment" means, with respect to any AXELs
Series A Lender at any time, the amount set forth opposite such
Lender's name on Schedule I hereto under the caption "AXELs Series A
Commitment" or, if such Lender has entered into one or more Assignments
and Acceptances, set forth for such Lender in the Register maintained
by the Administrative Agent pursuant to Section 8.07(d) as such
Lender's "AXELs Series A Commitment", as such amount may be reduced at
or prior to such time pursuant to Section 2.05.
"AXELs Series A Facility" means, at any time, the aggregate
amount of the AXELs Series A Lenders' AXELs Series A Commitments at
such time.
<PAGE> 14
8
"AXELs Series A Lender" means any Lender that has an AXELs
Series A Commitment.
"AXELs Series A Note" means a promissory note of the Borrower
payable to the order of any AXELs Series A Lender, in substantially the
form of Exhibit A-2 hereto, evidencing the indebtedness of the Borrower
to such Lender resulting from the AXELs Series A Advance made by such
Lender.
"AXELs Series B Advance" means any Existing AXELs Series B
Advance or any New AXELs Series B Advance.
"AXELs Series B Borrowing" means a borrowing consisting of
simultaneous AXELs Series B Advances of the same Type made by the AXELs
Series B Lenders.
"AXELs Series B Commitment" means an Existing AXELs Series B
Commitment or a New AXELs Series B Commitment.
"AXELs Series B Facility" means, at any time, the aggregate
amount of the AXELs Series B Lenders' AXELs Series B Commitments at
such time.
"AXELs Series B Lender" means any Existing AXELs Series B
Lender or any New AXELs Series B Lender.
"AXELs Series B Note" means a promissory note of the Borrower
payable to the order of any AXELs Series B Lender, in substantially the
form of Exhibit A-3 hereto, evidencing the indebtedness of the Borrower
to such Lender resulting from the AXELs Series B Advance made by such
Lender.
"Bank Hedge Agreement" means any Hedge Agreement required or
permitted under Article V that is entered into by and between the
Borrower and any Hedge Bank.
"Base Rate" means a fluctuating interest rate per annum in
effect from time to time, which rate per annum shall at all times be
equal to the highest of:
(a) the rate of interest announced publicly by
Citibank in New York, New York, from time to time, as
Citibank's base rate;
(b) the sum (adjusted to the nearest 1/4 of 1% or, if
there is no nearest 1/4 of 1%, to the next higher 1/4 of 1%)
of (i) 1/2 of 1% per annum, plus (ii) the rate obtained by
dividing (A) the latest three-week moving average of secondary
market morning offering rates in the United States for
three-month certificates of deposit of major United States
money market banks, such three-week moving average (adjusted
to the basis of a year of 360 days)
<PAGE> 15
9
being determined weekly on each Monday (or, if such day is not
a Business Day, on the next succeeding Business Day) for the
three-week period ending on the previous Friday by Citibank on
the basis of such rates reported by certificate of deposit
dealers to and published by the Federal Reserve Bank of New
York or, if such publication shall be suspended or terminated,
on the basis of quotations for such rates received by Citibank
from three New York certificate of deposit dealers of
recognized standing selected by Citibank, by (B) a percentage
equal to 100% minus the average of the daily percentages
specified during such three-week period by the Board of
Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including, but
not limited to, any emergency, supplemental or other marginal
reserve requirement) for Citibank with respect to liabilities
consisting of or including (among other liabilities)
three-month U.S. dollar non-personal time deposits in the
United States, plus (iii) the average during such three-week
period of the annual assessment rates estimated by Citibank
for determining the then current annual assessment payable by
Citibank to the Federal Deposit Insurance Corporation (or any
successor) for insuring U.S. dollar deposits of Citibank in
the United States; and
(c) 1/2 of 1% per annum above the Federal Funds Rate.
"Base Rate Advance" means an Advance that bears interest as
provided in Section 2.07(a)(i).
"Blocked Accounts" has the meaning specified in the Security
Agreement.
"Borrower" has the meaning specified in the recital of parties
to this Agreement.
"Borrower's Account" means the account of the Borrower
maintained by the Borrower with The Chase Manhattan Bank, N.A. at its
office at One Chase Plaza, New York, New York 10081, Account No.
001-71281-9-01 or such other account of the Borrower maintained by the
Borrower in the United States as the Borrower shall designate in
writing to the Administrative Agent.
"Borrowing" means a Term Loan Borrowing, an AXELs Series A
Borrowing, an AXELs Series B Borrowing or a Working Capital Borrowing.
"Business Day" means a day of the year on which banks are not
required or authorized by law to close in New York City and, if the
applicable Business Day relates to any Eurodollar Rate Advances, on
which dealings in U.S. dollar deposits are carried on in the London
interbank market.
<PAGE> 16
10
"Capital Expenditures" means, for any Person for any period,
the sum of (a) all expenditures made, directly or indirectly, by such
Person or any of its Subsidiaries during such period for equipment,
fixed assets, real property or improvements, or for replacements or
substitutions therefor or additions thereto, that have been or should
be, in accordance with GAAP, reflected as additions to property, plant
or equipment on a Consolidated balance sheet of such Person or have a
useful life of more than one year plus (b) the aggregate principal
amount of all Debt (including Obligations under Capitalized Leases)
assumed or incurred in connection with any such expenditures; provided,
however, that the following shall in any event be excluded from the
definition of Capital Expenditures: any such expenditures made with, or
subsequently reimbursed out of, the proceeds of insurance, condemnation
awards (or payments in lieu thereof), indemnity payments or payments in
respect of judgments or settlements received from third parties for
purposes of replacing or repairing the assets in respect of which such
proceeds, awards or payments were received, so long as such
expenditures are commenced within 3 months of the later of the
occurrence of the damage to or loss of the assets being replaced or
repaired and the receipt of such proceeds, awards or payments in
respect thereof; provided further, however, that notwithstanding
anything contained herein, Capital Expenditures shall not include any
Investments.
"Capitalized Leases" means all leases that have been or should
be, in accordance with GAAP, recorded as capitalized leases.
"Cash Collateral Account" has the meaning specified in the
Security Agreement.
"Cash Equivalents" means any of the following, to the extent
owned by the Borrower or any of its Subsidiaries free and clear of all
Liens other than Liens created under the Collateral Documents and
having a maturity of not greater than 90 days from the date of
acquisition thereof: (a) readily marketable direct obligations of the
Government of the United States or any agency or instrumentality
thereof or obligations unconditionally guaranteed by the full faith and
credit of the Government of the United States, (b) insured certificates
of deposit of or time deposits with any commercial bank that is a
Lender Party or a member of the Federal Reserve System, issues (or the
parent of which issues) commercial paper rated as described in clause
(c), is organized under the laws of the United States or any State
thereof and has combined capital and surplus of at least $1 billion,
(c) commercial paper in an aggregate amount of no more than $10,000,000
per issuer outstanding at any time, issued by any corporation organized
under the laws of any State of the United States and rated at least
"Prime-1" (or the then equivalent grade) by Moody's Investors Service,
Inc. or "A-1" (or the then equivalent grade) by Standard & Poor's
Ratings Group or (d) Investments in money market funds that invest
primarily in Cash Equivalents of the types described in clauses (a),
(b) and (c) above.
<PAGE> 17
11
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended from time to time.
"CERCLIS" means the Comprehensive Environmental Response,
Compensation and Liability Information System maintained by the U.S.
Environmental Protection Agency.
"Change of Control" means the occurrence of any of the
following: (a) at any time prior to an IPO, the Goldman Investors shall
at any time for any reason cease to own beneficially Voting Stock of
Parent representing 51% or more of the combined voting power of all
Voting Stock of Parent; (b) at any time after an IPO, the Goldman
Investors shall at any time for any reason cease to own beneficially
Voting Stock of Parent representing 35% or more of the combined voting
power of all Voting Stock of Parent; (c) at any time after an IPO, any
Person or two or more Persons acting in concert other than the Goldman
Investors shall have acquired at any time beneficial ownership (within
the meaning of Rule 13d-3 of the Securities and Exchange Commission
under the Securities Exchange Act of 1934), directly or indirectly, of
Voting Stock of Parent (or other securities convertible into such
Voting Stock) representing more of the combined voting power of all
Voting Stock of Parent than is beneficially owned by the Goldman
Investors at such time; (d) during any period of up to 24 consecutive
months, commencing after the First Closing Date, individuals who at the
beginning of such 24-month period were directors of Parent shall cease
for any reason to constitute a majority of the board of directors of
Parent (except to the extent that individuals who at the beginning of
such 24-month period were replaced by individuals (x) elected by a
majority of the remaining members of the board of directors of Parent
or (y) nominated for election by a majority of the remaining members of
the board of directors of Parent and thereafter elected as directors by
the shareholders of Parent); or (e) a "Change of Control" as defined in
the Senior Subordinated Notes Indenture or the Senior Subordinated
Discount Notes Indenture.
"China Joint Venture" means AMF Garden Hotel Bowling Center
Company, a company organized under the laws of the People's Republic of
China by AMF Bowling Centers (China) Company, a Subsidiary of the
Borrower, and the Guangzhou Garden Hotel.
"Citibank" has the meaning specified in the recital of parties
to this Agreement.
"Citicorp" has the meaning specified in the recital of parties
to this Agreement.
"Collateral" means all "Collateral" referred to in the
Collateral Documents and all other property that is or is intended to
be subject to any Lien in favor of the Collateral Agent for the benefit
of the Secured Parties.
<PAGE> 18
12
"Collateral Agent" has the meaning specified in the recital of
parties to this Agreement.
"Collateral Documents" means the Security Agreement, the
Intellectual Property Security Agreement, the Mortgages and any other
agreement that creates or purports to create a Lien in favor of the
Collateral Agent for the benefit of the Secured Parties.
"Commitment" means a Term Loan Commitment, an AXELs Series A
Commitment, an AXELs Series B Commitment, a Working Capital Commitment
or a Letter of Credit Commitment.
"Company" has the meaning specified in the Preliminary
Statements.
"Confidential Information" means information that the Borrower
furnishes to any Agent or any Lender Party in a writing designated as
confidential but does not include any such information that is or
becomes generally available to the public other than as a result of a
breach by any Agent or any Lender Party of its obligations hereunder or
that is or becomes available to such Agent or such Lender Party from a
source other than the Borrower that is not, to the best of such Agent's
or such Lender Party's knowledge, acting in violation of a
confidentiality agreement with the Borrower.
"Consolidated" refers to the consolidation of accounts in
accordance with GAAP.
"Conversion", "Convert" and "Converted" each refer to a
conversion of Advances of one Type into Advances of the other Type
pursuant to Section 2.09 or 2.10.
"Current Assets" of any Person means all assets of such Person
that would, in accordance with GAAP, be classified as current assets of
a company conducting a business the same as or similar to that of such
Person, after deducting adequate reserves in each case in which a
reserve is proper in accordance with GAAP.
"Current Liabilities" of any Person means (a) all Debt of such
Person that by its terms is payable on demand or matures within one
year after the date of determination (excluding any Debt renewable or
extendible, at the option of such Person, to a date more than one year
from such date or arising under a revolving credit or similar agreement
that obligates the lender or lenders to extend credit during a period
of more than one year from such date), (b) all amounts of Funded Debt
of such Person required to be paid or prepaid within one year after
such date and (c) all other items (including taxes accrued as
estimated) that in accordance with GAAP would be classified as current
liabilities of such Person.
<PAGE> 19
13
"Debt" of any Person means, without duplication, (a) all
indebtedness of such Person for borrowed money, (b) all Obligations of
such Person for the deferred purchase price of property or services
(other than trade payables not overdue by more than 60 days incurred in
the ordinary course of such Person's business), (c) all Obligations of
such Person evidenced by notes, bonds, debentures or other similar
instruments, (d) all Obligations of such Person created or arising
under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), (e) all
Obligations of such Person as lessee under Capitalized Leases, (f) all
Obligations, contingent or otherwise, of such Person under acceptance,
letter of credit or similar facilities, (g) all Obligations, contingent
or otherwise, of such Person to purchase, redeem, retire, defease or
otherwise make any payment in respect of any capital stock of or other
ownership or profit interest in such Person or any other Person or any
warrants, rights or options to acquire such capital stock, valued, in
the case of Redeemable Preferred Stock, at the greater of its voluntary
or involuntary liquidation preference plus accrued and unpaid
dividends, (h) all Obligations of such Person in respect of Hedge
Agreements, (i) all Obligations of such Person in respect of long-term
non-competition agreements or arrangements, (j) all Debt of others
referred to in clauses (a) through (i) above or clause (k) below
guaranteed directly or indirectly in any manner by such Person, or in
effect guaranteed directly or indirectly by such Person through an
agreement (i) to pay or purchase such Debt or to advance or supply
funds for the payment or purchase of such Debt, (ii) to purchase, sell
or lease (as lessee or lessor) property, or to purchase or sell
services, primarily for the purpose of enabling the debtor to make
payment of such Debt or to assure the holder of such Debt against loss,
(iii) to supply funds to or in any other manner invest in the debtor
(including any agreement to pay for property or services irrespective
of whether such property is received or such services are rendered) or
(iv) otherwise to assure a creditor against loss, and (k) all Debt
referred to in clauses (a) through (j) above of another Person secured
by (or for which the holder of such Debt has an existing right,
contingent or otherwise, to be secured by) any Lien on property
(including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable
for the payment of such Debt.
"Default" means any Event of Default or any event that would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both.
"Defaulted Advance" means, with respect to any Lender Party at
any time, the portion of any Advance required to be made by such Lender
Party to the Borrower pursuant to Section 2.01 or 2.02 at or prior to
such time which has not been made by such Lender Party or by the
Administrative Agent for the account of such Lender Party pursuant to
Section 2.02(d) as of such time. In the event that a portion of a
Defaulted Advance shall be deemed made pursuant to Section 2.15(a), the
remaining
<PAGE> 20
14
portion of such Defaulted Advance shall be considered a Defaulted
Advance originally required to be made pursuant to Section 2.01 on the
same date as the Defaulted Advance so deemed made in part.
"Defaulted Amount" means, with respect to any Lender Party at
any time, any amount required to be paid by such Lender Party to any
Agent or any other Lender Party hereunder or under any other Loan
Document at or prior to such time which has not been so paid as of such
time, including, without limitation, any amount required to be paid by
such Lender Party to (a) any Issuing Bank pursuant to Section 2.03(c)
to purchase a portion of a Letter of Credit Advance made by such
Issuing Bank, (b) the Administrative Agent pursuant to Section 2.02(d)
to reimburse the Administrative Agent for the amount of any Advance
made by the Administrative Agent for the account of such Lender Party,
(c) any other Lender Party pursuant to Section 2.13 to purchase any
participation in Advances owing to such other Lender Party and (d) any
Agent or any Issuing Bank pursuant to Section 7.05 to reimburse such
Agent or such Issuing Bank for such Lender Party's ratable share of any
amount required to be paid by the Lender Parties to such Agent or such
Issuing Bank as provided therein. In the event that a portion of a
Defaulted Amount shall be deemed paid pursuant to Section 2.15(b), the
remaining portion of such Defaulted Amount shall be considered a
Defaulted Amount originally required to be paid hereunder or under any
other Loan Document on the same date as the Defaulted Amount so deemed
paid in part.
"Defaulting Lender" means, at any time, any Lender Party that,
at such time, (a) owes a Defaulted Advance or a Defaulted Amount or (b)
shall take any action or be the subject of any action or proceeding of
a type described in Section 6.01(f).
"Designated Financial Officer" means any of the President or
Vice President-Finance of AMF Bowling Products or AMF Bowling Centers
or the chief financial officer of the Borrower.
"Domestic Lending Office" means, with respect to any Lender
Party, the office of such Lender Party specified as its "Domestic
Lending Office" opposite its name on Schedule I hereto or in the
Assignment and Acceptance pursuant to which it became a Lender Party,
as the case may be, or such other office of such Lender Party as such
Lender Party may from time to time specify to the Borrower and the
Administrative Agent.
"EBITDA" means, for any Person, for any period, the sum,
determined on a Consolidated basis and without duplication, of (a) net
income (or net loss), (b) interest expense, (c) income tax expense, (d)
depreciation expense, (e) amortization expense, (f) the aggregate
amount of a one-time bonus and "phantom" stock payments (and payroll
taxes associated therewith) made, in each case, to employees, former
employees, former owners and former consultants of the Company and its
<PAGE> 21
15
Subsidiaries and the aggregate amount of professional and similar fees
incurred by the Sellers in connection with the Acquisition, provided
that, in each case, such amount shall have been funded by the Sellers
at or prior to the consummation of the Acquisition, (g) non-cash
foreign exchange losses, if any, (h) extraordinary or non-recurring
losses, if any, included in determining such net income (or net loss),
(i) non-cash expenses, if any, incurred in connection with the issuance
of warrants or other equity by such Person with respect to the
acquisition by the Borrower of MJ Golf, to the extent included in
determining such net income (or net loss), (j) other non-operating
expense, if any, included in determining such net income (or net loss)
and (k) Other Additions for such period, less the sum of (i) non-cash
foreign exchange gains, if any, (ii) extraordinary or non-recurring
gains, if any, included in determining such net income (or net loss),
and (iii) other non-operating income, if any, included in determining
such net income (or net loss), in each case of such Person and its
Subsidiaries, determined, except in the case of clause (j) above, in
accordance with GAAP for such period.
"EBITDA Adjustment Amount" means, at any time of
determination, an amount equal to 80% of the aggregate amount of the
EBITDA of each bowling center acquired or constructed by the Borrower
or any of its Subsidiaries after the First Closing Date and acquired or
constructed at least 15 months prior to such time of determination, as
reflected in the certificate most recently required to be furnished to
the Lender Parties pursuant to Section 5.03(b) or (c), as the case may
be, provided that for purposes hereof, the time of any such acquisition
shall be the date of consummation of such acquisition and the time of
any such construction shall be the date of the opening of such bowling
center for business.
"Eligible Assignee" means (a) with respect to any Facility
(other than the Letter of Credit Facility), (i) a Lender; (ii) an
Affiliate of a Lender; (iii) a commercial bank organized under the laws
of the United States, or any State thereof, and having a combined
capital and surplus of at least $500,000,000, in the case of the
Working Capital Facility, and at least $100,000,000, in the case of the
Term Loan Facility, the AXELs Series A Facility and the AXELs Series B
Facility; (iv) a savings and loan association or savings bank organized
under the laws of the United States, or any State thereof, and having a
combined capital and surplus of at least $500,000,000, in the case of
the Working Capital Facility, and at least $100,000,000, in the case of
the Term Loan Facility, the AXELs Series A Facility and the AXELs
Series B Facility; (v) a commercial bank organized under the laws of
any other country that is a member of the OECD or has concluded special
lending arrangements with the International Monetary Fund associated
with its General Arrangements to Borrow, or a political subdivision of
any such country, and having a combined capital and surplus of at least
$500,000,000, in the case of the Working Capital Facility, and at least
$100,000,000, in the case of the Term Loan Facility, the AXELs Series A
Facility and the AXELs Series B Facility, so long as such bank is
acting through a branch or agency located in the United States; (vi)
the central bank of any country
<PAGE> 22
16
that is a member of the OECD; (vii) a finance company, insurance
company or other financial institution or fund (whether a corporation,
partnership, trust or other entity) that is engaged in making,
purchasing or otherwise investing in commercial loans in the ordinary
course of its business and having a combined capital and surplus of at
least $500,000,000, in the case of the Working Capital Facility, and at
least $100,000,000, in the case of the Term Loan Facility, the AXELs
Series A Facility and the AXELs Series B Facility; and (viii) any other
Person approved by the Administrative Agent and the Borrower, such
approval not to be unreasonably withheld or delayed, and (b) with
respect to the Letter of Credit Facility, a Person that is an Eligible
Assignee under subclause (iii) or (v) of clause (a) of this definition
and is approved by the Administrative Agent and, so long as no Default
shall have occurred and be continuing, by the Borrower, such approval
not to be unreasonably withheld or delayed; provided, however, that
neither any Loan Party nor any Affiliate of a Loan Party shall qualify
as an Eligible Assignee under this definition.
"Environmental Action" means any action, suit, demand, demand
letter, claim, notice of non-compliance or violation, notice of
liability or potential liability, investigation, proceeding, consent
order or consent agreement pursuant to any Environmental Law or any
Environmental Permit or relating to any Hazardous Material, including,
without limitation, (a) by any governmental or regulatory authority for
enforcement, cleanup, removal, response, remedial or other actions or
damages and (b) by any governmental or regulatory authority or third
party for damages, contribution, indemnification, cost recovery,
compensation or injunctive relief.
"Environmental Law" means any applicable federal, state, local
or foreign statute, law, ordinance, rule, regulation, code, order,
writ, judgment, injunction, decree, judicial decision, or agency
interpretation, policy or guidance that has the force and effect of
law, relating to pollution or protection of the environment, public
health, safety or natural resources, including, without limitation,
those relating to the use, handling, transportation, treatment,
storage, disposal, release or discharge of Hazardous Materials.
"Environmental Permit" means any permit, approval,
identification number, license or other authorization from any
governmental or regulatory authority required under any Environmental
Law.
"Equity Investors" means the Persons listed under the caption
"Equity Investors" on Schedule 4.01(a).
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
<PAGE> 23
17
"ERISA Affiliate" means any Person that for purposes of Title
IV of ERISA is a member of the controlled group of any Loan Party, or
under common control with any Loan Party, within the meaning of Section
414 of the Internal Revenue Code.
"ERISA Event" means (a) (i) the occurrence of a reportable
event, within the meaning of Section 4043 of ERISA, with respect to any
Plan unless the 30-day notice requirement with respect to such event
has been waived by the PBGC, or (ii) the requirements of subsection (1)
of Section 4043(b) of ERISA (without regard to subsection (2) of such
Section) are met with respect to a contributing sponsor, as defined in
Section 4001(a)(13) of ERISA, of a Plan, and an event described in
paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA is
reasonably expected to occur with respect to such Plan within the
following 30 days; (b) the application for a minimum funding waiver
with respect to a Plan; (c) the provision by the administrator of any
Plan of a notice of intent to terminate such Plan, pursuant to Section
4041(a)(2) of ERISA (including any such notice with respect to a plan
amendment referred to in Section 4041(e) of ERISA); (d) the cessation
of operations at a facility of any Loan Party or any ERISA Affiliate in
the circumstances described in Section 4062(e) of ERISA; (e) the
withdrawal by any Loan Party or any ERISA Affiliate from a Multiple
Employer Plan during a plan year for which it was a substantial
employer, as defined in Section 4001(a)(2) of ERISA; (f) the conditions
for imposition of a lien under Section 302(f) of ERISA shall have been
met with respect to any Plan; (g) the adoption of an amendment to a
Plan requiring the provision of security to such Plan pursuant to
Section 307 of ERISA; or (h) the institution by the PBGC of proceedings
to terminate a Plan pursuant to Section 4042 of ERISA, or the
occurrence of any event or condition described in Section 4042 of ERISA
that constitutes grounds for the termination of, or the appointment of
a trustee to administer, such Plan.
"Eurocurrency Liabilities" has the meaning specified in
Regulation D of the Board of Governors of the Federal Reserve System,
as in effect from time to time.
"Eurodollar Lending Office" means, with respect to any Lender
Party, the office of such Lender Party specified as its "Eurodollar
Lending Office" opposite its name on Schedule I hereto or in the
Assignment and Acceptance pursuant to which it became a Lender Party
(or, if no such office is specified, its Domestic Lending Office), or
such other office of such Lender Party as such Lender Party may from
time to time specify to the Borrower and the Administrative Agent.
"Eurodollar Rate" means, for any Interest Period for all
Eurodollar Rate Advances comprising part of the same Borrowing, an
interest rate per annum equal to the rate per annum obtained by
dividing (a) the rate per annum at which deposits in U.S. dollars are
offered by the principal office of Citibank in London, England to prime
banks in the London interbank market at 11:00 A.M. (London time) two
Business Days before the first day of such Interest Period in an amount
substantially
<PAGE> 24
18
equal to Citibank's Eurodollar Rate Advance comprising part of such
Borrowing to be outstanding during such Interest Period (or, if
Citibank shall not have such a Eurodollar Rate Advance, $1,000,000) and
for a period equal to such Interest Period by (b) a percentage equal to
100% minus the Eurodollar Rate Reserve Percentage for such Interest
Period.
"Eurodollar Rate Advance" means an Advance that bears interest
as provided in Section 2.07(a)(ii).
"Eurodollar Rate Reserve Percentage" for any Interest Period
for all Eurodollar Rate Advances comprising part of the same Borrowing
means the reserve percentage applicable two Business Days before the
first day of such Interest Period under regulations issued from time to
time by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement (including,
without limitation, any emergency, supplemental or other marginal
reserve requirement) for a member bank of the Federal Reserve System in
New York City with respect to liabilities or assets consisting of or
including Eurocurrency Liabilities (or with respect to any other
category of liabilities that includes deposits by reference to which
the interest rate on Eurodollar Rate Advances is determined) having a
term equal to such Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
"Excess Cash Flow" means, for any Fiscal Year (which, in the
case of the Fiscal Year ending December 31, 1996, shall mean the period
from May 1, 1996 to December 31, 1996 for purposes of this definition),
determined in accordance with GAAP for the Borrower and its
Subsidiaries on a Consolidated basis and without duplication:
(a) Consolidated EBITDA of the Borrower and its
Subsidiaries for such Fiscal Year less (to the extent included
in the calculation of EBITDA) any Extraordinary Receipts
received by the Borrower or any of its Subsidiaries during
such Fiscal Year less extraordinary or non-recurring cash
losses in such Fiscal Year plus extraordinary or non-recurring
cash gains in such Fiscal Year, less
(b) the sum of
(i) Consolidated cash interest expense
payable by the Borrower and its Subsidiaries in such
Fiscal Year plus
(ii) the aggregate amount of Capital
Expenditures made pursuant to Section 5.02(q) by the
Borrower and its Subsidiaries during
<PAGE> 25
19
such Fiscal Year (but not exceeding the amount
permitted to be made in such Fiscal Year pursuant to
Section 5.02(q)) plus
(iii) optional prepayments and scheduled
payments of principal of Debt of the Borrower and its
Subsidiaries in such Fiscal Year (including, without
limitation, prepayments of the Working Capital
Facility to the extent that the Working Capital
Facility is permanently reduced) plus
(iv) cash taxes paid by the Borrower and its
Subsidiaries in such Fiscal Year plus
(c) if there was a net increase in Consolidated
Current Liabilities of the Borrower and its Subsidiaries
during such Fiscal Year, the amount of such net increase plus
(d) if there was a net decrease in Consolidated
Current Assets (excluding cash and Cash Equivalents) of the
Borrower and its Subsidiaries during such Fiscal Year, the
amount of such net decrease less
(e) if there was a net decrease in Consolidated
Current Liabilities of the Borrower and its Subsidiaries
during such Fiscal Year, the amount of such net decrease less
(f) if there was a net increase in Consolidated
Current Assets (excluding cash and Cash Equivalents) of the
Borrower and its Subsidiaries during such Fiscal Year, the
amount of such net increase less
(g) (i) for any Fiscal Year ending on or prior to
December 31, 1997, an amount equal to the product of (A) the
Support Amount for such Fiscal Year and (B) 0.803654, but not,
under this clause (g)(i), to exceed $14,063,946.68 in the
aggregate from and after the First Closing Date, and (ii) for
any Fiscal Year ending thereafter, zero.
"Excess Cash Flow Amount" means (a) for each of the first two
Fiscal Years ending after the First Closing Date, an amount equal to
the lesser of (i) the amount by which Excess Cash Flow for such Fiscal
Year exceeds $10,000,000 and (ii) an amount equal to 50% of Excess Cash
Flow for such Fiscal Year, (b) for the third Fiscal Year ending after
the First Closing Date, an amount equal to the lesser of (i) the amount
by which Excess Cash Flow for such Fiscal Year exceeds $20,000,000 and
(ii) an amount equal to 50% of Excess Cash Flow for such Fiscal Year
and
<PAGE> 26
20
(c) for each Fiscal Year ending thereafter, an amount equal to 50% of
Excess Cash Flow for such Fiscal Year.
"Existing Advance" means, for each Existing Lender, all of
such Existing Lender's rights in and to, and all of its obligations
under, the Advances (as defined in the Existing Credit Agreement)
evidenced by the Existing Notes and owing to it under the Existing
Credit Agreement immediately preceeding the Effective Date.
"Existing AXELs Series B Advance" has the meaning specified in
Section 2.01(c).
"Existing AXELs Series B Commitment" means, with respect to
any Existing AXELs Series B Lender at any time, the amount set forth
opposite such Lender's name on Schedule I hereto under the caption
"Existing AXELs Series B Commitment" or, if such Lender has entered
into one or more Assignments and Acceptances, set forth for such Lender
in the Register maintained by the Administrative Agent pursuant to
Section 8.07(d) as such Lender's "Existing AXELs Series B Commitment",
as such amount may be reduced at or prior to such time pursuant to
Section 2.05.
"Existing AXELs Series B Lender" means any Lender that has an
Existing AXELs Series B Commitment.
"Existing Commitment" means, for each Existing Lender, all of
such Existing Lender's rights in and to, and all of its obligations
under, the Commitment (as defined in the Existing Credit Agreement)
held by it under the Existing Credit Agreement immediately preceeding
the Effective Date.
"Existing Debt" means Debt of the Company and its Subsidiaries
outstanding immediately before giving effect to the Acquisition.
"Existing Lenders" has the meaning specified in the
Preliminary Statements hereto.
"Existing Notes" means the Notes as defined in, and issued
pursuant to, the Existing Credit Agreement.
"Extraordinary Receipt" means any cash received by or paid to
or for the account of any Person consisting of tax refunds, pension
plan reversions, proceeds of insurance (other than proceeds of business
interruption insurance to the extent such proceeds constitute
compensation for lost earnings), condemnation awards (and payments in
lieu thereof), indemnity payments and payments in respect of judgments
(including, without limitation, punitive damages); provided, however,
that an
<PAGE> 27
21
Extraordinary Receipt shall not include cash receipts received from
proceeds of insurance, condemnation awards (or payments in lieu
thereof), indemnity payments or payments in respect of judgments or
settlements (i) to the extent that such proceeds, awards or payments in
respect of loss or damage to equipment, fixed assets or real property
are applied to replace or repair such equipment, fixed assets or real
property to the extent such replacement or repair is not prohibited
under the terms of the Collateral Documents, so long as such
application is commenced within 3 months after the later of the
occurrence of such loss or damage and the receipt of such proceeds,
awards or payments in respect thereof or (ii) to the extent that such
proceeds, awards or payments reimburse such Person for the prior
payment of out-of-pocket costs.
"Facility" means the Term Loan Facility, the AXELs Series A
Facility, the AXELs Series B Facility, the Working Capital Facility or
the Letter of Credit Facility.
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the
weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds
brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day that is a
Business Day, the average of the quotations for such day for such
transactions received by the Administrative Agent from three Federal
funds brokers of recognized standing selected by it.
"Financial Statements" means, at any time, the most recent
financial statements furnished, or required to be furnished, by the
Borrower to the Lender Parties pursuant to Section 5.03(b) or (c), as
the case may be.
"First Amendment" means Amendment No. 3 to the Original Credit
Agreement dated as of December 20, 1996 among the Borrower, the Lenders
parties thereto and the Agents, and the Consent thereto dated as of
December 20, 1996 by the Loan Parties (other than the Borrower).
"First Amendment Documents" means (a) the First Amendment, (b)
the AXELs Series B Notes payable to the New AXELs Series B Lenders and
(c) the First Mortgage Amendments, in each case as amended,
supplemented or otherwise modified from time to time.
<PAGE> 28
22
"First Closing Date" means May 1, 1996, the date on which the
Initial Extension of Credit occurred following satisfaction or waiver
of the conditions set forth in Sections 3.01 and 3.02.
"First Mortgage Amendments" means the mortgage amendments
executed in connection with the First Amendment.
"First Prepayment Date" has the meaning specified in Section
2.06(b)(iv).
"Fiscal Year" means (except as otherwise stated in the
definition of Excess Cash Flow in this Section 1.01 and in Section
5.02(q)) a fiscal year of the Borrower and its Consolidated
Subsidiaries ending on December 31 in any calendar year.
"Foreign Subsidiary" means a Subsidiary of the Borrower
organized under the laws of a country other than the United States or
any State thereof.
"Form S-1" has the meaning specified in the Preliminary
Statements.
"Fourth Closing Date" means the first date on which the
conditions set forth in Section 3.05 have been satisfied but in no
event later than November 30, 1997.
"Funded Debt" of any Person means Debt in respect of the
Advances, in the case of the Borrower, and all other Debt of such
Person that by its terms matures more than one year after the date of
its creation or matures within one year from such date but is renewable
or extendible, at the option of such Person, to a date more than one
year after such date or arises under a revolving credit or similar
agreement that obligates the lender or lenders to extend credit during
a period of more than one year after such date, including, without
limitation, all amounts of Funded Debt of such Person required to be
paid or prepaid within one year after the date of determination.
"GAAP" has the meaning specified in Section 1.03.
"Goldman" has the meaning specified in the recital of parties
to this Agreement.
"Goldman Investors" has the meaning specified in the
Preliminary Statements.
"Gross Cash Proceeds" means, with respect to any sale, lease,
transfer or other disposition of any asset or the sale or issuance of
any Debt or capital stock or other ownership or profit interest, any
securities convertible into or exchangeable for capital stock or other
ownership or profit interest or any warrants, rights, options or other
securities to acquire capital stock or other ownership or profit
interest by any
<PAGE> 29
23
Person, or any Extraordinary Receipt received by or paid to or for the
account of any Person, the aggregate amount of cash proceeds receivable
(whether as initial consideration or through payment or disposition of
deferred consideration) by or on behalf of such Person in connection
with such transaction, prior to deduction for brokerage commissions,
underwriting fees, legal fees, finder's fees and other similar fees and
commissions, discounts and other expenses.
"Guaranties" means the Holdings Guaranty, the Subsidiary
Guaranty and any other guaranty delivered pursuant to Section 5.01(n).
"Guarantors" means Holdings and the Subsidiary Guarantors.
"Hazardous Materials" means (a) petroleum or petroleum
products, by-products or breakdown products, radioactive materials,
asbestos-containing materials, polychlorinated biphenyls and radon gas
and (b) any other chemicals, materials or substances designated,
classified or regulated as hazardous or toxic or as a pollutant or
contaminant under any Environmental Law.
"Hedge Agreements" means interest rate swap, cap or collar
agreements, interest rate future or option contracts, currency swap
agreements, currency future or option contracts and other similar
agreements.
"Hedge Bank" means any Lender Party or any of its Affiliates
in its capacity as a party to a Bank Hedge Agreement.
"Holdings" has the meaning specified in the Preliminary
Statements.
"Holdings Guaranty" has the meaning specified in Section
3.01(p)(x).
"Indemnified Party" has the meaning specified in Section
8.04(b).
"Information Memorandum" means collectively, the information
memorandum dated February 1996 and the information memorandum dated
August, 1997, each relating to the Borrower and the Company and used by
the Arrangers and the Syndication Agent in connection with the original
syndication of the Commitments and the Third Amendment, respectively,
each as amended or supplemented from time to time in writing.
"Initial Extension of Credit" means the earlier to occur of
the initial Borrowing and the initial issuance of a Letter of Credit
under the Original Credit Agreement.
<PAGE> 30
24
"Initial Issuing Banks" has the meaning specified in the
recital of parties to this Agreement.
"Initial Lenders" has the meaning specified in the recital of
parties to this Agreement.
"Insufficiency" means, with respect to any Plan, the amount,
if any, of its unfunded benefit liabilities, as defined in Section
4001(a)(18) of ERISA.
"Intellectual Property Security Agreement" has the meaning
specified in Section 3.01(p)(viii).
"Interest Period" means, for each Eurodollar Rate Advance
comprising part of the same Borrowing, the period commencing on the
date of such Eurodollar Rate Advance or the date of the Conversion of
any Base Rate Advance into such Eurodollar Rate Advance, and ending on
the last day of the period selected by the Borrower pursuant to the
provisions below and, thereafter, each subsequent period commencing on
the last day of the immediately preceding Interest Period and ending on
the last day of the period selected by the Borrower pursuant to the
provisions below. The duration of each such Interest Period shall be
one, two, three or six months, as the Borrower may, upon notice
received by the Administrative Agent not later than 11:00 A.M. (New
York City time) on the third Business Day prior to the first day of
such Interest Period, select; provided, however, that:
(a) the Borrower may not select any Interest Period
with respect to any Eurodollar Rate Advance under a Facility
that ends after any principal repayment installment date for
such Facility unless, after giving effect to such selection,
the aggregate principal amount of Base Rate Advances and of
Eurodollar Rate Advances having Interest Periods that end on
or prior to such principal repayment installment date for such
Facility shall be at least equal to the aggregate principal
amount of Advances under such Facility due and payable on or
prior to such date;
(b) Interest Periods commencing on the same date for
Eurodollar Rate Advances comprising part of the same Borrowing
shall be of the same duration;
(c) whenever the last day of any Interest Period
would otherwise occur on a day other than a Business Day, the
last day of such Interest Period shall be extended to occur on
the next succeeding Business Day, provided, however, that, if
such extension would cause the last day of such Interest
<PAGE> 31
25
Period to occur in the next following calendar month, the last
day of such Interest Period shall occur on the next preceding
Business Day; and
(d) whenever the first day of any Interest Period
occurs on a day of an initial calendar month for which there
is no numerically corresponding day in the calendar month that
succeeds such initial calendar month by the number of months
equal to the number of months in such Interest Period, such
Interest Period shall end on the last Business Day of such
succeeding calendar month.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"Inventory" has the meaning specified in the Security
Agreement.
"Investment" in any Person means any loan or advance to such
Person, any purchase or other acquisition of any capital stock or other
ownership or profit interest, warrants, rights, options, obligations or
other securities or all or substantially all of the assets of such
Person, any capital contribution to such Person or any other direct or
indirect investment in such Person, including, without limitation, any
arrangement pursuant to which the investor incurs Debt of the types
referred to in clause (j) or (k) of the definition of "Debt" in respect
of such Person, any acquisition by way of a merger or consolidation and
any purchase or other acquisition or construction of bowling centers.
"IPO" has the meaning specified in the Preliminary Statements.
"Issuing Banks" means each Initial Issuing Bank, any other
Working Capital Lender that has a Letter of Credit Commitment set forth
opposite its name on Schedule I hereto, any other Working Capital
Lender approved as an Issuing Bank by the Administrative Agent and, so
long as no Default shall have occurred and be continuing, by the
Borrower (such approval not to be unreasonably withheld or delayed) and
each Eligible Assignee to which a Letter of Credit Commitment hereunder
has been assigned pursuant to Section 8.07 so long as each such Working
Capital Lender or Eligible Assignee expressly agrees to perform in
accordance with their terms all of the obligations that by the terms of
this Agreement are required to be performed by it as an Issuing Bank
and notifies the Administrative Agent of its Applicable Lending Office
and the amount of its Letter of Credit Commitment (which information
shall be recorded by the Administrative Agent in the Register).
"L/C Cash Collateral Account" has the meaning specified in the
Security Agreement.
<PAGE> 32
26
"L/C Related Documents" has the meaning specified in Section
2.04(e)(ii).
"Lender Party" means any Lender or any Issuing Bank.
"Lenders" means the Initial Lenders and each Person that shall
become a Lender hereunder pursuant to Section 8.07.
"Letter of Credit Advance" means an advance made by any
Issuing Bank or any Working Capital Lender pursuant to Section 2.03(c).
"Letter of Credit Agreement" has the meaning specified in
Section 2.03(a).
"Letter of Credit Commitment" means, with respect to any
Issuing Bank at any time, the amount set forth opposite such Issuing
Bank's name on Schedule I hereto under the caption "Letter of Credit
Commitment" or, if such Issuing Bank has entered into one or more
Assignments and Acceptances, set forth for such Issuing Bank in the
Register maintained by the Administrative Agent pursuant to Section
8.07(d) as such Issuing Bank's "Letter of Credit Commitment", as such
amount may be reduced at or prior to such time pursuant to Section
2.05.
"Letter of Credit Facility" means, at any time, an amount
equal to the lesser of (a) the aggregate amount of the Issuing Banks'
Letter of Credit Commitments at such time and (b) $10,000,000, as such
amount may be reduced at or prior to such time pursuant to Section
2.05.
"Letters of Credit" has the meaning specified in Section
2.01(e).
"Lien" means any lien, security interest or other charge or
encumbrance of any kind, or any other type of preferential arrangement,
including, without limitation, the lien or retained security title of a
conditional vendor and any easement, right of way or other encumbrance
on title to real property.
"Loan Documents" means (a) for purposes of this Agreement and
the Notes and any amendment or modification hereof or thereof and for
all other purposes other than for purposes of the Guaranties and the
Collateral Documents, (i) this Agreement, (ii) the Notes, (iii) the
Guaranties, (iv) the Collateral Documents, (v) the First Amendment
Documents, (vi) the Second Amendment Documents, (vii) the Third
Amendment Documents and (viii) each Letter of Credit Agreement and (b)
for purposes of the Guaranties and the Collateral Documents, (i) this
Agreement, (ii) the Notes, (iii) the Guaranties, (iv) the Collateral
Documents, (v) the First Amendment Documents, (vi) the Second Amendment
Documents, (vii) the Third Amendment Documents, (viii) each Letter of
Credit Agreement and (ix) each Bank Hedge
<PAGE> 33
27
Agreement, in each case as amended, supplemented or otherwise modified
from time to time.
"Loan Parties" means the Company, the Borrower and the
Guarantors.
"Margin Stock" has the meaning specified in Regulation U.
"Material Adverse Change" means any material adverse change in
the business, condition (financial or otherwise), operations,
performance, properties or prospects of Holdings or the Borrower, in
each case together with its respective Subsidiaries, taken as a whole.
"Material Adverse Effect" means a material adverse effect on
(a) the business, condition (financial or otherwise), operations,
performance, properties or prospects of Holdings or the Borrower, in
each case together with its respective Subsidiaries, taken as a whole,
(b) the rights and remedies of any Agent or any Lender Party under any
Loan Document or Related Document or (c) the ability of any Loan Party
to perform its Obligations under any Loan Document (excluding Mortgages
covering Collateral which, in the aggregate, is immaterial) or Related
Document to which it is or is to be a party.
"Material Subsidiary" means, at any time, a Subsidiary of the
Borrower having at least 5% of the total Consolidated assets of the
Borrower and its Subsidiaries (determined as of the last day of the
most recent fiscal quarter of the Borrower) or at least 5% of the total
Consolidated revenues or net income of the Borrower and its
Subsidiaries for the 12-month period ending on the last day of the most
recent fiscal quarter of the Borrower; provided, however, that any
Subsidiary formed or acquired after the last day of the most recent
fiscal quarter of the Borrower that would have been a Material
Subsidiary if it had been formed or acquired on or prior to the last
day of such fiscal quarter shall be a Material Subsidiary for purposes
hereof from and after the date of its formation or acquisition.
"MJ Golf" means Michael Jordan Golf, Inc., a Delaware
corporation.
"Modified Consolidated EBITDA" means, for any Rolling Period,
Consolidated EBITDA of the Borrower and its Subsidiaries for such
Rolling Period, provided, however, that at any time of determination,
(i) solely with respect to any constructed New Center, Modified
Consolidated EBITDA shall be calculated using Adjusted EBITDA of such
New Center and (ii) solely with respect to any New Center acquired
within the immediately preceding 15 months, Modified Consolidated
EBITDA shall be calculated using the actual EBITDA of such New Center
for such
<PAGE> 34
28
Rolling Period (including, without limitation, for any portion of such
Rolling Period that is prior to the date of acquisition of such New
Center).
"Mortgage Policy" has the meaning specified in Section
3.01(p)(ix).
"Mortgages" has the meaning specified in Section 3.01(p)(ix).
"Multiemployer Plan" means a multiemployer plan, as defined in
Section 4001(a)(3) of ERISA, that is subject to ERISA and to which any
Loan Party or any ERISA Affiliate is making or accruing an obligation
to make contributions, or has within any of the preceding five plan
years made or accrued an obligation to make contributions.
"Multiple Employer Plan" means a single employer plan, as
defined in Section 4001(a)(15) of ERISA, that is subject to ERISA and
that (a) is maintained for employees of any Loan Party or any ERISA
Affiliate and at least one Person other than the Loan Parties and the
ERISA Affiliates or (b) was so maintained and in respect of which any
Loan Party or any ERISA Affiliate could have liability under Section
4064 or 4069 of ERISA in the event such plan has been or were to be
terminated.
"Net Cash Proceeds" means, with respect to any sale, lease,
transfer or other disposition of any asset or the sale or issuance of
any Debt or capital stock or other ownership or profit interest, any
securities convertible into or exchangeable for capital stock or other
ownership or profit interest or any warrants, rights, options or other
securities to acquire capital stock or other ownership or profit
interest by any Person, or any Extraordinary Receipt received by or
paid to or for the account of any Person, the aggregate amount of cash
received from time to time (whether as initial consideration or through
payment or disposition of deferred consideration) by or on behalf of
such Person in connection with such transaction after deducting
therefrom only (without duplication) (a) reasonable and customary
brokerage commissions, underwriting fees and discounts, legal fees,
finder's fees and other similar fees and commissions and other
reasonable and customary expenses incurred in connection with such
transaction and (b) the amount of taxes payable in connection with or
as a result of such transaction, in each case to the extent, but only
to the extent, that the amounts so deducted are, at or prior to the
time of receipt of such cash, actually paid or payable to a Person that
is not an Affiliate of such Person or any Loan Party or any Affiliate
of any Loan Party and are properly attributable to such transaction or
to the asset that is the subject thereof; provided, however, that in
the case of taxes that are deductible under clause (b) but for the fact
that at the time of receipt of such cash, such taxes have not been
actually paid or are not then payable, such Person may deduct an amount
(the "Reserved Amount") equal to the amount reserved in
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29
accordance with GAAP for such Person's reasonable estimate of such
taxes, other than taxes for which such Person is indemnified, provided
further, however, that at the time such taxes are paid, the Borrower
shall prepay the Advances outstanding hereunder, in accordance with the
terms of Section 2.06(b)(ii), in an amount equal to the amount, if any,
by which the Reserved Amount exceeds the amount of taxes actually paid.
"New AXELs Series B Advance" has the meaning specified in
Section 2.01(c).
"New AXELs Series B Commitment" means, with respect to any New
AXELs Series B Lender at any time, the amount set forth opposite such
Lender's name on Schedule I hereto under the caption "New AXELs Series
B Commitment" or, if such Lender has entered into one or more
Assignments and Acceptances, set forth for such Lender in the Register
maintained by the Administrative Agent pursuant to Section 8.07(d) as
such Lender's "New AXELs Series B Commitment", as such amount may be
reduced at or prior to such time pursuant to Section 2.05.
"New AXELs Series B Lender" means any Lender that has a New
AXELs Series B Commitment.
"New Center" means, at any time of determination, any bowling
center acquired (whether by means of a stock or asset acquisition) or
constructed by the Borrower or any of its Subsidiaries after the First
Closing Date and less than 15 months prior to such date of
determination, provided that for purposes hereof, the time of any such
acquisition shall be the date of consummation of such acquisition and
the time of any such construction shall be the date of the opening of
such bowling center for business.
"Note" means a Term Loan Note, an AXELs Series A Note, an
AXELs Series B Note or a Working Capital Note.
"Notice of Borrowing" has the meaning specified in Section
2.02(a).
"Notice of Issuance" has the meaning specified in Section
2.03(a).
"NPL" means the National Priorities List under CERCLA.
"Obligation" means, with respect to any Person, any payment,
performance or other obligation of such Person of any kind, including,
without limitation, any liability of such Person on any claim, whether
or not the right of any creditor to payment in respect of such claim is
reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, disputed, undisputed, legal, equitable, secured or
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30
unsecured, and whether or not such claim is discharged, stayed or
otherwise affected by any proceeding referred to in Section 6.01(f).
Without limiting the generality of the foregoing, the Obligations of
the Loan Parties under the Loan Documents include (a) the obligation to
pay principal, interest, Letter of Credit commissions, charges,
expenses, fees, attorneys' fees and disbursements, indemnities and
other amounts payable by any Loan Party under any Loan Document and (b)
the obligation of any Loan Party to reimburse any amount in respect of
any of the foregoing that any Lender Party, in its sole discretion, may
elect to pay or advance on behalf of such Loan Party.
"OECD" means the Organization for Economic Cooperation and
Development.
"Open Year" has the meaning specified in Section 4.01(bb).
"Other Additions" means, for any fiscal quarter of the
Borrower, (a) during the period from the First Closing Date through
December 31, 1997, an amount equal to the sum of (i) the Support Amount
for such fiscal quarter and (ii) extraordinary, unusual or
non-recurring, or expected to be non-recurring, expenses and expenses
resulting from changes in the Borrower's accounting or management
policies or practices, in each case of the Borrower and its
Subsidiaries for such fiscal quarter, all as determined in the judgment
of a Designated Financial Officer, in an aggregate amount, under this
clause (ii), not to exceed $20,000,000 from and after the First Closing
Date, and (b) thereafter, zero.
"Other Taxes" has the meaning specified in Section 2.12(b).
"Parent" has the meaning specified in the Preliminary
Statements.
"PBGC" means the Pension Benefit Guaranty Corporation (or any
successor thereto).
"Permitted Encumbrances" means, with respect to any real
property, minor survey exceptions, minor title irregularities,
easements, rights-of-way, restrictions and other similar charges or
encumbrances not interfering with the ordinary conduct of the business
of the Loan Parties and their Subsidiaries which were not incurred in
connection with and do not secure Debt or other extensions of credit
and which do not individually or in the aggregate materially adversely
affect the value of the properties of the Loan Parties and their
Subsidiaries taken as a whole or materially impair its use, taken as a
whole with all other properties of the Loan Parties and their
Subsidiaries, in the operation of the business of the Loan Parties and
their Subsidiaries.
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31
"Permitted Liens" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding
shall have been commenced: (a) Liens for taxes, assessments and
governmental charges or levies to the extent not required to be paid
under Section 5.01(b); (b) Liens imposed by law, such as materialmen's,
mechanics', carriers', landlords', workmen's and repairmen's Liens and
other similar Liens arising in the ordinary course of business securing
obligations that are not overdue for a period of more than 30 days or
are being contested in good faith by proper proceedings and as to which
appropriate reserves are being maintained; (c) pledges or deposits to
secure obligations under workers' compensation laws or similar
legislation or to secure public or statutory obligations; and (d)
Permitted Encumbrances, provided, however, that no Lien in favor of the
PBGC shall, in any event, be a Permitted Lien.
"Person" means an individual, partnership, corporation
(including a business trust), limited liability company, joint stock
company, trust, unincorporated association, joint venture or other
entity, or a government or any political subdivision or agency thereof.
"Plan" means a Single Employer Plan or a Multiple Employer
Plan.
"Play Center Joint Venture" means AMF Play Center S.A., a
corporation organized under the laws of Brazil, and its successors and
Subsidiaries, 50% of the Voting Stock of which corporation is to be
owned directly or indirectly by the Borrower.
"Preferred Stock" means, with respect to any corporation,
capital stock issued by such corporation that is entitled to a
preference or priority over any other capital stock issued by such
corporation upon any distribution of such corporation's assets, whether
by dividend or upon liquidation.
"Pro Rata Share" of any amount means with respect to any
Working Capital Lender at any time, the product of such amount times a
fraction the numerator of which is the amount of such Lender's Working
Capital Commitment at such time and the denominator of which is the
Working Capital Facility at such time.
"Purchase Agreement" has the meaning specified in the
Preliminary Statements.
"Redeemable" means, with respect to any capital stock or other
ownership or profit interest, Debt or other right or Obligation, any
such right or Obligation that (a) the issuer has undertaken to redeem
at a fixed or determinable date or dates,
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32
whether by operation of a sinking fund or otherwise, or upon the
occurrence of a condition not solely within the control of the issuer
or (b) is redeemable at the option of the holder.
"Reduction Amount" has the meaning specified in Section
2.06(b)(vii).
"Register" has the meaning specified in Section 8.07(d).
"Regulation U" means Regulation U of the Board of Governors of
the Federal Reserve System, as in effect from time to time.
"Related Documents" means the Purchase Agreement, the
Subordinated Debt Documents, the Tax Agreement, the Stockholders'
Agreement and the Support Agreement.
"Required Lenders" means, at any time, (i) Lenders owed or
holding at least a majority in interest of the sum of (a) the aggregate
principal amount of the Term Loan Advances and Working Capital Advances
outstanding at such time, (b) the aggregate Available Amount of all
Letters of Credit outstanding at such time, (c) the aggregate unused
Commitments under the Term Loan Facility at such time and (d) the
aggregate Unused Working Capital Commitments at such time and (ii)
Lenders owed or holding at least a majority in interest of the sum of
(a) the aggregate principal amount of the AXELs Series A Advances and
AXELs Series B Advances outstanding at such time and (b) the aggregate
unused Commitments under the AXELs Series A Facility and AXELs Series B
Facility at such time; provided, however, that if any Lender shall be a
Defaulting Lender at such time, there shall be excluded from the
determination of Required Lenders at such time (A) the aggregate
principal amount of the Advances owing to such Lender (in its capacity
as a Lender) and outstanding at such time, (B) such Lender's Pro Rata
Share of the aggregate Available Amount of all Letters of Credit
outstanding at such time, (C) the aggregate unused Term Loan, AXELs
Series A and AXELs Series B Commitments of such Lender at such time and
(D) the Unused Working Capital Commitment of such Lender at such time.
For purposes of this definition, the aggregate principal amount of
Letter of Credit Advances owing to any Issuing Bank and the Available
Amount of each Letter of Credit shall be considered to be owed to the
Working Capital Lenders ratably in accordance with their respective
Working Capital Commitments.
"Responsible Officer" means any officer of any Loan Party or
any of its Subsidiaries.
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33
"Rolling Period" means, with respect to any fiscal quarter of
the Borrower and its Subsidiaries, such fiscal quarter and the three
consecutive immediately preceding fiscal quarters.
"Second Amendment" means Amendment No. 2 to the Second Credit
Agreement dated as of June 30, 1997 among the Borrower, the Lenders
parties thereto and the Agents, and the Consent thereto dated as of
June 30, 1997 by the Loan Parties (other than the Borrower).
"Second Amendment Documents" means (a) the Second Amendment,
(b) the Notes executed in connection therewith and (c) the Second
Mortgage Amendments, in each case as amended, supplemented or otherwise
modified from time to time.
"Second Closing Date" means the date on which the New AXELs
Series B Advances are made by the New AXELs Series B Lenders following
satisfaction or waiver of the conditions set forth in Sections 3.02 and
3.04.
"Second Credit Agreement" has the meaning specified in the
Preliminary Statements.
"Second Mortgage Amendments" means the mortgage amendments
executed in connection with the Second Amendment.
"Second Prepayment Date" has the meaning specified in Section
2.06(b)(iv).
"Secured Parties" means the Arrangers, the Agents, the Lender
Parties and the Hedge Banks.
"Security Agreement" has the meaning specified in Section
3.01(p)(vii).
"Sellers" has the meaning specified in the Preliminary
Statements.
"Senior Subordinated Discount Notes" means the senior
subordinated discounted notes of the Borrower in an aggregate principal
amount of $452,000,000 issued pursuant to the Senior Subordinated
Discount Notes Indenture.
"Senior Subordinated Discount Notes Indenture" means the
Indenture dated as of March 21, 1996 among the Borrower, the guarantors
party thereto and American Bank National Association, as Trustee,
pursuant to which the Senior Subordinated Discount Notes are issued, as
amended, supplemented or otherwise modified from time to time in
accordance with its terms, to the extent permitted in accordance with
the Loan Documents.
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34
"Senior Subordinated Notes" means the senior subordinated
notes of the Borrower in an aggregate principal amount of $250,000,000
issued pursuant to the Senior Subordinated Notes Indenture.
"Senior Subordinated Notes Indenture" means the Indenture
dated as of March 21, 1996 among the Borrower, the guarantors party
thereto and IBJ Schroder Bank & Trust Company, as Trustee, pursuant to
which the Senior Subordinated Notes are issued, as amended,
supplemented or otherwise modified from time to time in accordance with
its terms, to the extent permitted in accordance with the Loan
Documents.
"Single Employer Plan" means a single employer plan, as
defined in Section 4001(a)(15) of ERISA, that is subject to ERISA and
that (a) is maintained for employees of any Loan Party or any ERISA
Affiliate and no Person other than the Loan Parties and the ERISA
Affiliates or (b) was so maintained and in respect of which any Loan
Party or any ERISA Affiliate could have liability under Section 4069 of
ERISA in the event such plan has been or were to be terminated.
"Solvent" and "Solvency" mean, with respect to any Person on a
particular date, that on such date (a) the fair value of the property
of such Person is greater than the total amount of liabilities,
including, without limitation, contingent liabilities, of such Person,
(b) the present fair salable value of the assets of such Person is not
less than the amount that will be required to pay the probable
liability of such Person on its debts as they become absolute and
matured, (c) such Person does not intend to, and does not believe that
it will, incur debts or liabilities beyond such Person's ability to pay
such debts and liabilities as they mature and (d) such Person is not
engaged in business or a transaction, and is not about to engage in
business or a transaction, for which such Person's property would
constitute an unreasonably small capital. The amount of contingent
liabilities at any time shall be computed as the amount that, in the
light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an
actual or matured liability.
"Specified Revenues" means at any time (a) in the case of any
acquisition of a New Center, aggregate revenues of such New Center for
the immediately preceding 12-month period, and (b) in the case of any
construction of a New Center, an amount equal to (i) at any time during
its first 12 full months of operations, the aggregate revenues of such
New Center for each full month it has operated times twelve divided by
the number of full months such New Center has operated and (ii) at any
time thereafter, aggregate revenues of such New Center for the
immediately preceding 12-month period.
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35
"Standby Letter of Credit" means any Letter of Credit issued
under the Letter of Credit Facility, other than a Trade Letter of
Credit.
"Stockholders' Agreement" means the Stockholders' Agreement
set forth on Schedule III hereto, as amended, supplemented or otherwise
modified from time to time in accordance with its terms, to the extent
permitted in accordance with the Loan Documents.
"Subordinated Debt" means the Subordinated Notes and any other
Debt of any Loan Party that is subordinated to the Obligations of such
Loan Party under the Loan Documents on, and that otherwise contains,
terms and conditions satisfactory to the Required Lenders.
"Subordinated Debt Documents" means the Subordinated Notes
Indentures and all other agreements, indentures and instruments
pursuant to which Subordinated Debt is issued.
"Subordinated Notes" means the Senior Subordinated Notes and
the Senior Subordinated Discount Notes.
"Subordinated Notes Indentures" means the Senior Subordinated
Notes Indenture and the Senior Subordinated Discount Notes Indenture.
"Subsidiary" of any Person means any corporation, partnership,
joint venture, limited liability company, trust or estate of which (or
in which) more than 50% of (a) the issued and outstanding capital stock
having ordinary voting power to elect a majority of the Board of
Directors of such corporation (irrespective of whether at the time
capital stock of any other class or classes of such corporation shall
or might have voting power upon the occurrence of any contingency), (b)
the interest in the capital or profits of such partnership, joint
venture or limited liability company or (c) the beneficial interest in
such trust or estate is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more of its other
Subsidiaries or by one or more of such Person's other Subsidiaries.
"Subsidiary Guarantors" means the Subsidiaries of the Borrower
listed on Schedule II hereto and each other Subsidiary of the Borrower
that shall be required to execute and deliver a guaranty pursuant to
Section 5.01(n).
"Subsidiary Guaranty" has the meaning specified in Section
3.01(p)(xi).
"Support Agreement" means the letter agreement dated April 11,
1996 between the Sellers and Holdings, as amended, supplemented or
otherwise modified
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36
from time to time in accordance with its terms, to the extent
permitted in accordance with the Loan Documents.
"Support Amount" means, for any period, the amount that, in the
judgment of a Designated Financial Officer, would have been payable to the
Borrower by the Sellers during such period pursuant to the Support
Agreement if the Support Agreement were then still in effect, provided,
however, that the aggregate of such amounts shall not in any event exceed
$17,500,000 from and after the First Closing Date.
"Surviving Debt" has the meaning specified in Section 3.01(e).
"Syndication Agent" has the meaning specified in the recital of
parties to this Agreement.
"Tax Agreement" means the Tax Allocation Agreement dated as of May
1, 1996 among Parent, the Borrower and the Borrower's Subsidiaries (other
than Foreign Subsidiaries), as amended, supplemented or otherwise modified
from time to time in accordance with its terms, to the extent permitted in
accordance with the Loan Documents.
"Tax Certificate" has the meaning specified in Section 5.03(o).
"Taxes" has the meaning specified in Section 2.12(a).
"Term Facilities" means the Term Loan Facility, the AXELs Series A
Facility and the AXELs Series B Facility.
"Term Loan Advance" has the meaning specified in Section 2.01(a).
"Term Loan Borrowing" means a borrowing consisting of simultaneous
Term Loan Advances of the same Type made by the Term Loan Lenders.
"Term Loan Commitment" means, with respect to any Term Loan Lender
at any time, the amount set forth opposite such Lender's name on Schedule
I hereto under the caption "Term Loan Commitment" or, if such Lender has
entered into one or more Assignments and Acceptances, set forth for such
Lender in the Register maintained by the Administrative Agent pursuant to
Section 8.07(d) as such Lender's "Term Loan Commitment", as such amount
may be reduced at or prior to such time pursuant to Section 2.05.
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37
"Term Loan Facility" means, at any time, the aggregate amount of the
Term Loan Lenders' Term Loan Commitments at such time.
"Term Loan Lender" means any Lender that has a Term Loan
Commitment.
"Term Loan Note" means a promissory note of the Borrower payable to
the order of any Term Loan Lender, in substantially the form of Exhibit
A-1 hereto, evidencing the indebtedness of the Borrower to such Lender
resulting from the Term Loan Advance made by such Lender.
"Termination Date" means (a) with respect to the Term Loan Facility,
the Working Capital Facility and the Letter of Credit Facility, the
earlier of March 31, 2002 and the date of termination in whole of the Term
Loan Commitments, the Working Capital Commitments and the Letter of Credit
Commitments pursuant to Section 2.05 or 6.01, (b) with respect to the
AXELs Series A Facility, the earlier of March 31, 2003 and the date of
termination in whole of the AXELs Series A Commitments pursuant to Section
2.05 or 6.01 and (c) with respect to the AXELs Series B Facility, the
earlier of March 31, 2004 and the date of termination in whole of the
AXELs Series B Commitments pursuant to Section 2.05 or 6.01.
"Third Amendment" means Amendment No. 1 dated November 3, 1997 to
the Existing Credit Agreement among the Borrower, the Lenders parties
thereto and the Agents, and the Consent thereto dated as of November 3,
1997 by the Loan Parties (other than the Borrower).
"Third Amendment Documents" means (a) the Third Amendment, (b) the
Working Capital Notes issued pursuant to Section 3.05(f)(i) and (c) the
Third Mortgage Amendments.
"Third Closing Date" means June 30, 1997.
"Third Mortgage Amendments" means the mortgage amendments, if any,
executed in connection with the Third Amendment.
"Total Debt/EBITDA Ratio" means, at any date of determination, the
ratio of Consolidated total Debt (other than Hedge Agreements) of the
Borrower and its Subsidiaries as at the end of the immediately preceding
Rolling Period to Modified Consolidated EBITDA of the Borrower and its
Subsidiaries for such Rolling Period.
"Trade Letter of Credit" means any Letter of Credit that is issued
under the Letter of Credit Facility for the benefit of a supplier of
Inventory to the Borrower or any of its Subsidiaries to effect payment for
such Inventory, the conditions to drawing
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38
under which include the presentation to the Issuing Bank that issued such
Letter of Credit of negotiable bills of lading, invoices and related
documents sufficient, in the judgment of such Issuing Bank, to create a
valid and perfected lien on or security interest in such Inventory, bills
of lading, invoices and related documents in favor of such Issuing Bank.
"Type" refers to the distinction between Advances bearing interest
at the Base Rate and Advances bearing interest at the Eurodollar Rate.
"Unused Working Capital Commitment" means, with respect to any
Working Capital Lender at any time, (a) such Lender's Working Capital
Commitment at such time minus (b) the sum of (i) the aggregate principal
amount of all Working Capital Advances and Letter of Credit Advances made
by such Lender (in its capacity as a Lender) and outstanding at such time,
plus (ii) such Lender's Pro Rata Share of (A) the aggregate Available
Amount of all Letters of Credit outstanding at such time and (B) the
aggregate principal amount of all Letter of Credit Advances made by the
Issuing Banks pursuant to Section 2.03(c) and outstanding at such time.
"Voting Stock" means capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the
election of directors (or persons performing similar functions) of such
Person, even if the right so to vote has been suspended by the happening
of such a contingency.
"Welfare Plan" means a welfare plan, as defined in Section 3(1) of
ERISA, that is subject to ERISA and is maintained for employees of any
Loan Party or in respect of which any Loan Party could have liability.
"Withdrawal Liability" has the meaning specified in Part I of
Subtitle E of Title IV of ERISA.
"Working Capital Advance" has the meaning specified in Section
2.01(d).
"Working Capital Borrowing" means a borrowing consisting of
simultaneous Working Capital Advances of the same Type made by the Working
Capital Lenders.
"Working Capital Commitment" means, with respect to any Working
Capital Lender at any time, the amount set forth opposite such Lender's
name on Schedule I hereto under the caption "Working Capital Commitment"
or, if such Lender has entered into one or more Assignments and
Acceptances, set forth for such Lender in the Register maintained by the
Administrative Agent pursuant to Section 8.07(d) as
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39
such Lender's "Working Capital Commitment", as such amount may be reduced
at or prior to such time pursuant to Section 2.05.
"Working Capital Facility" means, at any time, the aggregate amount
of the Working Capital Lenders' Working Capital Commitments at such time.
"Working Capital Lender" means any Lender that has a Working
Capital Commitment.
"Working Capital Note" means a promissory note of the Borrower
payable to the order of any Working Capital Lender, in substantially the
form of Exhibit A-4 hereto, evidencing the aggregate indebtedness of the
Borrower to such Lender resulting from the Working Capital Advances made
by such Lender.
SECTION 1.02. Computation of Time Periods. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding".
SECTION 1.03. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles consistent with those applied in the preparation
of the financial statements referred to in Section 4.01(f) ("GAAP").
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
AND THE LETTERS OF CREDIT
SECTION 2.01. The Advances. (a) The Term Loan Advances. Each Term
Loan Lender severally agrees, on the terms and conditions hereinafter set forth,
to make a single advance (a "Term Loan Advance") to the Borrower on the First
Closing Date in an amount not to exceed such Lender's Term Loan Commitment at
such time. The Term Loan Borrowing shall consist of Term Loan Advances made
simultaneously by the Term Loan Lenders ratably according to their Term Loan
Commitments. Amounts borrowed under this Section 2.01(a) and repaid or prepaid
may not be reborrowed.
(b) The AXELs Series A Advances. Each AXELs Series A Lender
severally agrees, on the terms and conditions hereinafter set forth, to make a
single advance (an "AXELs Series A Advance") to the Borrower on the First
Closing Date in an amount not to exceed such Lender's AXELs Series A Commitment
at such time. The AXELs Series A
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40
Borrowing shall consist of AXELs Series A Advances made simultaneously by the
AXELs Series A Lenders ratably according to their AXELs Series A Commitments.
Amounts borrowed under this Section 2.01(b) and repaid or prepaid may not be
reborrowed.
(c) The AXELs Series B Advances. (i) Each Existing AXELs Series B
Lender severally agrees, on the terms and conditions hereinafter set forth, to
make a single advance (an "Existing AXELs Series B Advance") to the Borrower on
the First Closing Date in an amount not to exceed such Lender's Existing AXELs
Series B Commitment at such time. The AXELs Series B Borrowing made on the First
Closing Date shall consist of Existing AXELs Series B Advances made
simultaneously by the Existing AXELs Series B Lenders ratably according to their
Existing AXELs Series B Commitments.
(ii) Each New AXELs Series B Lender severally agrees, on the terms
and conditions hereinafter set forth, to make a single advance (a "New AXELs
Series B Advance") to the Borrower on the Second Closing Date in an amount not
to exceed such Lender's New AXELs Series B Commitment at such time. The AXELs
Series B Borrowing made on the Second Closing Date shall consist of New AXELs
Series B Advances made simultaneously by the New AXELs Series B Lenders ratably
according to their New AXELs Series B Commitments. On the Second Closing Date,
all Existing AXELs Series B Advances then outstanding shall automatically
Convert to Advances with Interest Periods ending on the same day or days as the
Interest Period or Periods selected by the Borrower for the New AXELs Series B
Advances, in such amounts such that after giving effect to such Conversion,
AXELs Series B Advances comprising part of the same Borrowing shall be owing to
the AXELs Series B Lenders ratably according to their AXELs Series B
Commitments. The Borrower shall, on the Second Closing Date, pay any amounts
owing pursuant to Section 8.04(c) as a result of such Conversion.
(iii) Amounts borrowed under this Section 2.01(c) and repaid or
prepaid may not be reborrowed.
(d) The Working Capital Advances. (i) Effective as of the Fourth
Closing Date, all Acquisition Advances and Acquisition B Advances (each as
defined in the Existing Credit Agreement) outstanding under the Existing Credit
Agreement and all but $130,000,000 of the Term Loan Advances (as defined in the
Existing Credit Agreement) outstanding under the Existing Credit Agreement (the
aggregate amount of all such Advances less the aggregate amount of Advances
prepaid pursuant to Section 2.06(b)(ii)(B) being the "Outstanding Amount") shall
automatically be converted into Working Capital Advances hereunder and paid in
full as hereinafter set forth. In connection therewith, on the Fourth Closing
Date, each Working Capital Lender shall, in accordance with Section 2.02(a),
make available for the account of its Applicable Lending Office to the
Administrative Agent at the Administrative Agent's Account, in same day funds,
such Lender's Pro Rata Share of the Outstanding Amount. Promptly upon the
Administrative Agent's receipt of the funds
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41
referred to in the immediately preceding sentence, the Administrative Agent
shall cause to be distributed like funds to prepay the Acquisition Lenders, the
Acquisition B Lenders and the Term Lenders (each as defined in the Existing
Credit Agreement) in such amounts as may be necessary such that after giving
effect thereto, the Working Capital Advances that were, prior to conversion in
accordance with the first sentence of this Section 2.01(d)(i), Acquisition
Advances, Acquisition B Advances and Term Loan Advances shall have been paid in
full. The Borrower shall, on the Fourth Closing Date, pay any amounts owing
pursuant to Section 8.04(c) as a result of such prepayment.
(ii) Each Working Capital Lender severally agrees, on the terms and
conditions hereinafter set forth, to make advances (each a "Working Capital
Advance") to the Borrower from time to time on any Business Day during the
period from the First Closing Date until the Termination Date in an amount for
each such Advance not to exceed such Lender's Unused Working Capital Commitment
at such time (subject, however, to the terms of Section 2.01(f)). Each Working
Capital Borrowing shall be in an aggregate amount of $1,000,000 or an integral
multiple of $500,000 in excess thereof and shall consist of Working Capital
Advances made simultaneously by the Working Capital Lenders ratably according to
their Working Capital Commitments. Within the limits of each Working Capital
Lender's Unused Working Capital Commitment in effect from time to time, the
Borrower may borrow under this Section 2.01(d)(ii), prepay pursuant to Section
2.06(a) and reborrow under this Section 2.01(d)(ii).
(e) Letters of Credit. Each Issuing Bank severally agrees, on the
terms and conditions hereinafter set forth, to issue (or cause its Affiliate to
issue on its behalf) letters of credit (the "Letters of Credit") for the account
of the Borrower from time to time on any Business Day during the period from the
First Closing Date until 60 days before the Termination Date (i) in an aggregate
Available Amount for all Letters of Credit issued by such Issuing Bank not to
exceed at any time such Issuing Bank's Letter of Credit Commitment at such time
and (ii) in an Available Amount for each such Letter of Credit not to exceed the
lesser of (x) the Letter of Credit Facility at such time and (y) the Unused
Working Capital Commitments of the Working Capital Lenders at such time. No
Letter of Credit shall have an expiration date (including all rights of the
Borrower or the beneficiary to require renewal) later than the earlier of 30
days before the Termination Date and (A) in the case of a Standby Letter of
Credit, one year after the date of issuance thereof and (B) in the case of a
Trade Letter of Credit, 60 days after the date of issuance thereof. Within the
limits of the Letter of Credit Facility, and subject to the limits referred to
above, the Borrower may request the issuance of Letters of Credit under this
Section 2.01(e), repay any Letter of Credit Advances resulting from drawings
thereunder pursuant to Section 2.03(c) and request the issuance of additional
Letters of Credit under this Section 2.01(e).
(f) Set Aside of Working Capital Commitments. Each Working Capital
Lender's Pro Rata Share of the aggregate Unused Working Capital Commitments
shall be
<PAGE> 48
42
reserved and shall not be available to be borrowed except for the purpose set
forth below in an amount equal to the aggregate amount of Obligations guaranteed
by the Borrower pursuant to Section 5.02(b)(i)(C) during any time that such
guaranteed Obligations exceed $1,000,000 outstanding and the aggregate Unused
Working Capital Commitments shall be less than $15,000,000, and shall be
available to be borrowed solely for purposes of financing such guaranteed
Obligations of the Borrower.
(g) Assignment. Effective as of the Fourth Closing Date, each
Existing Lender hereby sells and assigns all of its rights in and to, and all of
its obligations under, each Existing Advance owing to it and the Existing
Commitment held by it to the Initial Lenders and each Initial Lender hereby
purchases and assumes, pro rata based on such Initial Lender's Commitment, all
of the Existing Lenders' rights in and to, and all of their obligations under,
the Existing Advances and the Existing Commitments, such that after giving
effect to all such assignments, each Initial Lender's Commitment under each
Facility is in an amount equal to the amount under each such Facility specified
on Schedule I hereto. As of the Fourth Closing Date, immediately prior to giving
effect to any assignment under this Agreement as of such date pursuant to this
Section 2.01(g), each Existing Lender represents and warrants, as to the
assignment effected by such Existing Lender by this Agreement, that as of the
Fourth Closing Date such Existing Lender is the legal and beneficial owner of
such interest being assigned by it hereunder and that such interest is free and
clear of any adverse claim created by such Existing Lender.
SECTION 2.02. Making the Advances. (a) Except as otherwise provided
in Section 2.02(b) or 2.03, each Borrowing shall be made on notice, given not
later than 11:00 A.M. (New York City time) on the third Business Day prior to
the date of the proposed Borrowing in the case of a Borrowing consisting of
Eurodollar Rate Advances, or not later than 9:00 A.M. (New York City time) on
the date of the proposed Borrowing in the case of a Borrowing consisting of Base
Rate Advances, by the Borrower to the Administrative Agent, which shall give to
each Appropriate Lender prompt notice thereof by telex or telecopier. Each such
notice of a Borrowing (a "Notice of Borrowing") shall be by telephone, confirmed
immediately in writing, or telex or telecopier, in substantially the form of
Exhibit B hereto, specifying therein the requested (i) date of such Borrowing,
(ii) Facility under which such Borrowing is to be made, (iii) Type of Advances
comprising such Borrowing, (iv) aggregate amount of such Borrowing and (v) in
the case of a Borrowing consisting of Eurodollar Rate Advances, initial Interest
Period for each such Advance. Each Appropriate Lender shall, before 1:00 P.M.
(New York City time) on the date of such Borrowing, make available for the
account of its Applicable Lending Office to the Administrative Agent at the
Administrative Agent's Account, in same day funds, such Lender's ratable portion
of such Borrowing in accordance with the respective Commitments under the
applicable Facility of such Lender and the other Appropriate Lenders. After the
Administrative Agent's receipt of such funds and upon fulfillment of the
applicable conditions set forth in Article III, the Administrative Agent will
make such funds available to the
<PAGE> 49
43
Borrower by crediting the Borrower's Account; provided, however, that, in the
case of any Working Capital Borrowing, the Administrative Agent shall first make
a portion of such funds equal to the aggregate principal amount of any Letter of
Credit Advances made by any Issuing Bank and by any other Working Capital Lender
and outstanding on the date of such Working Capital Borrowing, plus interest
accrued and unpaid thereon to and as of such date, available to such Issuing
Bank and such other Working Capital Lenders for repayment of such Letter of
Credit Advances.
(b) Anything in subsection (a) above to the contrary
notwithstanding, (i) the Borrower may not select Eurodollar Rate Advances for
the initial Borrowing hereunder unless the Borrower shall have agreed, in
writing, prior to or concurrently with the giving of the applicable Notice of
Borrowing, to be bound by the terms of Section 2.02(c) or for any Borrowing if
the aggregate amount of such Borrowing is less than $5,000,000 or if the
obligation of the Appropriate Lenders to make Eurodollar Rate Advances shall
then be suspended pursuant to Section 2.09 or Section 2.10 and (ii) the Term
Loan Advances may not be outstanding as part of more than 5 separate Borrowings,
the AXELs Series A Advances may not be outstanding as part of more than 5
separate Borrowings, the AXELs Series B Advances may not be outstanding as part
of more than 5 separate Borrowings and the Working Capital Advances made on any
date may not be outstanding as part of more than 25 separate Borrowings.
(c) Each Notice of Borrowing shall be irrevocable and binding on the
Borrower. In the case of any Borrowing that the related Notice of Borrowing
specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall
indemnify each Appropriate Lender against any loss, cost or expense incurred by
such Lender as a result of any failure to fulfill on or before the date
specified in such Notice of Borrowing for such Borrowing the applicable
conditions set forth in Article III, including, without limitation, any loss
(including loss of anticipated profits), cost or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by such
Lender to fund the Advance to be made by such Lender as part of such Borrowing
when such Advance, as a result of such failure, is not made on such date.
(d) Unless the Administrative Agent shall have received notice from
an Appropriate Lender prior to the date of any Borrowing under a Facility under
which such Lender has a Commitment that such Lender will not make available to
the Administrative Agent such Lender's ratable portion of such Borrowing, the
Administrative Agent may assume that such Lender has made such portion available
to the Administrative Agent on the date of such Borrowing in accordance with
subsection (a) or (b) of this Section 2.02 and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Lender shall not have so
made such ratable portion available to the Administrative Agent, such Lender and
the Borrower severally agree to repay or pay to the Administrative Agent
forthwith on demand
<PAGE> 50
44
such corresponding amount and to pay interest thereon, for each day from the
date such amount is made available to the Borrower until the date such amount is
repaid or paid to the Administrative Agent, at (i) in the case of the Borrower,
the interest rate applicable at such time under Section 2.07 to Advances
comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds
Rate. If such Lender shall pay to the Administrative Agent such corresponding
amount, such amount so paid shall constitute such Lender's Advance as part of
such Borrowing for all purposes.
(e) The failure of any Lender to make the Advance to be made by it
as part of any Borrowing shall not relieve any other Lender of its obligation,
if any, hereunder to make its Advance on the date of such Borrowing, but no
Lender shall be responsible for the failure of any other Lender to make the
Advance to be made by such other Lender on the date of any Borrowing.
SECTION 2.03. Issuance of and Drawings and Reimbursement Under
Letters of Credit. (a) Request for Issuance. Each Letter of Credit shall be
issued upon notice, given not later than 11:00 A.M. (New York City time) on the
fifth Business Day prior to the date of the proposed issuance of such Letter of
Credit, by the Borrower to any Issuing Bank, which shall give to the
Administrative Agent and each Working Capital Lender prompt notice thereof by
telex or telecopier. Each such notice of issuance of a Letter of Credit (a
"Notice of Issuance") shall be by telephone, confirmed immediately in writing,
or telex or telecopier, specifying therein the requested (A) date of such
issuance (which shall be a Business Day), (B) Available Amount of such Letter of
Credit, (C) expiration date of such Letter of Credit, (D) name and address of
the beneficiary of such Letter of Credit and (E) form of such Letter of Credit,
and shall be accompanied by such application and agreement for letter of credit
as such Issuing Bank may specify to the Borrower for use in connection with such
requested Letter of Credit (a "Letter of Credit Agreement"). If (x) the
requested form of such Letter of Credit is acceptable to such Issuing Bank in
its sole discretion and (y) it has not received notice of objection to such
issuance from the Agents, such Issuing Bank will, upon fulfillment of the
applicable conditions set forth in Article III, make such Letter of Credit
available to the Borrower at its office referred to in Section 8.02 or as
otherwise agreed with the Borrower in connection with such issuance. In the
event and to the extent that the provisions of any Letter of Credit Agreement
shall conflict with this Agreement, the provisions of this Agreement shall
govern.
(b) Letter of Credit Reports. Each Issuing Bank shall furnish (A) to
the Administrative Agent on the first Business Day of each month a written
report summarizing issuance and expiration dates of Letters of Credit issued by
such Issuing Bank during the previous month and drawings during such month under
all Letters of Credit issued by such Issuing Bank, (B) to each Working Capital
Lender on the first Business Day of each month a written report summarizing
issuance and expiration dates of Letters of Credit issued by such Issuing Bank
during the preceding month and drawings during such month under all Letters
<PAGE> 51
45
of Credit issued by such Issuing Bank and (C) to the Administrative Agent and
each Working Capital Lender on the first Business Day of each calendar quarter a
written report setting forth the average daily aggregate Available Amount during
the preceding calendar quarter of all Letters of Credit issued by such Issuing
Bank.
(c) Drawing and Reimbursement. The payment by any Issuing Bank of a
draft drawn under any Letter of Credit shall constitute for all purposes of this
Agreement the making by such Issuing Bank of a Letter of Credit Advance, which
shall be a Base Rate Advance, in the amount of such draft. Upon payment by any
Issuing Bank of a draft drawn under any Letter of Credit, such Issuing Bank
shall give prompt notice thereof to the Borrower and the Administrative Agent.
Upon written demand by any Issuing Bank with an outstanding Letter of Credit
Advance, with a copy of such demand to the Administrative Agent, each Working
Capital Lender shall purchase from such Issuing Bank, and such Issuing Bank
shall sell and assign to each such Working Capital Lender, such Lender's Pro
Rata Share of such outstanding Letter of Credit Advance as of the date of such
purchase, by making available for the account of its Applicable Lending Office
to the Administrative Agent for the account of such Issuing Bank, by deposit to
the Administrative Agent's Account, in same day funds, an amount equal to the
portion of the outstanding principal amount of such Letter of Credit Advance to
be purchased by such Lender. Promptly after receipt thereof, the Administrative
Agent shall transfer such funds to such Issuing Bank. The Borrower hereby agrees
to each such sale and assignment. Each Working Capital Lender agrees to purchase
its Pro Rata Share of an outstanding Letter of Credit Advance on (i) the
Business Day on which demand therefor is made by the Issuing Bank which made
such Advance, provided notice of such demand is given not later than 11:00 A.M.
(New York City time) on such Business Day or (ii) the first Business Day next
succeeding such demand if notice of such demand is given after such time. Upon
any such assignment by an Issuing Bank to any other Working Capital Lender of a
portion of a Letter of Credit Advance, such Issuing Bank represents and warrants
to such other Lender that such Issuing Bank is the legal and beneficial owner of
such interest being assigned by it, free and clear of any liens, but makes no
other representation or warranty and assumes no responsibility with respect to
such Letter of Credit Advance, the Loan Documents or any Loan Party. If and to
the extent that any Working Capital Lender shall not have so made the amount of
such Letter of Credit Advance available to the Administrative Agent, such
Working Capital Lender agrees to pay to the Administrative Agent forthwith on
demand such amount together with interest thereon, for each day from the date of
demand by such Issuing Bank until the date such amount is paid to the
Administrative Agent, at the Federal Funds Rate for its account or the account
of such Issuing Bank, as applicable. If any Lender shall pay to the
Administrative Agent such amount for the account of such Issuing Bank on any
Business Day, such amount so paid in respect of principal shall constitute a
Letter of Credit Advance made by such Lender on such Business Day for purposes
of this Agreement, and the outstanding principal amount of the Letter of Credit
Advance made by such Issuing Bank shall be reduced by such amount on such
Business Day.
<PAGE> 52
46
(d) Failure to Make Letter of Credit Advances. The failure of any
Lender to make the Letter of Credit Advance to be made by it on the date
specified in Section 2.03(c) shall not relieve any other Lender of its
obligation hereunder to make its Letter of Credit Advance on such date, but no
Lender shall be responsible for the failure of any other Lender to make the
Letter of Credit Advance to be made by such other Lender on such date.
SECTION 2.04. Repayment of Advances. (a) Term Loan Advances. The
Borrower shall repay to the Administrative Agent for the ratable account of the
Term Loan Lenders the aggregate outstanding principal amount of the Term Loan
Advances on the following dates in the amounts indicated (which amounts shall be
reduced as a result of the application of prepayments in accordance with the
order of priority set forth in Section 2.06):
DATE AMOUNT
December 31, 1997 $7,500,000
March 31, 1998 $7,500,000
June 30, 1998 $3,125,000
September 30, 1998 $3,125,000
December 31, 1998 $9,375,000
March 31, 1999 $9,375,000
June 30, 1999 $3,750,000
September 30, 1999 $3,750,000
December 31, 1999 $11,250,000
March 31, 2000 $11,250,000
June 30, 2000 $3,750,000
September 30, 2000 $3,750,000
December 31, 2000 $11,250,000
March 31, 2001 $11,250,000
June 30, 2001 $3,750,000
September 30, 2001 $3,750,000
December 31, 2001 $11,250,000
March 31, 2002 $11,250,000
provided, however, that the final principal installment shall be repaid on the
Termination Date and in any event shall be in an amount equal to the aggregate
principal amount of the Term Loan Advances outstanding on such date.
(b) AXELs Series A Advances. The Borrower shall repay to the
Administrative Agent for the ratable account of the AXELs Series A Lenders the
aggregate outstanding principal amount of the AXELs Series A Advances on the
following dates in the
<PAGE> 53
47
amounts indicated (which amounts shall be reduced as a result of the application
of prepayments in accordance with the order of priority set forth in Section
2.06):
DATE AMOUNT
June 30, 1996 $250,000
September 30, 1996 $250,000
December 31, 1996 $750,000
March 31, 1997 $750,000
June 30, 1997 $250,000
September 30, 1997 $250,000
December 31, 1997 $750,000
March 31, 1998 $750,000
June 30, 1998 $250,000
September 30, 1998 $250,000
December 31, 1998 $750,000
March 31, 1999 $750,000
June 30, 1999 $250,000
September 30, 1999 $250,000
December 31, 1999 $750,000
March 31, 2000 $750,000
June 30, 2000 $250,000
September 30, 2000 $250,000
December 31, 2000 $750,000
March 31, 2001 $750,000
June 30, 2001 $10,000,000
September 30, 2001 $10,000,000
December 31, 2001 $30,000,000
March 31, 2002 $30,000,000
June 30, 2002 $12,500,000
September 30, 2002 $12,500,000
December 31, 2002 $37,500,000
March 31, 2003 $37,500,000
provided, however, that the final principal installment shall be repaid on the
Termination Date and in any event shall be in an amount equal to the aggregate
principal amount of the AXELs Series A Advances outstanding on such date.
(c) AXELs Series B Advances. The Borrower shall repay to the
Administrative Agent for the ratable account of the AXELs Series B Lenders the
aggregate
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48
outstanding principal amount of the AXELs Series B Advances on the following
dates in the amounts indicated (which amounts shall be reduced as a result of
the application of prepayments in accordance with the order of priority set
forth in Section 2.06):
DATE AMOUNT
June 30, 1996 $150,000
September 30, 1996 $150,000
December 31, 1996 $450,000
March 31, 1997 $843,940
June 30, 1997 $281,310
September 30, 1997 $281,310
December 31, 1997 $843,940
March 31, 1998 $843,940
June 30, 1998 $281,310
September 30, 1998 $281,310
December 31, 1998 $843,940
March 31, 1999 $843,940
June 30, 1999 $281,310
September 30, 1999 $281,310
December 31, 1999 $843,940
March 31, 2000 $843,940
June 30, 2000 $281,310
September 30, 2000 $281,310
December 31, 2000 $843,940
March 31, 2001 $843,940
June 30, 2001 $281,310
September 30, 2001 $281,310
December 31, 2001 $843,940
March 31, 2002 $843,940
June 30, 2002 $281,310
September 30, 2002 $281,310
December 31, 2002 $843,940
March 31, 2003 $843,940
June 30, 2003 $15,612,880
September 30, 2003 $15,612,880
December 31, 2003 $46,838,640
March 31, 2004 $46,838,640
<PAGE> 55
49
provided, however, that the final principal installment shall be repaid on the
Termination Date and in any event shall be in an amount equal to the aggregate
principal amount of the AXELs Series B Advances outstanding on such date.
(d) Working Capital Advances. The Borrower shall repay to the
Administrative Agent for the ratable account of the Working Capital Lenders on
the Termination Date the aggregate outstanding principal amount of the Working
Capital Advances then outstanding.
(e) Letter of Credit Advances. (i) The Borrower shall repay to the
Administrative Agent for the account of each Issuing Bank and each other Working
Capital Lender that has made a Letter of Credit Advance on the earlier of the
second Business Day following the date on which such Letter of Credit is drawn
and the Termination Date the outstanding principal amount of each Letter of
Credit Advance made by each of them.
(ii) The Obligations of the Borrower under this Agreement, any
Letter of Credit Agreement and any other agreement or instrument relating to any
Letter of Credit shall be unconditional and irrevocable, and shall be paid
strictly in accordance with the terms of this Agreement, such Letter of Credit
Agreement and such other agreement or instrument under all circumstances,
including, without limitation, the following circumstances (it being understood
that any such payment by the Borrower is without prejudice to, and does not
constitute a waiver of, any rights the Borrower might have or might acquire as a
result of the payment by any Issuing Bank of any draft or the reimbursement by
the Borrower thereof):
(A) any lack of validity or enforceability of any Loan Document, any
Letter of Credit Agreement, any Letter of Credit or any other agreement or
instrument relating thereto (all of the foregoing being, collectively, the
"L/C Related Documents");
(B) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations of the Borrower in respect of
any L/C Related Document or any other amendment or waiver of or any
consent to departure from all or any of the L/C Related Documents;
(C) the existence of any claim, set-off, defense or other right that
the Borrower may have at any time against any beneficiary or any
transferee of a Letter of Credit (or any Persons for whom any such
beneficiary or any such transferee may be acting), any Issuing Bank or any
other Person, whether in connection with the transactions contemplated by
the L/C Related Documents or any unrelated transaction;
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50
(D) any statement or any other document presented under a Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any
respect;
(E) payment by any Issuing Bank under a Letter of Credit against
presentation of a draft or certificate that does not strictly comply with
the terms of such Letter of Credit;
(F) any exchange, release or non-perfection of any Collateral or
other collateral, or any release or amendment or waiver of or consent to
departure from any Guaranty or any other guarantee, for all or any of the
Obligations of the Borrower in respect of the L/C Related Documents; or
(G) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing, including, without limitation, any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, the Borrower or a guarantor.
SECTION 2.05. Termination or Reduction of the Commitments. (a)
Optional. The Borrower may, upon at least five Business Days' notice to the
Administrative Agent, terminate in whole or reduce in part the unused portions
of the Term Loan Commitments, the AXELs Series A Commitments, the Existing AXELs
Series B Commitments, the New AXELs Series B Commitments, the Letter of Credit
Facility or the Unused Working Capital Commitments; provided, however, that each
partial reduction of a Facility (i) shall be in an aggregate amount of
$5,000,000 or an integral multiple of $1,000,000 in excess thereof and (ii)
shall be made ratably among the Appropriate Lenders in accordance with their
Commitments with respect to such Facility.
(b) Mandatory. (i) On the date of the Term Loan Borrowing, after
giving effect to such Term Loan Borrowing, and from time to time thereafter upon
each repayment or prepayment of the Term Loan Advances, the aggregate Term Loan
Commitments of the Term Loan Lenders shall be automatically and permanently
reduced, on a pro rata basis, by an amount equal to the amount by which the
aggregate Term Loan Commitments immediately prior to such reduction exceed the
aggregate unpaid principal amount of the Term Loan Advances then outstanding.
(ii) On the date of the AXELs Series A Borrowing, after giving
effect to such AXELs Series A Borrowing, and from time to time thereafter upon
each repayment or prepayment of the AXELs Series A Advances, the aggregate AXELs
Series A Commitments of the AXELs Series A Lenders shall be automatically and
permanently reduced, on a pro rata basis, by an amount equal to the amount by
which the aggregate AXELs Series A
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Commitments immediately prior to such reduction exceed the aggregate unpaid
principal amount of the AXELs Series A Advances then outstanding.
(iii) On the date of each of the AXELs Series B Borrowings comprised
of Existing AXELs Series B Advances, after giving effect to such AXELs Series B
Borrowings, and from time to time thereafter upon each repayment or prepayment
of the AXELs Series B Advances, the aggregate AXELs Series B Commitments of the
AXELs Series B Lenders shall be automatically and permanently reduced, on a pro
rata basis, by an amount equal to the amount by which the aggregate AXELs Series
B Commitments immediately prior to such reduction exceed the aggregate unpaid
principal amount of the AXELs Series B Advances then outstanding.
(iv) On the date of each of the AXELs Series B Borrowings comprised
of the initial New AXELs Series B Advances, after giving effect to such AXELs
Series B Borrowings, and from time to time thereafter upon each repayment or
prepayment of such New AXELs Series B Advances, the aggregate New AXELs Series B
Commitments of the New AXELs Series B Lenders shall be automatically and
permanently reduced, on a pro rata basis, by an amount equal to the amount by
which the aggregate New AXELs Series B Commitments immediately prior to such
reduction exceed the aggregate unpaid principal amount of the New AXELs Series B
Advances then outstanding.
(v) The Working Capital Facility shall be automatically and
permanently reduced on a pro rata basis on each date on which prepayment thereof
is required to be made pursuant to Section 2.06(b)(i), (ii), (iii) or (iv)
(other than pursuant to Section 2.06(b)(i)(B) and 2.06(b)(ii)(B)) in an amount
equal to the applicable Reduction Amount, provided that each such reduction of
the Working Capital Facility shall be made ratably among the Working Capital
Lenders in accordance with their Working Capital Commitments.
(vi) The Letter of Credit Facility shall be permanently reduced from
time to time on the date of each reduction in the Working Capital Facility by
the amount, if any, by which the amount of the Letter of Credit Facility exceeds
the Working Capital Facility after giving effect to such reduction of the
Working Capital Facility.
SECTION 2.06. Prepayments. (a) Optional. The Borrower may, upon at
least five Business Days' notice to the Administrative Agent stating the
proposed date and aggregate principal amount of the prepayment (including,
without limitation, as a result of any refinancing in part or in whole of
amounts outstanding under the Loan Documents), and if such notice is given the
Borrower shall, prepay the outstanding aggregate principal amount of the
Advances comprising part of the same Borrowing in whole or ratably in part,
together with (i) accrued interest to the date of such prepayment on the
aggregate principal amount prepaid and (ii) in the case of any such prepayment
of any Advances other than Term Loan Advances, Working Capital Advances and
Letter of Credit Advances prior to the first
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anniversary of the First Closing Date, a premium of 1-3/4% of the aggregate
principal amount so prepaid, or on or after the first anniversary of the First
Closing Date but prior to the first anniversary of the Fourth Closing Date, a
premium of 1% of the aggregate principal amount so prepaid; provided, however,
that (x) each partial prepayment shall be in an aggregate principal amount of
$5,000,000 or an integral multiple of $1,000,000 in excess thereof, (y) if any
prepayment of a Eurodollar Rate Advance shall be made on a date other than the
last day of an Interest Period therefor the Borrower shall also pay any amounts
owing pursuant to Section 8.04(c) and (z) prepayments of the Term Facilities
shall be made ratably among such Facilities, to be applied to the installments
of each such Facility on a pro rata basis.
(b) Mandatory. (i) The Borrower shall, on the 90th day following the
end of each Fiscal Year, (A) if the Total Debt/EBITDA Ratio is greater than or
equal to 5.50:1.00, prepay an aggregate principal amount of the Advances
comprising part of the same Borrowings outstanding under the Term Facilities in
an amount equal to the Excess Cash Flow Amount for such Fiscal Year and (B) if
the Total Debt/EBITDA Ratio is less than 5.50:1.00, prepay an aggregate
principal amount of the Working Capital Advances outstanding on such date in an
amount equal to the Excess Cash Flow Amount for such Fiscal Year. Each
prepayment made pursuant to clause (A) above shall be applied ratably to the
Term Facilities in accordance with, and subject to the terms of, clause (iv)
below and each prepayment made pursuant to clause (B) above shall be applied to
the Working Capital Facility as set forth in clause (vii) below.
(ii) (A) The Borrower shall, on the date of receipt of the Net Cash
Proceeds by any Loan Party or any of its Subsidiaries from (I) the sale, lease,
transfer or other disposition of any assets of any Loan Party or any of its
Subsidiaries (other than any sale, lease, transfer or other disposition of
assets pursuant to clause (i), (ii), (iii), (iv) or (v) of Section 5.02(e) and
other than the sale of assets pursuant to clause (vi) of Section 5.02(e) to the
extent that the Net Cash Proceeds of such sale do not exceed, in the aggregate
from the First Closing Date, $10,000,000), (II) the incurrence or issuance by
any Loan Party or any of its Subsidiaries of any Debt (other than Debt incurred
or issued pursuant to clause (i), (ii) or (iii) of Section 5.02(b)) and (III)
any Extraordinary Receipt received by or paid to or for the account of any Loan
Party or any of its Subsidiaries and not otherwise included in clause (I) or
(II) above, prepay an aggregate principal amount of the Advances comprising part
of the same Borrowings equal to the amount of such Net Cash Proceeds. Each such
prepayment shall be applied first ratably to the Term Facilities in accordance
with, and subject to the terms of, clause (iv) below and second to the Working
Capital Facility as set forth in clause (vii) below.
(B) The Borrower shall, on the date of receipt of the Net Cash Proceeds by
Parent from the sale or issuance by Parent of any capital stock or other
ownership or profit interest, any securities convertible into or exchangeable
for capital stock or other ownership or profit
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interest or any warrants, rights or options to acquire capital stock or other
ownership or profit interest, in each case from the IPO, prepay an aggregate
principal amount of the Working Capital Advances comprising part of the same
Borrowings in an amount equal to sum of (I) the lesser of (x) $150,000,000 and
(y) the sum of (1) $100,000,000 plus (2) to the extent such Net Cash Proceeds
exceed $275,000,000 (such amount being the "Excess Amount") an amount equal to
50% of the Excess Amount plus (II) any Net Cash Proceeds not otherwise applied
to prepay the Subordinated Notes as provided in Section 5.02(k). Each such
prepayment shall be applied to the Working Capital Facility as set forth in
clause (vii) below.
(C) The Borrower shall, on the date of receipt (or such later date as may
be specified below) of the Net Cash Proceeds by Parent from the sale or issuance
by Parent of any capital stock or other ownership or profit interest, any
securities convertible into or exchangeable for capital stock or other ownership
or profit interest or any warrants, rights or options to acquire capital stock
or other ownership or profit interest, in each case as a result of an equity
offering following the IPO, prepay an aggregate principal amount of the Advances
comprising part of the same Borrowings in an amount equal to (1) if Total
Debt/EBITDA Ratio at such time is greater than or equal to 4.00:1.00, 50% of the
amount of such Net Cash Proceeds, (2) if Total Debt/EBITDA Ratio at such time is
less than 4.00:1.00 but greater than or equal to 3.00:1.00, 50% of the amount by
which such Net Cash Proceeds exceed the amount of such Net Cash Proceeds used by
the Borrower and its Subsidiaries to make Investments in accordance with the
provisions of Section 5.02(f) during the nine months immediately following such
date, payable 30 days after the nine month anniversary of such date and (3) if
the Total Debt/EBITDA Ratio at such time is less than 3.00:1.00, zero. Each such
prepayment, if any, shall be applied first ratably to the Term Facilities in
accordance with, and subject to the terms of, clause (iv) below and second to
the Working Capital Facility as set forth in clause (vii) below.
(iii) Anything contained in this Section 2.06(b) to the contrary
notwithstanding, (A) if, following the occurrence of any "Asset Sale" (as such
term is defined in the Senior Subordinated Notes Indenture or the Senior
Subordinated Discount Notes Indenture) by any Loan Party or any of its
Subsidiaries, the Borrower is required to commit by a particular date (a
"Commitment Date") to apply or cause its Subsidiaries to apply an amount equal
to any of the "Net Proceeds" (as defined in the Senior Subordinated Notes
Indenture or the Senior Subordinated Discount Notes Indenture, as the case may
be) thereof in a particular manner, or to apply by a particular date (an
"Application Date") an amount equal to any such "Net Proceeds" in a particular
manner, in either case in order to excuse the Borrower from being required to
make an "Asset Sale Offer" (as defined in the Senior Subordinated Notes
Indenture or the Senior Subordinated Discount Notes Indenture, as the case may
be) in connection with such "Asset Sale," and the Borrower shall have failed to
so commit or to so apply an amount equal to such "Net Proceeds" at least 60 days
before the Commitment Date or the Application Date, as the case may be, or (B)
if the Borrower at
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any other time shall have failed to apply or commit or cause to be applied an
amount equal to any such "Net Proceeds," and, within 60 days thereafter assuming
no further application or commitment of an amount equal to such "Net Proceeds"
the Borrower would otherwise be required to make an "Asset Sale Offer" in
respect thereof, then in either such case the Borrower shall immediately apply
or cause to be applied an amount equal to such "Net Proceeds" to the payment of
the Advances in the manner set forth in Section 2.06(b)(ii) in such amounts as
shall excuse the Borrower from making any such "Asset Sale Offer".
(iv) Prepayments of the Term Facilities pursuant to Section
2.06(b)(i), (ii) or (iii) shall be made ratably among such Facilities, to be
applied to the installments of each such Facility on a pro rata basis until such
installments are paid in full; provided, however, that with respect to
prepayments made prior to or on the second anniversary of the First Closing
Date, once prepayments in a principal amount of $25,000,000 or more in the
aggregate since the First Closing Date shall have been applied to the AXELs
Series A Facility and the AXELs Series B Facility then the Lenders under such
Facilities, at each such Lender's option, may elect not to accept such
prepayment, in which event the provisions of the next sentence shall apply. With
respect to such prepayments made prior to or on the second anniversary of the
First Closing Date, once the AXELs Series A Facility and the AXELs Series B
Facility shall have been prepaid in a principal amount of $25,000,000 in the
aggregate since the First Closing Date, then upon receipt by the Administrative
Agent of such prepayment, the amount of the prepayment that is available to
prepay such Facilities (subject to the proviso to the immediately preceding
sentence) shall be deposited in the Cash Collateral Account (the "First
Prepayment Amount"), pending application of such amount on the First Prepayment
Date and the Second Prepayment Date as set forth below and promptly after such
receipt (the date of such receipt being the "Receipt Date"), the Administrative
Agent shall give written notice to the AXELs Series A Lenders and the AXELs
Series B Lenders of the amount available to prepay the Advances and the date on
which such prepayment shall be made (the "First Prepayment Date"), which date
shall be 10 days after the Receipt Date. Any Lender declining such prepayment (a
"First Declining Lender") shall give written notice to the Administrative Agent
by 12:00 Noon (New York City time) on the Business Day immediately preceding the
First Prepayment Date. On the First Prepayment Date, an amount equal to that
portion of the First Prepayment Amount accepted by the AXELs Series A Lenders
and the AXELs Series B Lenders other than the First Declining Lenders (such
Lenders being the "First Accepting Lenders") to prepay Advances owing to such
First Accepting Lenders shall be withdrawn from the Cash Collateral Account and
applied to prepay Advances owing to such First Accepting Lenders on a pro rata
basis and any amounts that would otherwise have been applied to prepay Advances
owing to the First Declining Lenders (the "Second Prepayment Amount") shall
instead be retained in the Cash Collateral Account and offered to the First
Accepting Lenders to prepay Advances owing to such First Accepting Lenders. The
Administrative Agent shall, on or prior to the First Prepayment Date, give
written notice to the First Accepting Lenders of the Second Prepayment Amount
that is available to prepay the Advances owing to such First Accepting
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Lenders and the date on which such prepayment shall be made (the "Second
Prepayment Date"), which date shall be 10 days after the First Prepayment Date.
Any First Accepting Lender declining such prepayment (a "Second Declining
Lender") shall give written notice to the Administrative Agent by 12:00 Noon
(New York City time) on the Business Day immediately preceding the Second
Prepayment Date. On the Second Prepayment Date, an amount equal to the Second
Prepayment Amount shall be withdrawn from the Cash Collateral Account and
applied to prepay Advances owing to the First Accepting Lenders other than the
Second Declining Lenders (such Lenders being the "Second Accepting Lenders") on
a pro rata basis and any amounts that would otherwise have been applied to
prepay Advances owing to Second Declining Lenders shall instead be applied first
to prepay Advances owing to the Term Loan Lenders on a pro rata basis and to the
installments thereof on a pro rata basis and second ratably to prepay the
Working Capital Facility as set forth in clause (vii) below and, if the Term
Loan Facility and Working Capital Facility shall have been paid in full and
terminated, amounts that would have been otherwise applied to prepay Advances
under such Facilities shall be applied instead to prepay Advances owing to the
Second Accepting Lenders.
(v) The Borrower shall, on each Business Day, prepay an aggregate
principal amount of the Working Capital Advances comprising part of the same
Borrowings and the Letter of Credit Advances equal to the amount by which (A)
the sum of the aggregate principal amount of (x) the Working Capital Advances
and (y) the Letter of Credit Advances then outstanding plus the aggregate
Available Amount of all Letters of Credit then outstanding exceeds (B) the
Working Capital Facility on such Business Day.
(vi) The Borrower shall, on each Business Day, pay to the
Administrative Agent for deposit in the L/C Cash Collateral Account an amount
sufficient to cause the aggregate amount on deposit in such Account to equal the
amount by which the aggregate Available Amount of all Letters of Credit then
outstanding exceeds the Letter of Credit Facility on such Business Day.
(vii) Prepayments of the Working Capital Facility made pursuant to
clause (i), (ii), (iii) or (iv) above shall be first applied to prepay Letter of
Credit Advances then outstanding until such Advances are paid in full, second
applied to prepay Working Capital Advances then outstanding comprising part of
the same Borrowings until such Advances are paid in full and third, other than
with respect to amounts prepaid pursuant to Section 2.06(b)(i)(B) or Section
2.06(b)(ii)(B), deposited in the L/C Cash Collateral Account to cash
collateralize 100% of the Available Amount of the Letters of Credit then
outstanding; and, in the case of prepayments of the Working Capital Facility
required pursuant to clause (i), (ii), (iii) or (iv) above, the amount remaining
(if any) after the prepayment in full of the Advances then outstanding and the
100% cash collateralization of the aggregate Available Amount of Letters of
Credit then outstanding (the sum of such prepayment amounts, cash
collateralization amounts and remaining amount being referred to herein as the
"Reduction
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Amount") may be retained by the Borrower and, other than with respect to amounts
prepaid pursuant to Section 2.06(b)(i)(B) or Section 2.06(b)(ii)(B), the Working
Capital Facility shall be permanently reduced as set forth in Section
2.05(b)(v). Upon the drawing of any Letter of Credit for which funds are on
deposit in the L/C Cash Collateral Account, such funds shall be applied to
reimburse the relevant Issuing Bank or Working Capital Lenders, as applicable.
(viii) Notwithstanding anything to the contrary contained in
subsection (b)(ii) of this Section 2.06, so long as no Default shall have
occurred and be continuing, if, on any date on which a prepayment of Advances
would otherwise be required pursuant to subsection (b)(ii) of this Section 2.06,
the aggregate amount of Net Cash Proceeds or other amounts otherwise required by
such subsection to be applied to prepay Advances on such date are less than or
equal to $1,000,000, the Borrower may defer such prepayment until the date on
which the aggregate amount of Net Cash Proceeds or other amounts otherwise
required by such subsection to be applied to prepay Advances exceeds $1,000,000.
During such deferral period, the Borrower may apply all or any part of such
aggregate amount to prepay Working Capital Advances and may, subject to the
fulfillment of the conditions set forth in Section 3.02, reborrow such amounts
(which amounts, to the extent originally constituting Net Cash Proceeds, shall
be deemed to retain their original character as Net Cash Proceeds when so
reborrowed) for application as required by this Section 2.06. Upon the
occurrence of a Default, the Borrower shall immediately prepay Advances in the
amount of all Net Cash Proceeds received by the Borrower and other amounts, as
applicable, that are required to be applied to prepay Advances by this Section
2.06 (without giving effect to the first and second sentences of this subsection
(b)(viii)) but which have not previously been so applied.
(ix) All prepayments under this subsection (b) shall be made
together with accrued interest to the date of such prepayment on the principal
amount prepaid.
SECTION 2.07. Interest. (a) Scheduled Interest. The Borrower
shall pay interest on the unpaid principal amount of each Advance owing to
each Lender from the date of such Advance until such principal amount shall
be paid in full, at the following rates per annum:
(i) Base Rate Advances. During such periods as such Advance is a
Base Rate Advance, a rate per annum equal at all times to the sum of (A)
the Base Rate in effect from time to time plus (B) the Applicable Margin
in effect from time to time, payable in arrears quarterly on the first day
of each July, October, January and April during such periods and on the
date such Base Rate Advance shall be Converted or paid in full.
(ii) Eurodollar Rate Advances. During such periods as such Advance
is a Eurodollar Rate Advance, a rate per annum equal at all times during
each Interest
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Period for such Advance to the sum of (A) the Eurodollar
Rate for such Interest Period for such Advance plus (B) the Applicable
Margin in effect on the first day of such Interest Period, payable in
arrears on the last day of such Interest Period and, if such Interest
Period has a duration of more than three months, on each day that occurs
during such Interest Period every three months from the first day of such
Interest Period and on the date such Eurodollar Rate Advance shall be
Converted or paid in full.
(b) Default Interest. Upon the occurrence and during the continuance
of a Default, the Borrower shall pay interest on (i) the unpaid principal amount
of each Advance owing to each Lender, payable in arrears on the dates referred
to in clause (a)(i) or (a)(ii) above and on demand, at a rate per annum equal at
all times to 2% per annum above the rate per annum required to be paid on such
Advance pursuant to clause (a)(i) or (a)(ii) above and (ii) to the fullest
extent permitted by law, the amount of any interest, fee or other amount payable
hereunder that is not paid when due, from the date such amount shall be due
until such amount shall be paid in full, payable in arrears on the date such
amount shall be paid in full and on demand, at a rate per annum equal at all
times to 2% per annum above the rate per annum required to be paid, in the case
of interest, on the Type of Advance on which such interest has accrued pursuant
to clause (a)(i) or (a)(ii) above, and, in all other cases, on Base Rate
Advances pursuant to clause (a)(i) above.
(c) Notice of Interest Rate. Promptly after receipt of a Notice of
Borrowing pursuant to Section 2.02(a), the Administrative Agent shall give
notice to the Borrower and each Appropriate Lender of the applicable interest
rate determined by the Administrative Agent for purposes of clause (a)(i) or
(ii).
SECTION 2.08. Fees. (a) Commitment Fee. The Borrower shall
pay to the Administrative Agent for the account of the Lenders a commitment
fee, from the date of the acceptance of the Initial Lenders' Commitments by
the Borrower in the case of each Initial Lender and from the effective date
specified in the Assignment and Acceptance pursuant to which it became a
Lender in the case of each other Lender until the Termination Date, payable
in arrears on the date of the initial Borrowing hereunder, thereafter
quarterly on the first day of each July, October, January and April,
commencing July 1, 1996, and on the Termination Date, at a rate per annum
equal to 0.375% on the average daily Unused Working Capital Commitment of
such Lender during such quarter; provided, however, that no commitment fee
shall accrue on any of the Commitments of a Defaulting Lender so long as such
Lender shall be a Defaulting Lender.
(b) Letter of Credit Fees, Etc. (i) The Borrower shall pay to the
Administrative Agent for the account of each Working Capital Lender a
commission, payable in arrears quarterly on the first day of each July, October,
January and April, commencing July 1, 1996, and on the earliest to occur of the
full drawing, expiration, termination or
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cancellation of any Letter of Credit and on the Termination Date, on such
Lender's Pro Rata Share of the average daily aggregate Available Amount during
such quarter of all Letters of Credit outstanding from time to time at a rate
per annum equal to the Applicable Margin for Eurodollar Rate Advances in effect
from time to time.
(ii) The Borrower shall pay to each Issuing Bank, for its own
account, such commissions, issuance fees, fronting fees, transfer fees and other
fees and charges in connection with the issuance or administration of each
Letter of Credit as the Borrower and such Issuing Bank shall agree.
(c) Administrative Agent's Fees. The Borrower shall pay to the
Administrative Agent for its own account such fees as may from time to time
be agreed between the Borrower and the Administrative Agent.
SECTION 2.09. Conversion of Advances. (a) Optional. The Borrower may
on any Business Day, upon notice given to the Administrative Agent not later
than 11:00 A.M. (New York City time) on the third Business Day prior to the date
of the proposed Conversion and subject to the provisions of Section 2.10,
Convert all or any portion of the Advances of one Type comprising the same
Borrowing into Advances of the other Type; provided, however, that any
Conversion of Eurodollar Rate Advances into Base Rate Advances shall be made
only on the last day of an Interest Period for such Eurodollar Rate Advances,
any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be in
an amount not less than the minimum amount specified in Section 2.02(b), no
Conversion of any Advances shall result in more separate Borrowings than
permitted under Section 2.02(b) and each Conversion of Advances comprising part
of the same Borrowing under any Facility shall be made ratably among the
Appropriate Lenders in accordance with their Commitments under such Facility.
Each such notice of Conversion shall, within the restrictions specified above,
specify (i) the date of such Conversion, (ii) the Advances to be Converted and
(iii) if such Conversion is into Eurodollar Rate Advances, the duration of the
initial Interest Period for such Advances. Each notice of Conversion shall be
irrevocable and binding on the Borrower.
(b) Mandatory. (i) On the date on which the aggregate unpaid
principal amount of Eurodollar Rate Advances comprising any Borrowing shall be
reduced, by payment or prepayment or otherwise, to less than $5,000,000, such
Advances shall automatically Convert into Base Rate Advances.
(ii) If the Borrower shall fail to select the duration of any
Interest Period for any Eurodollar Rate Advances in accordance with the
provisions contained in the definition of "Interest Period" in Section 1.01, the
Administrative Agent will forthwith so notify the Borrower and the Appropriate
Lenders, whereupon each such Eurodollar Rate
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Advance will automatically, on the last day of the then existing Interest Period
therefor, Convert into a Eurodollar Rate Advance with an Interest Period of one
month.
(iii) Upon the occurrence and during the continuance of any Default,
(x) each Eurodollar Rate Advance will automatically, on the last day of the then
existing Interest Period therefor, Convert into a Base Rate Advance and (y) the
obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate
Advances shall be suspended.
SECTION 2.10. Increased Costs, Etc. (a) If, due to either (i) the
introduction of or any change in or in the interpretation of any law or
regulation or (ii) the compliance with any guideline or request from any central
bank or other governmental authority (whether or not having the force of law),
there shall be any increase in the cost to any Lender Party of agreeing to make
or of making, funding or maintaining Eurodollar Rate Advances or of agreeing to
issue or of issuing or maintaining or participating in Letters of Credit or of
agreeing to make or of making or maintaining Letter of Credit Advances
(excluding for purposes of this Section 2.10 any such increased costs resulting
from (i) Taxes or Other Taxes (as to which Section 2.12 shall govern) and (ii)
changes in the basis of taxation of overall net income or overall gross income
by the United States or by the foreign jurisdiction or state under the laws of
which such Lender Party is organized or has its Applicable Lending Office or any
political subdivision thereof), then the Borrower shall from time to time, upon
demand by such Lender Party (with a copy of such demand to the Administrative
Agent), pay to the Administrative Agent for the account of such Lender Party
additional amounts sufficient to compensate such Lender Party for such increased
cost; provided, however, that, before making any such demand, each Lender Party
agrees to use reasonable efforts (consistent with its internal policy and legal
and regulatory restrictions) to designate a different Applicable Lending Office
if the making of such a designation would avoid the need for, or reduce the
amount of, such increased cost and would not, in the reasonable judgment of such
Lender Party, be otherwise disadvantageous to such Lender Party. A certificate
as to the amount of such increased cost, submitted to the Borrower by such
Lender Party, shall be conclusive and binding for all purposes, absent manifest
error.
(b) If any Lender Party determines that either (i) the enactment of
or any change in or in the interpretation of any law or regulation or (ii) the
compliance with any guideline or request from any central bank or other
governmental authority (whether or not having the force of law) affects or would
affect the amount of capital required or expected to be maintained by such
Lender Party or any corporation controlling such Lender Party and that the
amount of such capital is increased by or based upon the existence of such
Lender Party's commitment to lend or to issue or participate in Letters of
Credit hereunder and other commitments of such type or the issuance or
maintenance of or participation in the Letters of Credit (or similar contingent
obligations), then, upon demand by such Lender Party or such corporation (with a
copy of such demand to the Administrative Agent), the Borrower shall
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pay to the Administrative Agent for the account of such Lender Party, from time
to time as specified by such Lender Party, additional amounts sufficient to
compensate such Lender Party in the light of such circumstances, to the extent
that such Lender Party reasonably determines such increase in capital to be
allocable to the existence of such Lender Party's commitment to lend or to issue
or participate in Letters of Credit hereunder or to the issuance or maintenance
of or participation in any Letters of Credit; provided, however, that, before
making any such demand, each Lender Party agrees to use reasonable efforts
(consistent with its internal policy and legal and regulatory restrictions) to
designate a different Applicable Lending Office if the making of such a
designation would avoid the need for, or reduce the amount of, such additional
amounts payable under this subsection (b) and would not, in the reasonable
judgment of such Lender Party, be otherwise disadvantageous to such Lender
Party. A certificate as to such amounts submitted to the Borrower by such Lender
Party shall be conclusive and binding for all purposes, absent manifest error.
(c) If, with respect to any Eurodollar Rate Advances under any
Facility, Lenders owed at least 25% of the then aggregate unpaid principal
amount thereof notify the Administrative Agent that the Eurodollar Rate for any
Interest Period for such Advances will not adequately reflect the cost to such
Lenders of making, funding or maintaining their Eurodollar Rate Advances for
such Interest Period, the Administrative Agent shall forthwith so notify the
Borrower and the Appropriate Lenders, whereupon (i) each such Eurodollar Rate
Advance under any Facility will automatically, on the last day of the then
existing Interest Period therefor, Convert into a Base Rate Advance and (ii) the
obligation of the Appropriate Lenders to make, or to Convert Advances into,
Eurodollar Rate Advances shall be suspended until the Administrative Agent shall
notify the Borrower that such Lenders have determined that the circumstances
causing such suspension no longer exist.
(d) Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation of any law or
regulation shall make it unlawful, or any central bank or other governmental
authority shall assert that it is unlawful, for any Lender or its Eurodollar
Lending Office to perform its obligations hereunder to make Eurodollar Rate
Advances or to continue to fund or maintain Eurodollar Rate Advances hereunder,
then, on notice thereof and demand therefor by such Lender to the Borrower
through the Administrative Agent, (i) each Eurodollar Rate Advance under each
Facility under which such Lender has a Commitment will automatically, upon such
demand, Convert into a Base Rate Advance and (ii) the obligation of the
Appropriate Lenders to make, or to Convert Advances into, Eurodollar Rate
Advances shall be suspended until the Administrative Agent shall notify the
Borrower that such Lender has determined that the circumstances causing such
suspension no longer exist.
SECTION 2.11. Payments and Computations. (a) The Borrower shall make
each payment hereunder and under the Notes, irrespective of any right of
counterclaim or set-off (except as otherwise provided in Section 2.15), not
later than 11:00 A.M. (New York
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City time) on the day when due in U.S. dollars to the Administrative Agent at
the Administrative Agent's Account in same day funds, with payments being
received by the Administrative Agent after such time being deemed to have been
received on the next succeeding Business Day. The Administrative Agent will
promptly thereafter cause like funds to be distributed (i) if such payment by
the Borrower is in respect of principal, interest, commitment fees or any other
Obligation then payable hereunder and under the Notes to more than one Lender
Party, to such Lender Parties for the account of their respective Applicable
Lending Offices ratably in accordance with the amounts of such respective
Obligations then payable to such Lender Parties and (ii) if such payment by the
Borrower is in respect of any Obligation then payable hereunder to one Lender
Party, to such Lender Party for the account of its Applicable Lending Office, in
each case to be applied in accordance with the terms of this Agreement. Upon its
acceptance of an Assignment and Acceptance and recording of the information
contained therein in the Register pursuant to Section 8.07(d), from and after
the effective date of such Assignment and Acceptance, the Administrative Agent
shall make all payments hereunder and under the Notes in respect of the interest
assigned thereby to the Lender Party assignee thereunder, and the parties to
such Assignment and Acceptance shall make all appropriate adjustments in such
payments for periods prior to such effective date directly between themselves.
(b) If the Administrative Agent receives funds for application to
the Obligations under the Loan Documents under circumstances for which the Loan
Documents do not specify the Advances or the Facility to which, or the manner in
which, such funds are to be applied, the Administrative Agent may, but shall not
be obligated to, elect to distribute such funds to each Lender Party ratably in
accordance with such Lender Party's proportionate share of the principal amount
of all outstanding Advances and the Available Amount of all Letters of Credit
then outstanding, in repayment or prepayment of such of the outstanding Advances
or other Obligations owed to such Lender Party, and for application to such
principal installments, as the Administrative Agent shall direct.
(c) The Borrower hereby authorizes each Lender Party, if and to the
extent payment owed to such Lender Party is not made when due hereunder or, in
the case of a Lender, under the Note held by such Lender, to charge from time to
time against any or all of the Borrower's accounts with such Lender Party any
amount so due.
(d) All computations of interest, fees and Letter of Credit
commissions shall be made by the Administrative Agent on the basis of a year of
360 days, in each case for the actual number of days (including the first day
but excluding the last day) occurring in the period for which such interest,
fees or commissions are payable. Each determination by the Administrative Agent
of an interest rate, fee or commission hereunder shall be conclusive and binding
for all purposes, absent manifest error.
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(e) Whenever any payment hereunder or under the Notes shall be
stated to be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of interest or commitment fee, as
the case may be; provided, however, that, if such extension would cause payment
of interest on or principal of Eurodollar Rate Advances to be made in the next
following calendar month, such payment shall be made on the next preceding
Business Day.
(f) Unless the Administrative Agent shall have received notice from
the Borrower prior to the date on which any payment is due to any Lender Party
hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to such Lender Party on
such due date an amount equal to the amount then due such Lender Party. If and
to the extent the Borrower shall not have so made such payment in full to the
Administrative Agent, each such Lender Party shall repay to the Administrative
Agent forthwith on demand such amount distributed to such Lender Party together
with interest thereon, for each day from the date such amount is distributed to
such Lender Party until the date such Lender Party repays such amount to the
Administrative Agent, at the Federal Funds Rate.
SECTION 2.12. Taxes. (a) Any and all payments by the Borrower
hereunder or under the Notes shall be made, in accordance with Section 2.11,
free and clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding, in the case of each Lender Party and each Agent,
taxes that are imposed on its overall net income by the United States and taxes
that are imposed on its overall net income (and franchise taxes imposed in lieu
thereof) by the state or foreign jurisdiction under the laws of which such
Lender Party or such Agent (as the case may be) is organized or any political
subdivision thereof and, in the case of each Lender Party, taxes that are
imposed on its overall net income (and franchise taxes imposed in lieu thereof)
by the state or foreign jurisdiction of such Lender Party's Applicable Lending
Office or any political subdivision thereof (all such non-excluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities in respect of
payments hereunder or under the Notes being hereinafter referred to as "Taxes").
If the Borrower shall be required by law to deduct any Taxes from or in respect
of any sum payable hereunder or under any Note to any Lender Party or any Agent,
(i) the sum payable shall be increased as may be necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this Section 2.12) such Lender Party or such Agent (as the case
may be) receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and (iii) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law.
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(b) In addition, the Borrower shall pay any present or future stamp,
documentary, excise, property or similar taxes, charges or levies that arise
from any payment made hereunder or under the Notes or from the execution,
delivery or registration of, performing under, or otherwise with respect to,
this Agreement or the Notes (hereinafter referred to as "Other Taxes").
(c) The Borrower shall indemnify each Lender Party and each Agent
for and hold it harmless against the full amount of Taxes and Other Taxes, and
the full amount of taxes of any kind imposed by any jurisdiction on amounts
payable under this Section 2.12, imposed on or paid by such Lender Party or such
Agent (as the case may be) and any liability (including penalties, additions to
tax, interest and expenses) arising therefrom or with respect thereto. This
indemnification shall be made within 30 days from the date such Lender Party or
such Agent (as the case may be) makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the
Borrower shall furnish to the Administrative Agent, at its address referred to
in Section 8.02, the original or a certified copy of a receipt evidencing such
payment. In the case of any payment hereunder or under the Notes by or on behalf
of the Borrower through an account or branch outside the United States or by or
on behalf of the Borrower by a payor that is not a United States person, if the
Borrower determines that no Taxes are payable in respect thereof, the Borrower
shall furnish, or shall cause such payor to furnish, to the Administrative
Agent, at such address, an opinion of counsel acceptable to the Administrative
Agent stating that such payment is exempt from Taxes. For purposes of this
subsection (d) and subsection (e), the terms "United States" and "United States
person" shall have the meanings specified in Section 7701 of the Internal
Revenue Code.
(e) Each Lender Party organized under the laws of a jurisdiction
outside the United States shall, on or prior to the date of its execution and
delivery of this Agreement in the case of each Initial Lender or Initial Issuing
Bank, as the case may be, and on the date of the Assignment and Acceptance
pursuant to which it becomes a Lender Party in the case of each other Lender
Party, and from time to time thereafter as requested in writing by the Borrower
(but only so long thereafter as such Lender Party remains lawfully able to do
so), provide each of the Administrative Agent and the Borrower with two original
Internal Revenue Service forms 1001 or 4224 or (in the case of a Lender Party
that is claiming exemption from United States withholding tax under Section
871(h) or 881(c) of the Internal Revenue Code with respect to payments of
"portfolio interest") form W-8 (and, if such Lender Party delivers a form W-8, a
certificate representing that such Lender Party is not a "bank" for purposes of
Section 881(c) of the Internal Revenue Code, is not a 10-percent shareholder
(within the meaning of Section 871(h)(3)(B) of the Internal Revenue Code) of the
Borrower and is not a controlled foreign corporation related to the Borrower
(within the meaning of Section 864(d)(4) of the Internal Revenue Code)), as
appropriate, or any successor or other form prescribed by the Internal Revenue
Service, certifying that such
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Lender Party is exempt from or entitled to a reduced rate of United States
withholding tax on payments pursuant to this Agreement or the Notes or, in the
case of a Lender Party providing a form W-8, certifying that such Lender Party
is a foreign corporation, partnership, estate or trust. If the forms provided by
a Lender Party at the time such Lender Party first becomes a party to this
Agreement indicates a United States interest withholding tax rate in excess of
zero, withholding tax at such rate shall be considered excluded from the
definition of Taxes hereunder unless and until such Lender Party provides the
appropriate form certifying that a lesser rate applies, whereupon withholding
tax at such lesser rate only shall be considered excluded from the definition of
Taxes hereunder for periods governed by such form; provided, however, that, if
at the date of the Assignment and Acceptance pursuant to which a Lender Party
becomes a party to this Agreement, the Lender Party assignor was entitled to
payments under subsection (a) in respect of United States withholding tax with
respect to interest paid at such date, then, to such extent, the term Taxes
shall include (in addition to withholding taxes that may be imposed in the
future or other amounts otherwise includible in Taxes) United States withholding
tax, if any, applicable with respect to the Lender Party assignee on such date.
(f) For any period with respect to which a Lender Party has failed
to provide the Borrower with the appropriate form described in subsection (e)
above (other than if such failure is due to a change in law occurring after the
date on which a form originally was required to be provided or if such form
otherwise is not required under subsection (e) above), such Lender Party shall
not be entitled to indemnification under subsection (a) or (c) with respect to
Taxes imposed by the United States by reason of such failure; provided, however,
that should a Lender Party become subject to Taxes because of its failure to
deliver a form required hereunder, the Borrower shall take such steps as such
Lender Party shall reasonably request to assist such Lender Party to recover
such Taxes.
(g) Any Lender Party claiming any additional amounts payable
pursuant to this Section 2.12 shall use reasonable efforts (consistent with its
internal policy and legal and regulatory restrictions) to change the
jurisdiction of its Applicable Lending Office if the making of such a change
would avoid the need for, or reduce the amount of, any such additional amounts
that may thereafter accrue and would not, in the reasonable judgment of such
Lender Party, be otherwise disadvantageous to such Lender Party.
SECTION 2.13. Sharing of Payments, Etc. If any Lender Party shall
obtain at any time any payment (whether voluntary, involuntary, through the
exercise of any right of set-off, or otherwise, other than as a result of an
assignment pursuant to Section 8.07) (a) on account of Obligations due and
payable to such Lender Party hereunder and under the Notes at such time in
excess of its ratable share (according to the proportion of (i) the amount of
such Obligations due and payable to such Lender Party at such time to (ii) the
aggregate amount of the Obligations due and payable to all Lender Parties
hereunder and under the Notes at such time) of payments on account of the
Obligations due and payable to
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all Lender Parties hereunder and under the Notes at such time obtained by all
the Lender Parties at such time or (b) on account of Obligations owing (but not
due and payable) to such Lender Party hereunder and under the Notes at such time
in excess of its ratable share (according to the proportion of (i) the amount of
such Obligations owing to such Lender Party at such time to (ii) the aggregate
amount of the Obligations owing (but not due and payable) to all Lender Parties
hereunder and under the Notes at such time) of payments on account of the
Obligations owing (but not due and payable) to all Lender Parties hereunder and
under the Notes at such time obtained by all of the Lender Parties at such time,
such Lender Party shall forthwith purchase from the other Lender Parties such
interests or participating interests in the Obligations due and payable or owing
to them, as the case may be, as shall be necessary to cause such purchasing
Lender Party to share the excess payment ratably with each of them; provided,
however, that if all or any portion of such excess payment is thereafter
recovered from such purchasing Lender Party, such purchase from each other
Lender Party shall be rescinded and such other Lender Party shall repay to the
purchasing Lender Party the purchase price to the extent of such Lender Party's
ratable share (according to the proportion of (i) the purchase price paid to
such Lender Party to (ii) the aggregate purchase price paid to all Lender
Parties) of such recovery together with an amount equal to such Lender Party's
ratable share (according to the proportion of (i) the amount of such other
Lender Party's required repayment to (ii) the total amount so recovered from the
purchasing Lender Party) of any interest or other amount paid or payable by the
purchasing Lender Party in respect of the total amount so recovered; provided
further that, so long as the Obligations under the Loan Documents shall not have
been accelerated, any excess payment received by any Appropriate Lender shall be
shared on a pro rata basis only with other Appropriate Lenders. The Borrower
agrees that any Lender Party so purchasing an interest or participating interest
from another Lender Party pursuant to this Section 2.13 may, to the fullest
extent permitted by law, exercise all its rights of payment (including the right
of set-off) with respect to such interest or participating interest, as the case
may be, as fully as if such Lender Party were the direct creditor of the
Borrower in the amount of such interest or participating interest, as the case
may be.
SECTION 2.14. Use of Proceeds. The proceeds of (i) the Term Loan
Advances, the AXELs Series A Advances and the Existing AXELs Series B Advances
shall be available (and the Borrower agrees that it shall use such proceeds)
solely to pay to the Sellers the cash consideration for the Acquisition, pay
transaction fees and expenses and refinance certain Existing Debt, (ii) the New
AXELs Series B Advances shall be available (and the Borrower agrees that it
shall use such proceeds) solely to prepay outstanding Acquisition Advances
pursuant to and as defined in the Second Credit Agreement and to pay transaction
fees and expenses incurred in connection with the First Amendment, and (iii) the
Working Capital Advances and the issuances of Letters of Credit shall be
available (and the Borrower agrees that it shall use such proceeds and Letters
of Credit) solely (a) to provide working capital for the Borrower and its
Subsidiaries, (b) to finance certain acquisitions to the extent permitted
hereunder and to refinance construction costs of new bowling centers
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after the completion of the construction thereof, (c) to make any payments
required under the Support Agreement, (d) to pay to the Sellers the "purchase
price adjustment" (if any) required to be paid pursuant to the Purchase
Agreement, (e) to finance payments required under guarantees permitted by
Section 5.02(b)(iii)(I) and (f) for other general corporate purposes.
SECTION 2.15. Defaulting Lenders. (a) In the event that, at any one
time, (i) any Lender Party shall be a Defaulting Lender, (ii) such Defaulting
Lender shall owe a Defaulted Advance to the Borrower and (iii) the Borrower
shall be required to make any payment hereunder or under any other Loan Document
to or for the account of such Defaulting Lender, then the Borrower may, so long
as no Default shall occur or be continuing at such time and to the fullest
extent permitted by applicable law, set off and otherwise apply the Obligation
of the Borrower to make such payment to or for the account of such Defaulting
Lender against the obligation of such Defaulting Lender to make such Defaulted
Advance. In the event that, on any date, the Borrower shall so set off and
otherwise apply its obligation to make any such payment against the obligation
of such Defaulting Lender to make any such Defaulted Advance on or prior to such
date, the amount so set off and otherwise applied by the Borrower shall
constitute for all purposes of this Agreement and the other Loan Documents an
Advance by such Defaulting Lender made on the date under the Facility pursuant
to which such Defaulted Advance was originally required to have been made
pursuant to Section 2.01. Such Advance shall be a Base Rate Advance and shall be
considered, for all purposes of this Agreement, to comprise part of the
Borrowing in connection with which such Defaulted Advance was originally
required to have been made pursuant to Section 2.01, even if the other Advances
comprising such Borrowing shall be Eurodollar Rate Advances on the date such
Advance is deemed to be made pursuant to this subsection (a). The Borrower shall
notify the Administrative Agent at any time the Borrower exercises its right of
set-off pursuant to this subsection (a) and shall set forth in such notice (A)
the name of the Defaulting Lender and the Defaulted Advance required to be made
by such Defaulting Lender and (B) the amount set off and otherwise applied in
respect of such Defaulted Advance pursuant to this subsection (a). Any portion
of such payment otherwise required to be made by the Borrower to or for the
account of such Defaulting Lender which is paid by the Borrower, after giving
effect to the amount set off and otherwise applied by the Borrower pursuant to
this subsection (a), shall be applied by the Administrative Agent as specified
in subsection (b) or (c) of this Section 2.15.
(b) In the event that, at any one time, (i) any Lender Party shall
be a Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Amount
to any Agent or any of the other Lender Parties and (iii) the Borrower shall
make any payment hereunder or under any other Loan Document to the
Administrative Agent for the account of such Defaulting Lender, then the
Administrative Agent may, on its behalf or on behalf of such other Lender
Parties and to the fullest extent permitted by applicable law, apply at such
time the amount so paid by the Borrower to or for the account of such Defaulting
Lender to the
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payment of each such Defaulted Amount to the extent required to pay such
Defaulted Amount. In the event that the Administrative Agent shall so apply any
such amount to the payment of any such Defaulted Amount on any date, the amount
so applied by the Administrative Agent shall constitute for all purposes of this
Agreement and the other Loan Documents payment, to such extent, of such
Defaulted Amount on such date. Any such amount so applied by the Administrative
Agent shall be retained by the Administrative Agent or distributed by the
Administrative Agent to such other Agents or Lender Parties, ratably in
accordance with the respective portions of such Defaulted Amounts payable at
such time to the Administrative Agent and such other Agents and Lender Parties
and, if the amount of such payment made by the Borrower shall at such time be
insufficient to pay all Defaulted Amounts owing at such time to the
Administrative Agent and the other Agents and Lender Parties, in the following
order of priority:
(i) first, to the Agents for any Defaulted Amount then owing to the
Agents, ratably in accordance with such respective Defaulted Amounts then
owing to the Agents; and
(ii) second, to any other Lender Parties for any Defaulted Amounts
then owing to such other Lender Parties, ratably in accordance with such
respective Defaulted Amounts then owing to such other Lender Parties.
Any portion of such amount paid by the Borrower for the account of such
Defaulting Lender remaining, after giving effect to the amount applied by the
Administrative Agent pursuant to this subsection (b), shall be applied by the
Administrative Agent as specified in subsection (c) of this Section 2.15.
(c) In the event that, at any one time, (i) any Lender Party shall
be a Defaulting Lender, (ii) such Defaulting Lender shall not owe a Defaulted
Advance or a Defaulted Amount and (iii) the Borrower, any Agent or any other
Lender Party shall be required to pay or distribute any amount hereunder or
under any other Loan Document to or for the account of such Defaulting Lender,
then the Borrower or such other Lender Party shall pay such amount to the
Administrative Agent to be held by the Administrative Agent, to the fullest
extent permitted by applicable law, in escrow or the Administrative Agent shall,
to the fullest extent permitted by applicable law, hold in escrow such amount
otherwise held by it. Any funds held by the Administrative Agent in escrow under
this subsection (c) shall be deposited by the Administrative Agent in an account
with Citibank, in the name and under the control of the Administrative Agent,
but subject to the provisions of this subsection (c). The terms applicable to
such account, including the rate of interest payable with respect to the credit
balance of such account from time to time, shall be Citibank's standard terms
applicable to escrow accounts maintained with it. Any interest credited to such
account from time to time shall be held by the Administrative Agent in escrow
under, and applied by the Administrative Agent from time to time in accordance
with the provisions of, this
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subsection (c). The Administrative Agent shall, to the fullest extent permitted
by applicable law, apply all funds so held in escrow from time to time to the
extent necessary to make any Advances required to be made by such Defaulting
Lender and to pay any amount payable by such Defaulting Lender hereunder and
under the other Loan Documents to the Administrative Agent or any other Agent or
Lender Party, as and when such Advances or amounts are required to be made or
paid and, if the amount so held in escrow shall at any time be insufficient to
make and pay all such Advances and amounts required to be made or paid at such
time, in the following order of priority:
(i) first, to the Agents for any amount then due and payable by such
Defaulting Lender to the Agents under the Loan Documents, ratably in
accordance with such respective amounts then due and payable to the
Agents;
(ii) second, to any other Lender Parties for any amount then due and
payable by such Defaulting Lender to such other Lender Parties hereunder,
ratably in accordance with such respective amounts then due and payable to
such other Lender Parties; and
(iii) third, to the Borrower for any Advance then required to be
made by such Defaulting Lender pursuant to a Commitment of such Defaulting
Lender.
In the event that any Lender Party that is a Defaulting Lender shall, at any
time, cease to be a Defaulting Lender, any funds held by the Administrative
Agent in escrow at such time with respect to such Lender Party shall be
distributed by the Administrative Agent to such Lender Party and applied by such
Lender Party to the Obligations owing to such Lender Party at such time under
this Agreement and the other Loan Documents ratably in accordance with the
respective amounts of such Obligations outstanding at such time.
(d) The rights and remedies against a Defaulting Lender under this
Section 2.15 are in addition to other rights and remedies that the Borrower may
have against such Defaulting Lender with respect to any Defaulted Advance and
that any Agent or any Lender Party may have against such Defaulting Lender with
respect to any Defaulted Amount.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to Initial Extension of Credit.
The obligation of each Lender to make an Advance or of any Issuing Bank to issue
a Letter of Credit on the occasion of the Initial Extension of Credit hereunder
is subject to the
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satisfaction of the following conditions precedent before or concurrently with
the Initial Extension of Credit:
(a) The Acquisition shall have been consummated in accordance with
the terms of the Purchase Agreement, without any waiver or amendment not
consented to by the Agents of any material term, provision or condition
set forth therein, and in compliance with all applicable laws.
(b) The Purchase Agreement shall be in full force and effect.
(c) Parent shall have received at least $375,000,000 in Net Cash
Proceeds of the sale of equity to the Equity Investors, and such Net Cash
Proceeds shall have been contributed, directly or indirectly, to the
Borrower as a capital contribution and the Borrower shall have received
$500,000,000 (less an underwriting spread of 3.5% on the first
$350,000,000 and 4.5% on the remaining $150,000,000) in gross cash
proceeds of the issuance of the Subordinated Notes.
(d) The Lender Parties shall be satisfied with the corporate and
legal structure and capitalization of each Loan Party and each of its
Subsidiaries, including the terms and conditions of the charter, bylaws
and each class of capital stock of each Loan Party and each such
Subsidiary and of each agreement or instrument relating to such structure
or capitalization.
(e) The Agents shall be satisfied that all Existing Debt, other than
the Debt identified on Schedule 3.01(e) (the "Surviving Debt"), has been
prepaid, redeemed or defeased in full or otherwise satisfied and
extinguished and that all Surviving Debt shall be on terms and conditions
satisfactory to the Lender Parties.
(f) Before giving effect to the Acquisition and the other
transactions contemplated by this Agreement, there shall have occurred no
Material Adverse Change since December 31, 1995.
(g) There shall exist no action, suit, investigation, litigation or
proceeding affecting any Loan Party or any of its Subsidiaries pending or
threatened before any court, governmental agency or arbitrator that (i)
would be reasonably likely to have a Material Adverse Effect or (ii)
purports to affect the legality, validity or enforceability of the
Acquisition, this Agreement, any Note, any other Loan Document, any
Related Document or the consummation of the transactions contemplated
hereby.
(h) Nothing shall have come to the attention of the Lender Parties
during the course of their due diligence investigation to lead them to
believe (i) that the Information Memorandum was or has become misleading,
incorrect or incomplete in
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any material respect, (ii) that, following the consummation of the
Acquisition, the Borrower and its Subsidiaries would not have good and
marketable title to all material assets of the Company and its
Subsidiaries reflected in the Information Memorandum (other than those
disposed of in the ordinary course of business) and (iii) that the
Acquisition will have a Material Adverse Effect; without limiting the
generality of the foregoing, the Agents shall have been given such access
to the management, records, books of account, contracts and properties of
the Loan Parties and their Subsidiaries as they shall have requested.
(i) All governmental and third party consents and approvals
necessary in connection with the Acquisition, the Loan Documents and the
Related Documents and the transactions contemplated thereby shall have
been obtained (without the imposition of any conditions that are not
reasonably acceptable to the Agents) and shall remain in effect other than
such governmental or third party consents and approvals the failure to
obtain which shall not (x) be materially adverse to Holdings or the
Borrower, in each case together with its respective Subsidiaries, taken as
a whole, (y) affect the enforceability, validity or binding effect of any
of the Loan Documents required to be executed and delivered prior to or on
the First Closing Date or (z) expose the Arrangers, the Agents or the
Lender Parties to personal liability; provided, however, that with respect
to the receipt of licenses to sell or serve alcoholic beverages or to
engage in gaming, lottery or gambling activities (or the necessary
consents or approvals with respect thereto), such condition shall be
satisfied if the Agents are reasonably satisfied that licenses have been
obtained or that other appropriate mechanisms which will not result in
denial or loss of a license or penalties (other than immaterial civil
penalties) or put the Borrower or its Subsidiaries at risk of an
enforcement action for a violation are in place and, in each case, are
expected to remain in place for the foreseeable future without material
risk or expectation of losing such ability in the future (other than the
risk that any holder of a liquor license or a gaming, lottery or gambling
license that complies with the terms and requirements of such license and
the relevant law generally bears of nonrenewal) so that after the First
Closing Date, alcoholic beverages can continue to be sold or served and
gaming activities can continue to be conducted in essentially the same
manner and on essentially the same terms (and without any additional
material restrictions) as before the First Closing Date and in compliance
in all material respects with all applicable laws and rules, regulations,
statutes, licenses and orders of any governmental authority relating to
the sale or service of alcoholic beverages or engaging in gaming, lottery
and gambling activities at bowling centers (or related premises) which
would reasonably be expected to enable the Borrower and its Subsidiaries
to derive, during a 10-month period beginning on the First Closing Date,
at least 90% of the total revenues from the sale and/or service of
alcoholic beverages and, other than in the State of Washington, gaming,
lottery and gambling activities (and from any related management service
agreements and leases) during the
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10-month period ended October 31, 1995; all applicable waiting periods
shall have expired without any action being taken by any competent
authority; and no law or regulation shall be applicable in the judgment of
the Agents that restrains, prevents or imposes materially adverse
conditions upon the Acquisition, the Loan Documents and the Related
Documents and the transactions contemplated thereby.
(j) The Agents shall be satisfied with all contractual and other
arrangements with the Borrower's management.
(k) All capital stock of the Borrower shall be owned by Holdings,
all capital stock of Holdings shall be owned by Parent and all capital
stock of Parent shall be owned by the Equity Investors, and all of the
stock of the Borrower's Subsidiaries shall be owned by the Borrower or one
or more of the Borrower's Subsidiaries, in each case free and clear of any
lien, charge or encumbrance, other than Liens in favor of the Secured
Parties.
(l) The Agents shall be satisfied that the Borrower and its
Subsidiaries will be able to meet their obligations under all Plans, that
the Borrower's and its Subsidiaries' Plans are, in all material respects,
funded in accordance with the minimum statutory requirements, that no
material "reportable event" (as defined in ERISA, but excluding events for
which reporting has been waived) has occurred as to any such Plan and that
no termination of, or withdrawal from, any such Plan has occurred or is
contemplated that could result in a material liability.
(m) The Agents shall be satisfied (i) with the sources, terms and
conditions of the equity and the other debt financing for the Acquisition
and the other transactions contemplated by the Loan Documents and the
Related Documents, (ii) that the amount of committed equity and debt
financing shall be sufficient to meet the financing requirements of the
Acquisition and the other transactions contemplated by the Loan Documents
and the Related Documents and (iii) that the amount of transaction fees
and expenses payable in connection with the closing of the Acquisition and
the other transactions contemplated by the Loan Documents and the Related
Documents does not exceed the maximum amount previously disclosed to the
Initial Lenders.
(n) The Lender Parties shall have received audited financial
statements of the Borrower and its Subsidiaries for the year ended
December 31, 1995, from which financial statements shall be derived a
Consolidated pro forma EBITDA of the Borrower and its Subsidiaries of at
least $165,000,000 (as reflected in the offering circular for the
Subordinated Notes).
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(o) The Borrower shall have paid all accrued fees of the Lender
Parties and all accrued fees and expenses of the Agents and the Arrangers
(including the accrued fees and expenses of counsel to the Agents and the
Arrangers and local, foreign and intellectual property counsel to, and of
other experts and advisors retained by, the Agents for the Lender
Parties).
(p) The Administrative Agent shall have received on or before the
day of the Initial Extension of Credit the following, each dated such day
(unless otherwise specified), in form and substance satisfactory to the
Agents (unless otherwise specified) and (except for the Notes) in
sufficient copies for each Lender Party:
(i) The Notes payable to the order of the Lenders.
(ii) Certified copies of the resolutions of the Board of
Directors of the Borrower, the Company and each other Loan Party
approving the Acquisition, this Agreement, the Notes, each other
Loan Document and each Related Document to which it is or is to be a
party, and of all documents evidencing other necessary corporate
action and governmental and other third party approvals and
consents, if any, with respect to the Acquisition, this Agreement,
the Notes, each other Loan Document and each Related Document.
(iii) A copy of a certificate of the Secretary of State of the
jurisdiction of its incorporation, dated reasonably near the date of
the Initial Extension of Credit, listing the charter of the
Borrower, the Company and each other Loan Party and each amendment
thereto on file in his office and certifying that (A) such
amendments are the only amendments to the Borrower's, the Company's
or such other Loan Party's charter on file in his office, (B) the
Borrower, the Company and each other Loan Party have paid all
franchise taxes to the date of such certificate and (C) the
Borrower, the Company and each other Loan Party are duly
incorporated and in good standing under the laws of the jurisdiction
of its incorporation.
(iv) A copy of a certificate of the Secretary of State of such
states as the Administrative Agent may require, dated reasonably
near the date of the Initial Extension of Credit, stating that the
Borrower, the Company and each other Loan Party are duly qualified
and in good standing as foreign corporations in such State and have
filed all annual reports required to be filed to the date of such
certificate.
(v) A certificate of the Borrower, the Company and each other
Loan Party, signed on behalf of the Borrower, the Company and such
other
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Loan Party by its President or a Vice President and its Secretary or
any Assistant Secretary, dated the date of the Initial Extension of
Credit (the statements made in which certificate shall be true on
and as of the date of the Initial Extension of Credit), certifying
as to (A) the absence of any amendments to the charter of the
Borrower, the Company or such other Loan Party since the date of the
Secretary of State's certificate referred to in Section
3.01(p)(iii), (B) a true and correct copy of the bylaws of the
Borrower, the Company and such other Loan Party as in effect on the
date of the Initial Extension of Credit, (C) the due incorporation
and good standing of the Borrower, the Company and such other Loan
Party as a corporation organized under the laws of the state of its
incorporation, and the absence of any proceeding for the dissolution
or liquidation of the Borrower, the Company or such other Loan
Party, (D) the truth of the representations and warranties contained
in the Loan Documents as though made on and as of the date of the
Initial Extension of Credit and (E) the absence of any event
occurring and continuing, or resulting from the Initial Extension of
Credit, that constitutes a Default.
(vi) A certificate of the Secretary or an Assistant Secretary
of the Borrower, the Company and each other Loan Party certifying
the names and true signatures of the officers of the Borrower, the
Company and such other Loan Party authorized to sign this Agreement,
the Notes, each other Loan Document and each Related Document to
which they are or are to be parties and the other documents to be
delivered hereunder and thereunder.
(vii) A security agreement in substantially the form of
Exhibit D hereto (together with each other security agreement
delivered or to be delivered pursuant to Section 5.01(n), in each
case as amended, supplemented or otherwise modified from time to
time in accordance with its terms, the "Security Agreement"), duly
executed by the Borrower and each other Loan Party, together with:
(A) certificates representing the Pledged Shares
referred to therein accompanied by undated stock powers
executed in blank and instruments evidencing the Pledged Debt
referred to therein indorsed in blank,
(B) duly executed proper financing statements, to be
filed under the Uniform Commercial Code of all jurisdictions
that the Collateral Agent may deem necessary or desirable in
order to perfect and protect the first priority liens and
security interests created under
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the Security Agreement, covering the Collateral described in
the Security Agreement,
(C) completed requests for information, dated on or
before the date of the Initial Extension of Credit, listing
all effective financing statements filed in the jurisdictions
referred to in clause (B) above that name the Borrower, the
Company or any other Loan Party as debtor, together with
copies of such other financing statements,
(D) evidence of the completion of all other recordings
and filings of or with respect to the Security Agreement that
the Collateral Agent may deem necessary or desirable in order
to perfect and protect the Liens created thereby,
(E) evidence of the insurance required by the terms
of the Security Agreement,
(F) copies of the Assigned Agreements referred to in the
Security Agreement, together with a consent to such assignment
(to the extent required by the terms of the Security
Agreement), in substantially the form of Exhibit B to the
Security Agreement, duly executed by each party to such
Assigned Agreements other than the Loan Parties,
(G) the Blocked Account Letters referred to in the
Security Agreement (to the extent required by the terms of the
Security Agreement), duly executed by each Blocked Account
Bank referred to in the Security Agreement, and
(H) evidence that all other action that the Collateral
Agent may deem necessary or desirable in order to perfect and
protect the first priority liens and security interests
created under the Security Agreement has been taken.
(viii) An intellectual property security agreement in
substantially the form of Exhibit E hereto (together with each other
intellectual property security agreement delivered or to be
delivered pursuant to Section 5.01(n), in each case as amended,
supplemented or otherwise modified from time to time in accordance
with its terms, the "Intellectual Property Security Agreement"),
duly executed by the Borrower and each other Loan Party, together
with evidence that all action that the Collateral Agent may deem
necessary or desirable in order to perfect and protect the first
priority liens and security
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interests created under the Intellectual Property Security
Agreement has been taken.
(ix) Deeds of trust, trust deeds, mortgages, leasehold
mortgages and leasehold deeds of trust in substantially the form of
Exhibit F hereto and covering properties listed on Part I of
Schedule 4.01(kk) and Part I of Schedule 4.01(ll) (together with
each other mortgage delivered or to be delivered pursuant to Section
5.01(n), in each case as amended, supplemented or otherwise modified
from time to time in accordance with their terms, the "Mortgages"),
duly executed by the appropriate Loan Party, together with:
(A) fully paid American Land Title Association Lender's
Extended Coverage title insurance policies (the "Mortgage
Policies") in form and substance, with endorsements and in
amount acceptable to the Collateral Agent, issued, coinsured
and reinsured by title insurers acceptable to the Collateral
Agent, insuring the Mortgages covering the manufacturing
facilities listed on Schedules 4.01(ll) and 4.01(kk) to be
valid first and subsisting Liens on the property described
therein, free and clear of all defects (including, but not
limited to, mechanics' and materialmen's Liens) and
encumbrances, excepting only Permitted Encumbrances, and
providing for such other affirmative insurance (including
endorsements for future advances under the Loan Documents and
for mechanics' and materialmen's Liens) and such coinsurance
and direct access reinsurance as the Collateral Agent may deem
necessary or desirable,
(B) title reports, prepared by one or more nationally
recognized title insurance companies, with respect to each of
the properties covered by the Mortgages, reflecting that such
properties are free and clear of all defects (including, but
not limited to, mechanics' and materialmen's Liens) and
encumbrances, excepting only Permitted Encumbrances,
(C) Surveys in form and substance satisfactory to the
Collateral Agent with respect to the manufacturing plants
located in Lowville, New York and Richmond, Virginia, each
dated no more than 30 days before the day of the Initial
Extension of Credit, certified to the Collateral Agent and the
issuer of the Mortgage Policies in a manner satisfactory to
the Collateral Agent by a land surveyor duly registered and
licensed in the States in which the respective property
described in such surveys is located and acceptable to the
Collateral Agent, showing all buildings and other
improvements, any off-site
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improvements, the location of any easements, parking spaces,
rights of way, building set-back lines and other dimensional
regulations and the absence of encroachments, either by such
improvements or on to such property, and other defects, other
than encroachments and other defects acceptable to the
Collateral Agent, and
(D) evidence of the insurance required by the terms of
the Mortgages.
(x) A guaranty in substantially the form of Exhibit G hereto
(as amended, supplemented or otherwise modified in accordance with
its terms, the "Holdings Guaranty"), duly executed by Holdings.
(xi) A guaranty in substantially the form of Exhibit H hereto
(together with each other guaranty delivered or to be delivered
pursuant to Section 5.01(n), in each case as amended, supplemented
or otherwise modified from time to time in accordance with its
terms, the "Subsidiary Guaranty"), duly executed by the Subsidiary
Guarantors.
(xii) Certified copies of each of the Related Documents, duly
executed by the parties thereto and in form and substance
satisfactory to the Lender Parties, together with all agreements,
instruments and other documents delivered in connection therewith.
(xiii) Such financial, business and other information
regarding each Loan Party and its Subsidiaries as the Agents shall
have requested, including, without limitation, information as to
possible contingent liabilities, tax matters, environmental matters,
obligations under Plans, Multiemployer Plans and Welfare Plans,
collective bargaining agreements and other arrangements with
employees, audited annual financial statements dated December 31,
1995, draft financial statements dated March 31, 1996 (or, in the
event the Agents' due diligence review reveals material changes
since such financial statements, as of a later date within 45 days
of the day of the Initial Extension of Credit), annual financial
statements dated December 31, 1995 reflecting revenues and EBITDA by
business segment, a business plan for the Borrower prepared by
management of the Borrower, pro forma financial statements as to the
Borrower and forecasts prepared by management of the Borrower, in
form and substance satisfactory to the Agents, of balance sheets,
income statements and cash flow statements on an annual basis for
each year following the day of the Initial Extension of Credit until
the Termination Date for the AXELs Series B Facility.
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(xiv) Letters and certificates, in substantially the form of
Exhibits I and J hereto, respectively, attesting to the Solvency of
Holdings, the Borrower and each of the Borrower's first tier and
second tier Subsidiaries (other than any such Subsidiary the primary
business of which is to hold liquor licenses) after giving effect to
the Acquisition and the other transactions contemplated hereby, from
a Designated Financial Officer and Houlihan Lokey Howard & Zukin.
(xv) An environmental assessment report, in form and substance
satisfactory to the Lender Parties, from Dames & Moore, as to any
risks, costs or liabilities under Environmental Laws to which any
Loan Party or any of its Subsidiaries may be subject, the amount and
nature of which and the Borrower's plans with respect to which shall
be acceptable to the Lender Parties, together with evidence, in form
and substance satisfactory to the Lender Parties, that all
applicable Environmental Laws shall have been materially complied
with.
(xvi) A letter, in form and substance satisfactory to the
Administrative Agent, from the Borrower to Arthur Andersen, L.L.P.,
its independent certified public accountants, advising such
accountants that the Administrative Agent and the Lender Parties
have been authorized to exercise all rights of the Borrower to
require such accountants to disclose any and all financial
statements and any other information of any kind that they may have
with respect to the Borrower and its Subsidiaries and directing such
accountants to comply with any reasonable request of the
Administrative Agent or any Lender Party for such information.
(xvii) Evidence of insurance naming the Collateral Agent for
the benefit of the Secured Parties as insured and loss payee with
such responsible and reputable insurance companies or associations,
and in such amounts and covering such risks, as is satisfactory to
the Collateral Agent.
(xviii) Certified copies of each employment agreement and
other compensation arrangement with each executive officer of any
Loan Party or any of its Subsidiaries.
(xix) A favorable opinion of Wachtell, Lipton, Rosen & Katz,
counsel for the Loan Parties, in substantially the form of Exhibit K
hereto and as to such other matters as any Lender Party through the
Administrative Agent may reasonably request.
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(xx) A favorable opinion of local counsel listed on Schedule
3.01(p)(xx), in the jurisdictions listed on Schedule 3.01(p)(xx), in
form and substance satisfactory to the Administrative Agent and as
to such other matters as any Lender Party through the Administrative
Agent may reasonably request.
(xxi) A favorable opinion of Pennie & Edmonds, intellectual
property counsel to the Lender Parties, in substantially the form of
Exhibit L hereto and as to such other matters as any Lender Party
through the Administrative Agent may reasonably request.
(xxii) A favorable opinion of Shearman & Sterling, counsel for
the Arrangers and the Agents, in form and substance satisfactory to
the Arrangers and the Agents.
SECTION 3.02. Conditions Precedent to Each Borrowing and Issuance.
The obligation of each Appropriate Lender to make an Advance (other than a
Letter of Credit Advance made by an Issuing Bank or a Working Capital Lender
pursuant to Section 2.03(c)) on the occasion of each Borrowing (including the
initial Borrowing), and the obligation of each Issuing Bank to issue a Letter of
Credit (including the initial issuance), shall be subject to the further
conditions precedent that on the date of such Borrowing or issuance (a) the
following statements shall be true (and each of the giving of the applicable
Notice of Borrowing or Notice of Issuance and the acceptance by the Borrower of
the proceeds of such Borrowing or of such Letter of Credit shall constitute a
representation and warranty by the Borrower that both on the date of such notice
and on the date of such Borrowing or issuance such statements are true):
(i) the representations and warranties contained in each Loan
Document are correct on and as of such date, before and after giving
effect to such Borrowing or issuance and to the application of the
proceeds therefrom, as though made on and as of such date;
(ii) no event has occurred and is continuing, or would result from
such Borrowing or issuance or from the application of the proceeds
therefrom, that constitutes a Default; and
(iii) in the case of any Working Capital Borrowing the proceeds of
which are to be used to make an acquisition or to refinance the costs of
construction of a New Center, (A) after giving effect to the acquisition
to be made, or costs of construction to be refinanced, with the proceeds
of such Borrowing, the Borrower shall be in pro forma compliance with the
covenants contained in Section 5.04, calculated based on the most recent
Financial Statements (and including, for purposes of determining such pro
forma compliance, the Debt and Modified Consolidated
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EBITDA attributable to the bowling center being so acquired or refinanced
as though such acquisition or construction had occurred at the beginning
of the 12-month period covered by such Financial Statements), and (B) the
Borrower shall have delivered a certificate to the Administrative Agent
and the Lender Parties in form satisfactory to the Administrative Agent
demonstrating compliance with clause (A) above;
and (b) the Administrative Agent shall have received such other approvals,
opinions or documents as any Appropriate Lender through the Administrative Agent
may reasonably request.
SECTION 3.03. Determinations Under Section 3.01. For purposes of
determining compliance with the conditions specified in Section 3.01, each
Lender Party shall be deemed to have consented to, approved or accepted or to be
satisfied with each document or other matter required thereunder to be consented
to or approved by or acceptable or satisfactory to the Lender Parties unless an
officer of the Administrative Agent responsible for the transactions
contemplated by the Loan Documents shall have received notice from such Lender
Party prior to the Initial Extension of Credit specifying its objection thereto
and if the Initial Extension of Credit consists of a Borrowing, such Lender
Party shall not have made available to the Administrative Agent such Lender
Party's ratable portion of such Borrowing.
SECTION 3.04. Conditions Precedent to the Making of the New AXELs
Series B Advances. The obligation of each New AXELs Series B Lender to make a
New AXELs Series B Advance hereunder is subject to the satisfaction of the
following conditions precedent before or concurrently with the making of such
New AXELs Series B Advance:
(a) Before and after giving effect to the First Amendment and the
transactions contemplated thereby, there shall have occurred no Material
Adverse Change since December 31, 1995.
(b) There shall exist no action, suit, investigation, litigation or
proceeding affecting any Loan Party or any of its Subsidiaries pending or
threatened before any court, governmental agency or arbitrator that (i)
would be reasonably likely to have a Material Adverse Effect or (ii)
purports to affect the legality, validity or enforceability of this
Agreement, any Note, any other Loan Document, any First Amendment
Document, any Related Document or the consummation of the transactions
contemplated hereby.
(c) All governmental and third party consents and approvals
necessary in connection with the First Amendment Documents and the
transactions contemplated thereby shall have been obtained (without the
imposition of any conditions that are not reasonably acceptable to the
Agents) and shall remain in effect other than such
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governmental or third party consents and approvals the failure to obtain
which shall not (x) be materially adverse to Holdings or the Borrower, in
each case together with its respective Subsidiaries, taken as a whole, (y)
affect the enforceability, validity or binding effect of any of the First
Amendment Documents required to be executed and delivered prior to or on
the Second Closing Date or (z) expose the Arrangers, the Agents or the
Lender Parties to personal liability; and no law or regulation shall be
applicable in the judgment of the Agents that restrains, prevents or
imposes materially adverse conditions upon the First Amendment Documents
and the transactions contemplated thereby.
(d) The Borrower shall have paid all accrued fees of the Lender
Parties and all accrued fees and expenses of the Agents and the Arrangers
(including the accrued fees and expenses of counsel to the Agents and the
Arrangers and local counsel to, and of other experts and advisors retained
by, the Agents for the Lender Parties).
(e) The Administrative Agent shall have received on or before the
day of the making of the New AXELs Series B Advances the following, each
dated such day (unless otherwise specified), in form and substance
satisfactory to the Agents (unless otherwise specified) and (except for
the AXELs Series B Notes) in sufficient copies for each Lender Party:
(i) AXELs Series B Notes payable to the order of the New AXELs
Series B Lenders.
(ii) Certified copies of the resolutions of the Board of
Directors of the Borrower and each other Loan Party approving this
Agreement, the New AXELs Series B Notes, each other First Amendment
Document to which it is or is to be a party, and of all documents
evidencing other necessary corporate action and governmental and
other third party approvals and consents, if any, with respect to
this Agreement, the AXELs Series B Notes and each other First
Amendment Document.
(iii) A copy of a certificate of the Secretary of State of the
jurisdiction of its incorporation, dated reasonably near the Second
Closing Date, certifying that (A) the Borrower and each other Loan
Party have paid all franchise taxes to the date of such certificate
and (B) the Borrower and each other Loan Party are duly incorporated
and in good standing under the laws of the jurisdiction of its
incorporation.
(iv) A copy of a certificate of the Secretary of State or
Commonwealth, as the case may be, of the State of New York and the
Commonwealth of Virginia, dated reasonably near the Second Closing
Date,
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stating that the Borrower and each other Loan Party that was so
qualified as of the First Closing Date are duly qualified and in
good standing as foreign corporations in such States and have filed
all annual reports required to be filed to the date of such
certificate.
(v) A certificate of the Borrower and each other Loan Party,
signed on behalf of the Borrower and such other Loan Party by its
President or a Vice President and its Secretary or any Assistant
Secretary, dated the Second Closing Date (the statements made in
which certificate shall be true on and as of the Second Closing
Date), certifying as to (A) the absence of any amendments to the
charter of the Borrower or such other Loan Party since the date of
the Secretary of State's certificate referred to in Section
3.01(p)(iii), (B) the absence of any amendments to the bylaws of the
Borrower or such other Loan Party delivered pursuant to Section
3.01(p)(v), (C) the due incorporation and good standing of the
Borrower and such other Loan Party as a corporation organized under
the laws of the state of its incorporation, and the absence of any
proceeding for the dissolution or liquidation of the Borrower or
such other Loan Party, (D) the truth of the representations and
warranties contained in the Loan Documents as though made on and as
of the Second Closing Date and (E) the absence of any event
occurring and continuing, or resulting from the making of the New
AXELs Series B Advances, that constitutes a Default.
(vi) A certificate of the Secretary or an Assistant Secretary
of the Borrower and each other Loan Party certifying the names and
true signatures of the officers of the Borrower and such other Loan
Party authorized to sign First Amendment, the AXELs Series B Notes
and each other First Amendment Document to which they are or are to
be parties and the other documents to be delivered hereunder and
thereunder.
(vii) Amendments to the Mortgages in substantially the form of
Exhibit M hereto and covering the properties listed on Part I of
Schedule 4.01(kk) and Part I of Schedule 4.01(ll), duly executed by
the appropriate Loan Party.
(viii) A favorable opinion of Wachtell, Lipton, Rosen & Katz,
special counsel for the Loan Parties, in substantially the form of
Exhibit N hereto and as to such other matters as any Lender Party
through the Administrative Agent may reasonably request.
(ix) A favorable opinion of Daniel McCormack, General Counsel
of the Borrower, in substantially the form of Exhibit O hereto and
as to such
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other matters as any Lender Party through the Administrative Agent
may reasonably request.
(x) A favorable opinion of local counsel in the Commonwealth
of Virginia, in form and substance satisfactory to the
Administrative Agent and as to such other matters as any Lender
Party through the Administrative Agent may reasonably request.
(xi) A favorable opinion of Shearman & Sterling, counsel for
the Arrangers and the Agents, in form and substance satisfactory to
the Arrangers and the Agents.
SECTION 3.05. Conditions Precedent to the Effectiveness of the
Third Amendment. The effectiveness of the Third Amendment is subject to the
satisfaction of the following conditions precedent:
(a) Before and after giving effect to the Third Amendment and the
transactions contemplated thereby, there shall have occurred no Material
Adverse Change since December 31, 1996.
(b) There shall exist no action, suit, investigation, litigation or
proceeding affecting any Loan Party or any of its Subsidiaries pending or
threatened before any court, governmental agency or arbitrator that (i)
would be reasonably likely to have a Material Adverse Effect or (ii)
purports to affect the legality, validity or enforceability of this
Agreement, any Note, any other Loan Document, any Third Amendment
Document, any Related Document or the consummation of the transactions
contemplated hereby.
(c) All governmental and third party consents and approvals
necessary in connection with the Third Amendment Documents, the IPO and
the other transactions contemplated thereby shall have been obtained
(without the imposition of any conditions that are not reasonably
acceptable to the Agents) and shall remain in effect other than such
governmental or third party consents and approvals the failure to obtain
which shall not (x) be materially adverse to Holdings or the Borrower, in
each case together with its respective Subsidiaries, taken as a whole, (y)
affect the enforceability, validity or binding effect of any of the Third
Amendment Documents required to be executed and delivered prior to or on
the Fourth Closing Date or (z) expose the Arrangers, the Agents or the
Lender Parties to personal liability; and no law or regulation shall be
applicable in the judgment of the Agents that restrains, prevents or
imposes materially adverse conditions upon the Third Amendment Documents
and the transactions contemplated thereby.
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(d) Nothing shall have come to the attention of the Lender
Parties during the course of their due diligence investigation to lead
them to believe that the Information Memorandum was or has become
misleading, incorrect or incomplete in any material respect; the IPO
shall have been consummated and Parent shall have received Gross Cash
Proceeds therefrom of at least $200,000,000; and Parent shall have
contributed the Net Cash Proceeds therefrom to the Borrower as common
equity.
(e) The Borrower shall have paid all accrued fees of the
Existing Lenders and the Lender Parties and all accrued fees and
expenses of the Agents and the Arrangers (including the accrued fees
and expenses of counsel to the Agents and the Arrangers and local
counsel to, and of other experts and advisors retained by, the Agents
for the Lender Parties).
(f) The Administrative Agent shall have received on or before
the Fourth Closing Date, each dated such day (unless otherwise
specified), in form and substance satisfactory to the Agents the
following (unless otherwise specified) and (except for the Working
Capital Notes) in sufficient copies for each Lender Party:
(i) Working Capital Notes payable to the order of the
Working Capital Lenders;
(ii) Certified copies of the resolutions of the Board
of Directors of the Borrower and each other Loan Party
approving this Agreement, the Working Capital Notes, each
other Third Amendment Document to which it is or is to be a
party and, in the case of Parent, approving the IPO, and of
all documents evidencing other necessary corporate action and
governmental and other third party approvals and consents, if
any, with respect to the IPO, this Agreement, the Working
Capital Notes and each other Third Amendment Document.
(iii) (A) In the case of Parent, the Borrower and AMF
Bowling Products, a copy of a certificate of the Secretary of
State of the jurisdiction of its incorporation, dated
reasonably near the Fourth Closing Date, listing the charter
of each such entity and each amendment thereto on file in his
office and certifying that (1) such amendments are the only
amendments to such entity's charter on file in his office, (2)
each such entity has paid all franchise taxes to the date of
such certificate and (3) each such entity is duly incorporated
and in good standing under the laws of the jurisdiction of its
incorporation and (B) in the case of each Loan Party other
than the Borrower and AMF Bowling Products, a copy of a
certificate of the Secretary of State of the jurisdiction of
its incorporation, dated reasonably near the Fourth Closing
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Date, certifying that (1) such Loan Party has paid all
franchise taxes to the date of such certificate and (2) such
Loan Party is duly incorporated and in good standing under the
laws of the jurisdiction of its incorporation.
(iv) A copy of a certificate of the Secretary of
State or Commonwealth, as the case may be, of the State of New
York and the Commonwealth of Virginia, dated reasonably near
the Fourth Closing Date, stating that (A) the Borrower and
each other Loan Party that owns property or conducts business
in such State or Commonwealth are duly qualified and in good
standing as foreign corporations in such State or Commonwealth
and (B) have filed all annual reports required to be filed to
the date of such certificate.
(v) A certificate of the Borrower and each other Loan
Party, signed on behalf of the Borrower and such other Loan
Party by its President or a Vice President and its Secretary
or any Assistant Secretary, dated the Fourth Closing Date (the
statements made in which certificate shall be true on and as
of the Fourth Closing Date), certifying as to (A) the absence
of any amendments to the charter of the Borrower or such other
Loan Party since the date of the Secretary of State's
certificate referred to in Section 3.01(p)(iii) or
3.05(f)(iii), as applicable, (B) the absence of any amendments
to the bylaws of the Borrower or such other Loan Party
delivered pursuant to Section 3.01(p)(v), (C) the due
incorporation and good standing of the Borrower and such other
Loan Party as a corporation organized under the laws of the
state of its incorporation, and the absence of any proceeding
for the dissolution or liquidation of the Borrower or such
other Loan Party, (D) the truth of the representations and
warranties contained in the Loan Documents as though made on
and as of the Fourth Closing Date and (E) the absence of any
event occurring and continuing, or resulting from the
consummation of the IPO or the other transactions contemplated
by the Loan Documents, that constitutes a Default.
(vi) A certificate of the Secretary or an Assistant
Secretary of the Borrower and each other Loan Party certifying
the names and true signatures of the officers of the Borrower
and such other Loan Party authorized to sign the Third
Amendment, the Working Capital Notes and each other Third
Amendment Document to which they are or are to be parties and
the other documents to be delivered hereunder and thereunder.
(vii) With respect to each state in which Mortgages
have been filed, either:
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(A) A letter of local counsel in each state
in which Mortgages have been filed (such local
counsel to be acceptable to the Administrative Agent)
to the effect that, under the law of such state and
assuming that, after giving effect to the Third
Amendment and the transactions contemplated thereby,
so long as (i) the aggregate principal amount of
Obligations secured by the Mortgages has not been
increased, and (ii) the latest Termination Date for
the Facilities has not been extended, no amendment to
any Mortgage filed in such state shall be required to
perfect and maintain the validity, effectiveness and
priority of such Mortgage and the Mortgage liens and
security interests created thereunder, or
(B) amendments to the Mortgages in form and
substance satisfactory to the Collateral Agent and
covering the properties located in such state, duly
executed by the appropriate Loan Party.
(viii) duly executed financing statements and
amendments to the financing statements referred to in Section
3.01(p)(vii)(B), to be filed in all jurisdictions that the
Collateral Agent may deem necessary or desirable in order to
preserve and protect the first priority liens and security
interests created under the Collateral Documents.
(ix) evidence that Parent, the Borrower and AMF
Bowling Products have each filed appropriate forms with the
Patent and Trademark Office registering their respective name
changes.
(x) a revised Schedule 4.01(mm) supplementing the
Schedule 4.01(mm) delivered on the First Closing Date in order
to properly reflect the information contained in such Schedule
as of the Fourth Closing Date.
(xi) A favorable opinion of Wachtell, Lipton, Rosen &
Katz, special counsel for the Loan Parties, in substantially
the form of Exhibit R hereto and as to such other matters as
any Lender Party through the Administrative Agent may
reasonably request.
(xii) A favorable opinion of local counsel in the
Commonwealth of Virginia in form and substance satisfactory to
the Administrative Agent and as to such other matters as any
Lender Party through the Administrative Agent may reasonably
request.
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(xiii) A favorable opinion of Shearman & Sterling,
counsel for the Arrangers and the Agents, in form and
substance satisfactory to the Arrangers and the Agents.
SECTION 3.06. Determinations Under Sections 3.04 and 3.05. For
purposes of determining compliance with the conditions specified in Sections
3.04 and 3.05, each Appropriate Lender shall be deemed to have consented to,
approved or accepted or to be satisfied with each document or other matter
required thereunder to be consented to or approved by or acceptable or
satisfactory to the Appropriate Lenders unless an officer of the Administrative
Agent responsible for the transactions contemplated by the Loan Documents shall
have received notice from such Lender Party prior to the making of the New AXELs
Series B Advances or the Fourth Closing Date, as the case may be, specifying its
objection thereto and, in the case of Section 3.04, such Lender Party shall not
have made available to the Administrative Agent such Lender Party's ratable
portion of such AXELs Series B Borrowing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower.
The Borrower represents and warrants as follows:
(a) Each Loan Party (i) is a corporation duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation, (ii) is duly qualified and in good
standing as a foreign corporation in each other jurisdiction in which
it owns or leases property or in which the conduct of its business
requires it to so qualify or be licensed except where the failure to so
qualify or be licensed could not be reasonably likely to have a
Material Adverse Effect and (iii) has all requisite corporate power and
authority (including, without limitation, all governmental licenses,
permits and other approvals) to own or lease and operate its properties
and to carry on its business as now conducted and as proposed to be
conducted. All of the outstanding capital stock of Parent, Holdings and
the Borrower has been validly issued, is fully paid and non-assessable
and, as of the First Closing Date, or from and after the delivery of an
updated Schedule pursuant to Section 5.01(t)(iii), as of the Fourth
Closing Date, is owned by the Equity Investors in the amounts specified
on Schedule 4.01(a) or by Parent or Holdings, as the case may be. All
of the outstanding capital stock of Parent is owned, as of the First
Closing Date, or from and after the delivery of an updated Schedule
pursuant to Section 5.01(t)(iii), as of the Fourth Closing Date, free
and clear of all Liens, except the pledge of such capital stock as is
owned by management of the Borrower to secure obligations of such
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management owing to Parent. All of the outstanding capital stock of
Holdings and the Borrower is owned, in each case free and clear of all
Liens, except, in the case of the capital stock of the Borrower, those
created under the Collateral Documents.
(b) Set forth on Schedule 4.01(b) hereto is a complete and
accurate list of all Subsidiaries of each Loan Party, showing as of the
First Closing Date, or from and after the delivery of an updated
Schedule pursuant to Section 5.01(t)(iii), as of the Fourth Closing
Date, (as to each such Subsidiary) the jurisdiction of its
incorporation, the number of shares of each class of capital stock
authorized, and the number outstanding, on the First Closing Date, or
from and after the delivery of an updated Schedule pursuant to Section
5.01(t)(iii), on the Fourth Closing Date, and the percentage of the
outstanding shares of each such class owned (directly or indirectly) by
such Loan Party and the number of shares covered by all outstanding
options, warrants, rights of conversion or purchase and similar rights
at the First Closing Date, or from and after the delivery of an updated
Schedule pursuant to Section 5.01(t)(iii), at the Fourth Closing Date.
All of the outstanding capital stock of all of such Subsidiaries has
been validly issued and is fully paid and non-assessable; and such
capital stock (other than directors' qualifying shares), as of the
First Closing Date, or from and after the delivery of an updated
Schedule pursuant to Section 5.01(t)(iii), as of the Fourth Closing
Date, is owned by such Loan Party or one or more of its Subsidiaries,
other than the China Joint Venture, the capital stock of which is owned
by a Loan Party or one or more of its Subsidiaries in the amount and
percentage ownership set forth on Schedule 4.01(b) hereto. All of such
outstanding capital stock to the extent owned by a Loan Party is owned
in each case free and clear of all Liens, except those created under
the Loan Documents. Each such Subsidiary (i) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, (ii) is duly qualified and in good
standing as a foreign corporation in each other jurisdiction in which
it owns or leases property or in which the conduct of its business
requires it to so qualify or be licensed except where the failure to so
qualify or be licensed could not be reasonably likely to have a
Material Adverse Effect and (iii) has all requisite corporate power and
authority (including, without limitation, all governmental licenses,
permits and other approvals) to own or lease and operate its properties
and to carry on its business as now conducted and as proposed to be
conducted.
(c) The execution, delivery and performance by each Loan Party
of this Agreement, the Notes, each other Loan Document and each Related
Document to which it is or is to be a party (after the execution and
delivery thereof as and when required under this Agreement), and the
consummation of the Acquisition and the other transactions contemplated
hereby, are within such Loan Party's corporate powers, have been duly
authorized by all necessary corporate action, and do not (i) contravene
such Loan Party's charter or bylaws, (ii) violate any law (including,
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without limitation, the Securities Exchange Act of 1934 and the
Racketeer Influenced and Corrupt Organizations Chapter of the Organized
Crime Control Act of 1970), rule, regulation (including, without
limitation, Regulation X of the Board of Governors of the Federal
Reserve System), order, writ, judgment, injunction, decree,
determination or award, (iii) conflict with or result in the breach of,
or constitute a default under, any loan agreement, indenture, mortgage,
deed of trust or other instrument or material contract or material
lease binding on or affecting any Loan Party, any of its Subsidiaries
or any of their properties or (iv) except for the Liens created under
the Loan Documents, result in or require the creation or imposition of
any Lien upon or with respect to any of the properties of any Loan
Party or any of its Subsidiaries. No Loan Party or any of its
Subsidiaries is in violation of any such law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award or in breach
of any such contract, loan agreement, indenture, mortgage, deed of
trust, lease or other instrument, the violation or breach of which
could be reasonably likely to have a Material Adverse Effect.
(d) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body
or any other third party is required for (i) the due execution,
delivery, recordation, filing or performance by any Loan Party of this
Agreement, the Notes, any other Loan Document or any Related Document
to which it is or is to be a party, or for the consummation of the
Acquisition or the other transactions contemplated hereby, (ii) the
grant by any Loan Party of the Liens granted by it pursuant to the
Collateral Documents, (iii) the perfection or maintenance of the Liens
created by the Collateral Documents (including the first priority
nature thereof) or (iv) the exercise by any Agent or any Lender Party
of its rights under the Loan Documents or the remedies in respect of
the Collateral pursuant to the Collateral Documents, except for the
authorizations, approvals, actions, notices and filings listed on
Schedule 4.01(d) hereto, all of which have been duly obtained, taken,
given or made and are in full force and effect except as otherwise set
forth on Schedule 4.01(d) hereto and except those authorizations,
approvals, actions, notices and filings the failure to obtain, take,
give or make which, either individually or in the aggregate, could not
be reasonably expected to have a Material Adverse Effect. All
applicable waiting periods in connection with the Acquisition and the
other transactions contemplated hereby have expired or been terminated
without any action having been taken by any competent authority
restraining, preventing or imposing materially adverse conditions upon
the Acquisition or the rights of the Loan Parties or their Subsidiaries
freely to transfer or otherwise dispose of, or to create any Lien on,
any properties now owned or hereafter acquired by any of them except
where, in the case of any such waiting period other than any waiting
period required under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, the failure of such waiting period to have expired
without any
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89
such action having been taken could not be reasonably likely to have a
Material Adverse Effect.
(e) This Agreement has been, and each of the Notes, each other
Loan Document and each Related Document when delivered hereunder will
have been, duly executed and delivered by each Loan Party party
thereto. This Agreement is, and each of the Notes, each other Loan
Document and each Related Document when delivered hereunder will be,
the legal, valid and binding obligation of each Loan Party party
thereto, enforceable against such Loan Party in accordance with its
terms.
(f) (i) The Consolidated balance sheet of the Company and its
Subsidiaries as at December 31, 1996, and the related Consolidated
statements of income and cash flows of the Company and its Subsidiaries
for the fiscal year then ended, accompanied by an opinion of Arthur
Andersen, L.L.P, independent public accountants, copies of which have
been furnished to each Lender Party, fairly present the Consolidated
financial condition of the Company and its Subsidiaries as at such date
and the Consolidated results of the operations of the Company and its
Subsidiaries for the period ended on such date, all in accordance with
generally accepted accounting principles applied on a consistent basis,
and since December 31, 1996, there has been no Material Adverse Change.
(ii) The Consolidated balance sheets of the Borrower
and its Subsidiaries as at June 30, 1997, and the related
Consolidated statements of income and cash flows of the
Borrower and its Subsidiaries for the six months then ended,
certified by a Designated Financial Officer, copies of which
have been furnished to each Lender Party, fairly present,
subject to year-end audit adjustments, the Consolidated
financial condition of the Borrower and its Subsidiaries as at
such date and the Consolidated results of operations of the
Borrower and its Subsidiaries for the period ended on such
date, all in accordance with generally accepted accounting
principles applied on a consistent basis.
(g) The Consolidated pro forma balance sheet of the Borrower
and its Subsidiaries as at December 31, 1995, and the related
Consolidated pro forma statements of income and cash flows of the
Borrower and its Subsidiaries for the year then ended, certified by a
Designated Financial Officer, copies of which have been furnished to
each Lender Party, fairly present the Consolidated pro forma financial
condition of the Borrower and its Subsidiaries as at such date and the
Consolidated pro forma results of operations of the Borrower and its
Subsidiaries for the period ended on such date, in each case giving
effect to the Acquisition and the other transactions contemplated
hereby, all in accordance with GAAP.
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90
(h) The Consolidated forecasted balance sheets, income
statements and cash flows statements of the Borrower and its
Subsidiaries delivered to the Lender Parties pursuant to Section
3.01(p)(xiii) or 5.03 were prepared in good faith on the basis of the
assumptions stated therein, which assumptions were fair in the light of
conditions existing at the time of delivery of such forecasts, and
represented, at the time of delivery, the Borrower's best estimate of
its future financial performance.
(i) Neither the Information Memorandum nor any other
information, exhibit or report furnished by any Loan Party to any Agent
or any Lender Party in connection with the negotiation and syndication
of the Loan Documents or pursuant to the terms of the Loan Documents
contained any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements made therein not
misleading.
(j) There is no action, suit, investigation, litigation or
proceeding affecting any Loan Party or any of its Subsidiaries,
including any Environmental Action, pending or threatened before any
court, governmental agency or arbitrator that (i) would be reasonably
likely to have a Material Adverse Effect or (ii) purports to affect the
legality, validity or enforceability of the Acquisition, this
Agreement, any Note, any other Loan Document or any Related Document or
the consummation of the transactions contemplated hereby (other than
any such action, suit, investigation, litigation or proceeding that, in
the judgment of the Agents, is frivolous).
(k) No proceeds of any Advance or drawings under any Letter of
Credit will be used to acquire any equity security of a class that is
registered pursuant to Section 12 of the Securities Exchange Act of
1934.
(l) The Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying Margin Stock, and no
proceeds of any Advance or drawings under any Letter of Credit will be
used to purchase or carry any Margin Stock or to extend credit to
others for the purpose of purchasing or carrying any Margin Stock.
(m) Set forth on Schedule 4.01(m) hereto is a complete and
accurate list, as of the First Closing Date, or from and after the
delivery of an updated Schedule pursuant to Section 5.01(t)(iii), as of
the Fourth Closing Date, of all Plans, Multiemployer Plans and Welfare
Plans.
(n) No ERISA Event has occurred or is reasonably expected to
occur with respect to any Plan that could be reasonably expected to
have a Material Adverse Effect.
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91
(o) As of the last annual actuarial valuation date, the funded
current liability percentage, as defined in Section 302(d)(8) of ERISA,
of each Plan exceeds 90% and there has been no material adverse change
in the funding status of such Plan since such date.
(p) Schedule B (Actuarial Information) to the most recent
annual report (Form 5500 Series) for each Plan, copies of which have
been filed with the Internal Revenue Service and furnished to the
Lender Parties, is complete and accurate and fairly presents the
funding status of such Plan, and since the date of such Schedule B
there has been no material adverse change in such funding status.
(q) Neither any Loan Party nor any ERISA Affiliate has
incurred or is reasonably expected to incur any Withdrawal Liability to
any Multiemployer Plan that could be reasonably expected to have a
Material Adverse Effect.
(r) Neither any Loan Party nor any ERISA Affiliate has been
notified by the sponsor of a Multiemployer Plan that such Multiemployer
Plan is in reorganization or has been terminated, within the meaning of
Title IV of ERISA, and no such Multiemployer Plan is reasonably
expected to be in reorganization or to be terminated, within the
meaning of Title IV of ERISA, except to the extent that any such
reorganization or termination could not be reasonably expected to have
a Material Adverse Effect.
(s) With respect to each scheme or arrangement mandated by a
government other than the United States (a "Foreign Government Scheme
or Arrangement") and with respect to each employee benefit plan
maintained or contributed to by any Loan Party or any Subsidiary of any
Loan Party that is not subject to United States law (a "Foreign Plan")
to the extent that there could reasonably be expected to be a Material
Adverse Effect:
(i) Any employer and employee contributions required
by law or by the terms of any Foreign Government Scheme or
Arrangement or any Foreign Plan have been made, or, if
applicable, accrued, in accordance with normal accounting
practices.
(ii) The fair market value of the assets of each
funded Foreign Plan, the liability of each insurer for any
Foreign Plan funded through insurance or the book reserve
established for any Foreign Plan, together with any accrued
contributions, is sufficient to procure or provide for the
accrued benefit obligations, as of the First Closing Date, or
from and after the delivery of an updated Schedule pursuant to
Section 5.01(t)(iii), as of the Fourth Closing Date, with
respect to all current and former participants in such Foreign
Plan
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92
according to the actuarial assumptions and valuations most
recently used to determine employer contributions to such
Foreign Plan.
(iii) Each Foreign Plan required to be registered has
been registered and has been maintained in good standing with
applicable regulatory authorities.
(t) Except as set forth in the financial statements referred
to in this Section 4.01 and in Section 5.03, the Loan Parties and their
respective Subsidiaries have no material liability with respect to
"expected post retirement benefit obligations" within the meaning of
Statement of Financial Accounting Standards No. 106.
(u) Neither the business nor the properties of any Loan Party
or any of its Subsidiaries have been affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other
casualty (whether or not covered by insurance) that could be reasonably
likely to have a Material Adverse Effect.
(v) Except as set forth on Schedule 4.01(v) hereto or as could
not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect, the operations and properties of each Loan
Party and each of its Subsidiaries comply with all applicable
Environmental Laws and Environmental Permits, and (except as aforesaid)
all past non-compliance with such Environmental Laws and Environmental
Permits has been resolved without ongoing obligations or costs, and no
circumstances exist that could be reasonably likely to (i) form the
basis of an Environmental Action against any Loan Party or any of its
Subsidiaries or any of their properties that could have a Material
Adverse Effect or (ii) cause any such property to be subject to any
material restrictions on ownership, occupancy, use or transferability
under any Environmental Law.
(w) Except as set forth on Schedule 4.01(w) hereto or as could
not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect, (i) none of the properties currently owned or
operated by any Loan Party or any of its Subsidiaries or, to the best
knowledge of any Loan Party or any of its Subsidiaries, none of the
properties formerly owned or operated by any of them, is listed or
proposed for listing on the NPL or on the CERCLIS or any analogous
foreign, state or local list or is adjacent to any such property; (ii)
there are no and never have been any underground or aboveground storage
tanks or any surface impoundments, septic tanks, pits, sumps or lagoons
in which Hazardous Materials are being or have been treated, stored or
disposed on any property currently owned or operated by any Loan Party
or any of its Subsidiaries or, to the best of its knowledge, on any
property formerly owned or operated by any Loan Party or any of its
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93
Subsidiaries; (iii) there is no asbestos or asbestos-containing
material on any property currently owned or operated by any Loan Party
or any of its Subsidiaries; and (iv) Hazardous Materials have not been
released, discharged or disposed of on any property currently or
formerly owned or operated by any Loan Party or any of its
Subsidiaries.
(x) Except as set forth on Schedule 4.01(x) hereto or as could
not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect, neither any Loan Party nor any of its
Subsidiaries is undertaking, or has failed to complete, either
individually or together with other potentially responsible parties,
any investigation or assessment or remedial or response action relating
to any actual or threatened release, discharge or disposal of Hazardous
Materials at any site, location or operation, either voluntarily or
pursuant to the order of any governmental or regulatory authority or
the requirements of any Environmental Law; and all Hazardous Materials
generated, used, treated, handled or stored at, or transported to or
from, any property currently or formerly owned or operated by any Loan
Party or any of its Subsidiaries, and that have been disposed of in any
manner, have been disposed of only in a manner not reasonably expected
to result in a Material Adverse Effect.
(y) Neither any Loan Party nor any of its Subsidiaries is a
party to any indenture, loan or credit agreement or any lease or other
agreement or instrument or subject to any charter or corporate
restriction that could be reasonably likely to have a Material Adverse
Effect.
(z) The Collateral Documents create a valid and perfected
first priority security interest in the Collateral subject only to
Permitted Encumbrances, securing the payment of the Secured Obligations
(as defined in the Collateral Documents), and all filings and other
actions necessary or desirable to perfect and protect such security
interest have been duly taken. The Loan Parties are the legal and
beneficial owners of the Collateral free and clear of any Lien, except
for the liens and security interests created or permitted under the
Loan Documents.
(aa) Each Loan Party and each of its Subsidiaries has filed,
has caused to be filed or has been included in all federal income and
other material tax returns (Federal, state, local and foreign) required
to be filed and has paid all income and other material taxes shown
thereon to be due, together with applicable interest and penalties.
(bb) Set forth on Schedule 4.01(bb) hereto is a complete and
accurate list, as of the First Closing Date, or from and after the
delivery of an updated Schedule pursuant to Section 5.01(t)(iii), as of
the Fourth Closing Date, of each taxable year of
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94
each Loan Party and each of its Subsidiaries for which Federal income
tax returns have been filed and for which the expiration of the
applicable statute of limitations for assessment or collection has not
occurred by reason of extension or otherwise (an "Open Year").
(cc) As of the First Closing Date, or from and after the
delivery of an updated Schedule pursuant to Section 5.01(t)(iii), as of
the Fourth Closing Date, there are no adjustments to the Federal income
tax liability of each Loan Party and each of its Subsidiaries proposed
by the Internal Revenue Service with respect to Open Years that,
individually or in the aggregate, could be reasonably likely to have a
Material Adverse Effect. No issues have been raised by the Internal
Revenue Service in respect of Open Years that, in the aggregate, could
be reasonably likely to have a Material Adverse Effect.
(dd) As of the First Closing Date, or from and after the
delivery of an updated Schedule pursuant to Section 5.01(t)(iii), as of
the Fourth Closing Date, there are no adjustments to the state, local
and foreign tax liability of each Loan Party and its Subsidiaries
proposed by all state, local and foreign taxing authorities (other than
amounts arising from adjustments to Federal income tax returns) that,
individually or in the aggregate, could be reasonably likely to have a
Material Adverse Effect. No issues have been raised by such taxing
authorities that, in the aggregate, could be reasonably likely to have
a Material Adverse Effect.
(ee) The Acquisition will not result in the imposition of
federal income taxes on or with respect to the Borrower.
(ff) Except as a direct result of the Acquisition and the
acquisition by AMF Bowling Centers of the companies set forth on
Schedule 4.01(ff) hereto, no "ownership change" as defined in Section
382(g) of the Internal Revenue Code, and no event that would result in
the application of the "separate return limitation year" or
"consolidated return change of ownership" limitations under the Federal
income tax consolidated return regulations, has occurred with respect
to the Borrower or the Company since May 1, 1993.
(gg) Neither any Loan Party nor any of its Subsidiaries is an
"investment company," or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment
Company Act of 1940, as amended. Neither the making of any Advances,
nor the issuance of any Letters of Credit, nor the application of the
proceeds or repayment thereof by the Borrower, nor the consummation of
the other transactions contemplated hereby, will violate any provision
of such Act or any rule, regulation or order of the Securities and
Exchange Commission thereunder.
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95
(hh) Each Loan Party is, individually and together with its
Subsidiaries, Solvent.
(ii) Set forth on Schedule 4.01(ii) hereto is a complete and
accurate list of all Existing Debt (other than Surviving Debt), showing
as of the First Closing Date, or from and after the delivery of an
updated Schedule pursuant to Section 5.01(t)(iii), as of the Fourth
Closing Date, the principal amount outstanding thereunder.
(jj) Set forth on Schedule 3.01(e) hereto is a complete and
accurate list of all Surviving Debt, showing as of the First Closing
Date, or from and after the delivery of an updated Schedule pursuant to
Section 5.01(t)(iii), as of the Fourth Closing Date, the principal
amount outstanding thereunder, the maturity date thereof and the
amortization schedule therefor.
(kk) Set forth on Schedule 4.01(kk) hereto is a complete and
accurate list of all real property owned by any Loan Party or any of
its Subsidiaries, showing as of the First Closing Date, or from and
after the delivery of an updated Schedule pursuant to Section
5.01(t)(iii), as of the Fourth Closing Date, the street address, county
or other relevant jurisdiction, state, record owner and book value
thereof. Each Loan Party or such Subsidiary has good, marketable and
insurable fee simple title to such real property, free and clear of all
Liens, other than Liens created or permitted by the Loan Documents.
(ll) Set forth on Schedule 4.01(ll) hereto is a complete and
accurate (in the case of leases of real property outside the United
States, in all material respects) list of all leases of real property
under which any Loan Party or any of its Subsidiaries is the lessee,
showing as of the First Closing Date, or from and after the delivery of
an updated Schedule pursuant to Section 5.01(t)(iii), as of the Fourth
Closing Date, the street address, county or other relevant
jurisdiction, state, lessor, lessee, expiration date and annual rental
cost thereof. Each such lease is the legal, valid and binding
obligation of the lessee thereof, enforceable in accordance with its
terms.
(mm) Set forth on Schedule 4.01(mm) hereto is a complete and
accurate list of all Investments held by any Loan Party or any of its
Subsidiaries, showing as of the First Closing Date, or from and after
the delivery of an updated Schedule pursuant to Section 5.01(t)(iii),
as of the Fourth Closing Date, the amount, obligor or issuer and
maturity, if any, thereof.
(nn) Set forth on Schedule 4.01(nn) hereto is a complete and
accurate list of all patents, trademarks, trade names, service marks
and copyrights, and all applications therefor and licenses thereof, of
each Loan Party or any of its Subsidiaries, showing as of the First
Closing Date, or from and after the delivery of
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96
an updated Schedule pursuant to Section 5.01(t)(iii), as of the Fourth
Closing Date, the jurisdiction in which registered, the registration
number, the date of registration and the expiration date, and the Loan
Parties and their Subsidiaries own or have a license to use all
patents, trademarks, trade names, service marks and copyrights
reasonably necessary to carry on their business as now conducted and as
proposed to be conducted.
(oo) The Debt of the Loan Parties under the Loan Documents
constitutes "Senior Debt" as such term is defined in the Subordinated
Notes Indentures.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. So long as any Advance
shall remain unpaid, any Letter of Credit shall be outstanding or any Lender
Party shall have any Commitment hereunder, the Borrower will:
(a) Compliance with Laws, Etc. Comply, and cause each of its
Subsidiaries to comply, in all material respects, with all applicable
laws, rules, regulations and orders, such compliance to include,
without limitation, compliance with ERISA and the Racketeer Influenced
and Corrupt Organizations Chapter of the Organized Crime Control Act of
1970, except, in any case, where the failure so to comply, either
individually or in the aggregate, could not be reasonably expected to
have a Material Adverse Effect and would not be reasonably likely to
subject any Loan Party or any of its Subsidiaries to any criminal
penalties or any Lender Party to any civil or criminal penalties.
(b) Payment of Taxes, Etc. Pay and discharge, and cause each
of its Subsidiaries to pay and discharge, before the same shall become
delinquent, (i) all federal income and other material taxes,
assessments and governmental charges or levies imposed upon it or upon
its property and (ii) all lawful claims that, if unpaid, might by law
become a Lien upon its property; provided, however, that neither the
Borrower nor any of its Subsidiaries shall be required to pay or
discharge any such tax, assessment, charge or claim (x) that is being
contested in good faith and by proper proceedings and as to which
appropriate reserves are being maintained or (y) in respect of which
the Lien resulting therefrom, if any, attaches to its property and
becomes enforceable against its other creditors, to the extent that the
aggregate amount of all such taxes, assessments, charges or claims does
not exceed $3,000,000.
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97
(c) Compliance with Environmental Laws. Comply, and cause each
of its Subsidiaries and all lessees and other Persons operating or
occupying its properties to comply, in all material respects, with all
Environmental Laws and Environmental Permits; obtain and renew and
cause each of its Subsidiaries to obtain and renew, when legally
required, all Environmental Permits necessary for its operations and
properties; and conduct, and cause each of its Subsidiaries to conduct,
any required investigation, study, sampling and testing, and undertake
any required cleanup, removal, remedial or other action necessary to
remove and clean up all Hazardous Materials from any of its properties,
only in accordance with the requirements of all Environmental Laws;
except, in any case under this subsection (c), where the failure to so
comply with or perform any of the foregoing, either individually or in
the aggregate, could not be reasonably expected to have a Material
Adverse Effect and would not be reasonably likely to subject any Loan
Party or any of its Subsidiaries to any criminal penalties or any
Lender Party to any civil or criminal penalties; provided, however,
that neither the Borrower nor any of its Subsidiaries shall be required
to undertake any such cleanup, removal, remedial or other action to the
extent that its obligation to do so is being contested in good faith
and by proper proceedings and appropriate reserves are being maintained
with respect to such circumstances.
(d) Maintenance of Insurance. Maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible and reputable
insurance companies or associations in such amounts and covering such
risks as is usually carried by companies engaged in similar businesses
and owning similar properties in the same general areas in which the
Borrower or such Subsidiary operates.
(e) Preservation of Corporate Existence, Etc. Preserve and
maintain, and cause each of its Subsidiaries to preserve and maintain,
its existence, legal structure, legal name, rights (charter and
statutory), permits, licenses, approvals, privileges and franchises;
provided, however, that the Borrower and its Subsidiaries may
consummate any merger or consolidation permitted under Section 5.02(d);
provided further that neither the Borrower nor any of its Subsidiaries
shall be required to preserve any right, permit, license, approval,
privilege or franchise if the Borrower or such Subsidiary shall
determine that the preservation thereof is no longer desirable in the
conduct of the business of the Borrower or such Subsidiary, as the case
may be, and that the loss thereof is not disadvantageous in any
material respect to the Borrower, such Subsidiary or the Lender Parties
or, with respect to permits, licenses, approvals, privileges and
franchises, that the loss thereof could not be reasonably expected to
have a Material Adverse Effect.
(f) Visitation Rights. At any reasonable time and from time to
time, permit any Agent or any of the Lender Parties or any agents or
representatives
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thereof, to examine and make copies of and abstracts from the records
and books of account of, and visit the properties of, the Borrower and
any of its Subsidiaries, and to discuss the affairs, finances and
accounts of the Borrower and any of its Subsidiaries with any of their
officers or directors and with their independent certified public
accountants.
(g) Preparation of Environmental Reports. At the request of
the Administrative Agent upon the occurrence and during the continuance
of a Default or upon the reasonable belief of the Required Lenders or
the Administrative Agent that Hazardous Materials contamination of a
nature or to an extent not set forth on Schedule 4.01(v), 4.01(w) or
4.01(x) hereto may be present on any property described in the
Mortgages in a manner or condition that could reasonably be expected to
have a Material Adverse Effect, provide to the Lender Parties within 60
days after such request, at the expense of the Borrower, an
environmental site assessment report for any of its or its
Subsidiaries' properties described in the Mortgages, prepared by an
environmental consulting firm acceptable to the Administrative Agent,
indicating the presence or absence of Hazardous Materials and the
estimated cost of any compliance, removal or remedial action in
connection with any Hazardous Materials on such properties; without
limiting the generality of the foregoing, if the Required Lenders
reasonably determine at any time that a material risk exists that any
such report will not be provided within the time referred to above, the
Required Lenders may retain an environmental consulting firm to prepare
such report at the expense of the Borrower, and the Borrower hereby
grants and agrees to cause any Subsidiary that owns any property
described in the Mortgages to grant at the time of such request, to the
Agents, the Lender Parties, such firm and any agents or representatives
thereof an irrevocable non-exclusive license, subject to the rights of
tenants, to enter onto their respective properties to undertake such an
assessment at any reasonable time and upon reasonable prior notice.
(h) Keeping of Books. Keep, and cause each of its Subsidiaries
to keep, proper books of record and account, in which full and correct
entries shall be made of all financial transactions and the assets and
business of the Borrower and each such Subsidiary in accordance with
generally accepted accounting principles in effect from time to time.
(i) Maintenance of Properties, Etc. Maintain and preserve, and
cause each of its Subsidiaries to maintain and preserve, all of its
properties that are used or useful in the conduct of its business in
good working order and condition, ordinary wear and tear excepted,
except where the failure to do so, either individually or in the
aggregate, could not be reasonably expected to have a Material Adverse
Effect.
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(j) Compliance with Terms of Leaseholds. Make all payments and
otherwise perform all obligations in respect of all leases of real
property to which the Borrower or any of its Subsidiaries is a party,
keep such leases in full force and effect and not allow such leases to
lapse or be terminated or any rights to renew such leases to be
forfeited or cancelled, notify the Administrative Agent of any default
by any party with respect to such leases and cooperate with the
Administrative Agent in all respects to cure any such default, and
cause each of its Subsidiaries to do so, except, in any case, where the
failure to do so, either individually or in the aggregate, could not be
reasonably expected to have a Material Adverse Effect.
(k) Performance of Related Documents. Perform and observe all
of the terms and provisions of each Related Document to be performed or
observed by it, maintain each such Related Document in full force and
effect, enforce such Related Document in accordance with its terms
(other than Section 1.5 of the Stockholders' Agreement), take all such
action to such end as may be from time to time requested by the
Administrative Agent and, upon request of the Administrative Agent,
make to each other party to each such Related Document such demands and
requests for information and reports or for action as the Borrower is
entitled to make under such Related Document, and cause each of its
Subsidiaries to do so, except, in any case, where the failure to do so,
either individually or in the aggregate, could not be reasonably
expected to have a Material Adverse Effect.
(l) Transactions with Affiliates. Conduct, and cause each of
its Subsidiaries to conduct, all transactions otherwise permitted under
the Loan Documents with any of their Affiliates on terms that are fair
and reasonable and no less favorable to the Borrower or such Subsidiary
than it would obtain in a comparable arm's-length transaction with a
Person not an Affiliate, other than transactions between or among Loan
Parties and other transactions described on Schedule 5.01(l) hereto.
(m) Cash Concentration Accounts. Maintain main cash
concentration accounts with Citibank and Blocked Accounts into which
substantially all proceeds of Collateral are paid with Citibank or one
or more banks acceptable to the Collateral Agent that have accepted the
assignment of such accounts to the Collateral Agent for the benefit of
the Secured Parties pursuant to the Security Agreement.
(n) Covenant to Guarantee Obligations and Give Security. At
any time (x) upon the request of the Collateral Agent following the
occurrence and during the continuance of a Default, (y) at such time as
any new direct or indirect Subsidiaries of the Borrower are formed or
acquired by any Loan Party or (z) any property is acquired by any Loan
Party, in each case at the expense of the Borrower:
<PAGE> 106
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(i) within 10 days after such request, formation or
acquisition, cause each such Subsidiary (other than any
Foreign Subsidiary), and cause each direct and indirect parent
(other than the Borrower and any Foreign Subsidiary) of such
Subsidiary (if it has not already done so), to duly execute
and deliver to the Collateral Agent a guaranty, in form and
substance satisfactory to the Collateral Agent, guaranteeing
the other Loan Parties' Obligations under the Loan Documents,
(ii) within 10 days after such request, formation or
acquisition, furnish to the Collateral Agent a description of
the real and personal properties of the Borrower and its
Subsidiaries in detail satisfactory to the Collateral Agent,
(iii) within 15 days after such request, formation or
acquisition, duly execute and deliver, and cause each such
Subsidiary (other than any Foreign Subsidiary) and each direct
and indirect parent of such Subsidiary (if it has not already
done so) (other than any Foreign Subsidiary except to the
extent permitted in the fourth proviso below) to duly execute
and deliver, to the Collateral Agent mortgages, pledges,
assignments and other security agreements, as specified by and
in form and substance satisfactory to the Collateral Agent,
securing payment of all the Obligations of the Borrower, such
Subsidiary or such parent, as the case may be, under the Loan
Documents and constituting Liens on all such properties;
provided that with respect to any leasehold, the Borrower
shall use, and shall cause its Subsidiaries to use, best
efforts to acquire such leasehold in a way such that consent
of the landlord thereof shall not be required in connection
with the mortgaging thereof; provided further, however, that
such leasehold shall not be required to be mortgaged if, after
the applicable Loan Party has used its best efforts as set
forth in the immediately preceding proviso and to obtain
landlord consents to the extent required by Section 5.01(p),
such Loan Party is unable to obtain such consent; provided
still further that, so long as no Event of Default shall have
occurred and be continuing, such leasehold shall not be
required to be mortgaged if the Collateral Agent shall
determine, in its sole discretion, not to require the
mortgaging of such leasehold because such leasehold has an
immaterial value or constitutes an immaterial portion of the
property of the Person owning such leasehold; provided still
further that, with respect to the pledge of the capital stock
of any Foreign Subsidiary, such pledge shall cover not more
than 66% of the outstanding capital stock of such Foreign
Subsidiary if it is directly owned by a Loan Party and not
cover any of the outstanding capital stock of such Foreign
Subsidiary if it is directly or indirectly owned by another
Foreign Subsidiary,
<PAGE> 107
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(iv) within 30 days after such request, formation or
acquisition, take, and cause such Subsidiary (other than any
Foreign Subsidiary) or such parent (other than any Foreign
Subsidiary) to take, whatever action (including, without
limitation, the recording of mortgages, the filing of Uniform
Commercial Code financing statements, the giving of notices
and the endorsement of notices on title documents) may be
necessary or advisable in the opinion of the Collateral Agent
to vest in the Collateral Agent (or in any representative of
the Collateral Agent designated by it) valid and subsisting
Liens on the properties purported to be subject to the
mortgages, pledges, assignments and security agreements
delivered pursuant to this Section 5.01(n), enforceable
against all third parties in accordance with their terms,
(v) within 60 days after such request, formation or
acquisition, deliver to the Collateral Agent, upon the request
of the Collateral Agent in its sole discretion, a signed copy
of a favorable opinion, addressed to the Collateral Agent and
the other Secured Parties, of counsel for the Loan Parties
acceptable to the Collateral Agent as to the matters contained
in clauses (i), (iii) and (iv) above, as to such guaranties,
mortgages, pledges, assignments and security agreements being
legal, valid and binding obligations of each Loan Party party
thereto enforceable in accordance with their terms and as to
such other matters as the Collateral Agent may reasonably
request,
(vi) as promptly as practicable after such request,
formation or acquisition, deliver, upon the request of the
Collateral Agent in its sole discretion, to the Collateral
Agent (x) with respect to each parcel of real property owned
or held by the entity (other than any Foreign Subsidiary) that
is the subject of such request, formation or acquisition and
on which a manufacturing facility is located, surveys and
engineering, soils and other reports meeting the criteria
specified in Section 3.01(p)(ix)(C) or (D), as the case may
be, Mortgage Policies and an environmental assessment report
meeting the criteria specified in Section 3.01(p)(xv) and (y)
with respect to each other parcel of real property owned by
the entity that is the subject of such request, formation or
acquisition, title reports meeting the criteria specified in
Section 3.01(p)(ix)(B), provided, however, that to the extent
that the Borrower or any of its Subsidiaries shall have
otherwise received any of the foregoing items with respect to
such real property, such items shall promptly after the
receipt thereof be delivered to the Collateral Agent,
(vii) upon the occurrence and during the continuance
of a Default, promptly cause to be deposited, and cause each
of its Subsidiaries to cause to be promptly deposited, any and
all cash dividends paid or payable to it or any of its
Subsidiaries from any of its Subsidiaries from time to time
into the Cash
<PAGE> 108
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Collateral Account, and with respect to all other dividends
paid or payable to it or any of its Subsidiaries from time to
time, promptly execute and deliver, or cause such Subsidiary
to promptly execute and deliver, as the case may be, any and
all further instruments and take or cause such Subsidiary to
take, as the case may be, all such other action as the
Collateral Agent may deem necessary or desirable in order to
obtain and maintain from and after the time such dividend is
paid or payable a perfected, first priority lien on and
security interest in such dividends, and
(viii) at any time and from time to time, promptly
execute and deliver any and all further instruments and
documents and take all such other action as the Collateral
Agent may deem necessary or desirable in obtaining the full
benefits of, or in perfecting and preserving the Liens of,
such guaranties, mortgages, pledges, assignments and security
agreements.
(o) Interest Rate Hedging. Maintain at all times, until such
time as the aggregate outstanding amount under the Term Facilities
shall be less than $400,000,000, interest rate Hedge Agreements with
Persons acceptable to the Administrative Agent, covering a notional
amount of not less than 50% of the Commitments under all of the
Facilities and the other floating rate Debt of the Loan Parties and
providing for such Persons to make payments thereunder for a period of
no less than one year to the extent of increases in interest rates
greater than 3% above the weighted average Eurodollar Rate on the First
Closing Date.
(p) Landlord's Consents, Etc. With respect to leaseholds set
forth on Part II of Schedule 4.01(ll) hereto, for a reasonable period
of time after the First Closing Date, and with respect to any leasehold
acquired after the First Closing Date (other than by a Foreign
Subsidiary) for a reasonable period of time after the acquisition
thereof, use, and cause its Subsidiaries to use, its best efforts to
cure any technical defect as may be required or, in the judgment of the
Collateral Agent, necessary or desirable (as notified to such Loan
Party by the Collateral Agent) to be cured in order to permit the
mortgaging of any leasehold under which any Loan Party is a lessee and,
if a Default shall have occurred and be continuing, use, and cause its
Subsidiaries to use, its best efforts to obtain any consent required
or, in the judgment of the Collateral Agent, necessary or desirable (as
notified to such Loan Party by the Collateral Agent) to permit the
mortgaging of any leasehold under which any Loan Party is a lessee,
and, in either case, use its best efforts to deliver and cause each of
its Subsidiaries to use its best efforts to deliver, such documents and
other items referred to in Section 5.01(n) as may be applicable in
connection with the mortgaging of such leasehold.
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103
(q) Conditions Subsequent to Initial Extension of Credit.
Deliver to the Collateral Agent, in form and substance satisfactory to
the Collateral Agent and in sufficient copies for each Lender Party, as
soon as possible and in any event within 60 days after the Initial
Extension of Credit (or such later date as may be agreed by the
Borrower and the Collateral Agent):
(i) acknowledgment copies of proper financing
statements, duly filed under the Uniform Commercial Code of
all jurisdictions that the Collateral Agent may deem necessary
or desirable in order to perfect and protect the first
priority liens and security interests created under the
Security Agreement, covering the Collateral described in the
Security Agreement,
(ii) completed requests for information, listing the
financing statements referred to in clause (i) above and all
other effective financing statements filed in the
jurisdictions referred to in clause (i) above that name any
Loan Party as debtor, together with copies of such financing
statements,
(iii) evidence that counterparts of the Mortgages
have been duly recorded in all filing or recording offices
that the Collateral Agent may deem necessary or desirable in
order to create a valid first and subsisting Lien on the
property described therein in favor of the Secured Parties
subject only to Permitted Encumbrances and that all filing and
recording taxes and fees have been paid,
(iv) evidence of the completion of all recordings and
filings of or with respect to the Intellectual Property
Security Agreement that the Collateral Agent may deem
necessary or desirable in order to perfect and protect the
Liens created thereunder,
(v) evidence that such action as the Collateral Agent
may deem necessary or desirable in order to perfect and
protect the Liens on the capital stock held by any Loan Party
in any of its Foreign Subsidiaries has been taken (including,
without limitation, the execution and delivery by the
applicable Loan Party of such agreements or instruments of
pledge as may be necessary to perfect and protect Liens in
favor of the Collateral Agent for the benefit of the Secured
Parties on capital stock of each of the Borrower's
Subsidiaries organized under the laws of Australia), provided
that in any event such Liens shall cover not more than 66% of
the outstanding capital stock of Foreign Subsidiaries directly
owned by such Loan Party and shall not cover any capital stock
of any Foreign Subsidiary directly or indirectly owned by a
Foreign Subsidiary,
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104
(vi) a signed copy of a favorable opinion addressed
to the Collateral Agent and the other Secured Parties, of
counsel for the Loan Parties acceptable to the Collateral
Agent, as to the agreements and instruments of pledge referred
to in clause (v) above being the legal, valid and binding
obligation of the Loan Party thereto, enforceable in
accordance with their terms and as to such other matters as
the Collateral Agent may reasonably request,
(vii) evidence that all other action as the
Collateral Agent may deem necessary or desirable in order to
perfect and protect the first priority liens and security
interests created under the Collateral Documents has been
taken,
(viii) evidence of business interruption insurance
naming the Collateral Agent for the benefit of the Secured
Parties as insured, as is satisfactory to the Collateral
Agent, and
(ix) evidence that the Borrower shall have applied to
Standard & Poor's Ratings Group's CUSIP Service Bureau for the
assignment of private placement numbers to the Notes.
(r) Conditions Subsequent to the Making of the New AXELS
Series B Advances. Deliver to the Collateral Agent, in form and
substance satisfactory to the Collateral Agent and in sufficient copies
for each Lender Party, as soon as possible, and in any event within 60
days after the making of the New AXELs Series B Advances (or such later
date as may be agreed by the Borrower and the Collateral Agent):
(i) evidence that the First Mortgage Amendments have
been duly recorded in all filing and recording offices that
the Collateral Agent may deem necessary or desirable in order
to maintain a valid first and subsisting lien on the property
described therein in favor of the Secured Parties subject only
to Permitted Encumbrances and that all filing and recording
taxes and fees have been paid;
(ii) evidence that either (x) endorsements to the
Mortgage Policies have been provided which update the Mortgage
Policies to the Second Closing Date and which indicate no
additional exceptions to coverage under such Mortgage Policies
from those specified on the First Closing Date, or (y) such
other satisfactory assurances have been given to the
Collateral Agent that the lien priority of the Mortgages will
not be affected by the recording of the First Mortgage
Amendments and that Mortgage Policies continue to insure the
Mortgages as amended by the First Mortgage Amendments; and
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105
(iii) signed copies of favorable opinions of such
local counsel as the Administrative Agent may require, in form
and substance satisfactory to the Arrangers and the Agents.
(s) Conditions Subsequent to the Third Closing Date. Deliver
to the Collateral Agent, in form and substance satisfactory to the
Collateral Agent and in sufficient copies for each Lender Party, as
soon as possible, and in any event within 120 days after the Third
Closing Date (or such later date as may be agreed by the Borrower and
the Collateral Agent), with respect to each jurisdiction in which the
Second Mortgage Amendments were required to be delivered.
(i) evidence that the Second Mortgage Amendments have
been duly recorded in all filing and recording offices that
the Collateral Agent may deem necessary or desirable in order
to maintain a valid first and subsisting lien on the property
described therein in favor of the Secured Parties subject only
to Permitted Encumbrances and that all filing and recording
taxes and fees have been paid; and
(ii) evidence that either (x) endorsements to the
Mortgage Policies have been provided which update the Mortgage
Policies to the Third Closing Date and which indicate no
additional exceptions to coverage under such Mortgage Policies
from those specified on the First Closing Date, or (y) such
other satisfactory assurances have been given to the
Collateral Agent that the lien priority of the Mortgages will
not be affected by the recording of the Second Mortgage
Amendments and that Mortgage Policies continue to insure the
Mortgages as amended by the Second Mortgage Amendments.
(t) Conditions Subsequent to the Fourth Closing Date. Deliver
to the Collateral Agent, in form and substance satisfactory to the
Collateral Agent and in sufficient copies for each Lender Party, as
soon as possible, and in any event within 120 days after the Fourth
Closing Date (or such later date as may be agreed by the Borrower and
the Collateral Agent), with respect to each jurisdiction in which the
Third Mortgage Amendments were required to be delivered.
(i) evidence that the Third Mortgage Amendments have
been duly recorded in all filing and recording offices that
the Collateral Agent may deem necessary or desirable in order
to maintain a valid first and subsisting lien on the property
described therein in favor of the Secured Parties subject only
to Permitted Encumbrances and that all filing and recording
taxes and fees have been paid;
<PAGE> 112
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(ii) evidence that either (x) endorsements to the
Mortgage Policies have been provided which update the Mortgage
Policies to the Fourth Closing Date and which indicate no
additional exceptions to coverage under such Mortgage Policies
from those specified on the First Closing Date, or (y) such
other satisfactory assurances have been given to the
Collateral Agent that the lien priority of the Mortgages will
not be affected by the recording of the Third Mortgage
Amendments and that Mortgage Policies continue to insure the
Mortgages as amended by the Third Mortgage Amendments; and
(iii) revised Schedules 4.01(a), 4.01(b), 4.01(d),
4.01(m), 4.01(v), 4.01(w), 4.01(x), 4.01(bb), 4.01(ff),
4.01(ii), 4.01(kk), 4.01(ll) and 4.01(nn) supplementing such
Schedules delivered on the First Closing Date in order to
properly reflect the information contained in such Schedules
as of the Fourth Closing Date.
(u) Further Assurances. (i) Promptly upon request by the
Administrative Agent, or any Lender Party through the Administrative
Agent, correct, and cause each of its Subsidiaries promptly to correct,
any material defect or error that may be discovered in any Loan
Document or in the execution, acknowledgment, filing or recordation
thereof, and
(ii) Promptly upon request by the Collateral Agent, or any
Lender Party through the Collateral Agent, do, execute, acknowledge,
deliver, record, re-record, file, re-file, register and re-register,
and cause each of its Subsidiaries promptly to do, execute,
acknowledge, deliver, record, re-record, file, re-file, register and
re-register, any and all such further acts, deeds, conveyances, pledge
agreements, mortgages, deeds of trust, trust deeds, assignments,
financing statements and continuations thereof, termination statements,
notices of assignment, transfers, certificates, assurances and other
instruments as the Collateral Agent, or any Lender Party through the
Collateral Agent, may reasonably require from time to time in order to
(A) carry out more effectively the purposes of this Agreement, the
Notes or any other Loan Document, (B) to the fullest extent permitted
by applicable law, subject any of the Borrower's or any of its
Subsidiaries' properties, assets, rights or interests to the Liens now
or hereafter intended to be covered by any of the Collateral Documents,
(C) perfect and maintain the validity, effectiveness and priority of
any of the Collateral Documents and any of the Liens intended to be
created thereunder and (D) assure, convey, grant, assign, transfer,
preserve, protect and confirm more effectively unto the Agents and the
Lender Parties the rights granted or now or hereafter intended to be
granted to the Agents and the Lender Parties under any Loan Document or
under any other instrument executed in connection with any Loan
Document to which any Loan Party or any of its Subsidiaries is or is to
be a party; provided, however, that in any event this Section 5.01(u)
shall not require Liens on,
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and the execution and delivery of Collateral Documents covering, any
property to the extent not otherwise required by the terms of the Loan
Documents.
SECTION 5.02. Negative Covenants. So long as any Advance shall
remain unpaid, any Letter of Credit shall be outstanding or any Lender Party
shall have any Commitment hereunder, the Borrower will not, at any time:
(a) Liens, Etc. Create, incur, assume or suffer to exist, or
permit any of its Subsidiaries to create, incur, assume or suffer to
exist, any Lien on or with respect to any of its properties of any
character (including, without limitation, accounts) whether now owned
or hereafter acquired, or sign or file or suffer to exist, or permit
any of its Subsidiaries to sign or file or suffer to exist, under the
Uniform Commercial Code of any jurisdiction, a financing statement that
names the Borrower or any of its Subsidiaries as debtor, or sign or
suffer to exist, or permit any of its Subsidiaries to sign or suffer to
exist, any security agreement authorizing any secured party thereunder
to file such financing statement, or assign, or permit any of its
Subsidiaries to assign, any accounts or other right to receive income,
excluding, however, from the operation of the foregoing restrictions
the following:
(i) Liens created under the Loan Documents;
(ii) Permitted Liens;
(iii) Liens existing on the First Closing Date and
described on Schedule 5.02(a) hereto;
(iv) purchase money Liens upon or in real property or
equipment acquired or held by the Borrower or any of its
Subsidiaries in the ordinary course of business to secure the
purchase price of such property or equipment or to secure Debt
incurred solely for the purpose of financing the acquisition,
construction or improvement of any such property or equipment
to be subject to such Liens, or Liens existing on any such
property or equipment at the time of acquisition (other than
any such Liens created in contemplation of such acquisition
that do not secure the purchase price), or extensions,
renewals or replacements of any of the foregoing for the same
or a lesser amount; provided, however, that no such Lien shall
extend to or cover any property other than the property or
equipment being acquired, constructed or improved, and no such
extension, renewal or replacement shall extend to or cover any
property not theretofore subject to the Lien being extended,
renewed or replaced; and provided further that the aggregate
principal amount of the Debt secured by Liens permitted by
this clause (iv) shall not exceed the amount permitted under
Section 5.02(b)(iii)(B) at any time outstanding and that any
<PAGE> 114
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such Debt shall not otherwise be prohibited by the terms of
the Loan Documents;
(v) Liens arising in connection with Capitalized
Leases permitted under Section 5.02(b)(iii)(C); provided that
no such Lien shall extend to or cover any Collateral or assets
other than the assets subject to such Capitalized Leases;
(vi) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the
Borrower or any Subsidiary of the Borrower or becomes a
Subsidiary of the Borrower; provided that such Liens were not
created in contemplation of such merger, consolidation or
investment and do not extend to any assets other than those of
the Person merged into or consolidated with the Borrower or
such Subsidiary or acquired by the Borrower or such
Subsidiary;
(vii) Liens securing Obligations of the Borrower or
any of its Subsidiaries in an aggregate amount not to exceed
$5,000,000 at any time outstanding;
(viii) Liens arising in connection with any lease
permitted under Section 5.02(c), provided that no such Lien
shall extend to or cover any assets other than the assets
subject to such lease;
(ix) Liens on the capital stock of the Play Center
Joint Venture securing Obligations of the Play Center Joint
Venture; and
(x) the replacement, extension or renewal of any Lien
permitted by clauses (iii) and (vi) above upon or in the same
property theretofore subject thereto or the replacement,
extension or renewal (without increase in the amount or change
in any direct or contingent obligor) of the Debt secured
thereby.
(b) Debt. Create, incur, assume or suffer to exist, or permit
any of its Subsidiaries to create, incur, assume or suffer to exist,
any Debt other than:
(i) in the case of the Borrower,
(A) Debt owed to its Subsidiaries; so long
as at the time of incurrence of such Debt,
foreclosure proceedings shall not have been commenced
with respect to any stock or assets of such
Subsidiaries,
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(B) Debt in respect of Hedge Agreements not
entered into for speculative purposes and designed to
hedge against fluctuations in interest rates or
foreign exchange rates incurred in the ordinary
course of business and consistent with prudent
business practice, and
(C) Debt in respect of guarantees by the
Borrower of the Obligations of Foreign Subsidiaries
under bank overdraft facilities permitted under
Section 5.02(b)(iii)(I),
(ii) in the case of any of its Subsidiaries, Debt
owed to the Borrower or to a wholly owned Subsidiary of the
Borrower to the extent permitted under Section 5.02(f); and
(iii) in the case of the Borrower and any of its
Subsidiaries,
(A) Debt under the Loan Documents,
(B) Debt secured by Liens permitted by
Section 5.02(a)(iv) not to exceed in the aggregate
$10,000,000 at any time outstanding,
(C) Capitalized Leases in an aggregate
amount, calculated in accordance with GAAP, not to
exceed in the aggregate $10,000,000 at any time
outstanding,
(D) the Surviving Debt, and any Debt
extending the maturity of, or refunding or
refinancing, in whole or in part, any Surviving Debt,
provided that the terms of any such extending,
refunding or refinancing Debt, and of any agreement
entered into and of any instrument issued in
connection therewith, are otherwise permitted by the
Loan Documents and provided further that the
principal amount of such Surviving Debt shall not be
increased above the principal amount thereof
outstanding immediately prior to such extension,
refunding or refinancing, and the direct and
contingent obligors therefor shall not be changed, as
a result of or in connection with such extension,
refunding or refinancing,
(E) Subordinated Debt under the Subordinated
Notes Indentures,
(F) Debt of any Person that becomes a
Subsidiary of the Borrower after the First Closing
Date in accordance with the terms of
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Section 5.02(f) that is existing at the time such Person
becomes a Subsidiary of the Borrower,
(G) Debt in an aggregate principal amount
not to exceed $5,000,000 outstanding at any time and
consisting of letters of credit (other than Letters
of Credit issued hereunder) and reimbursement
obligations in respect thereof,
(H) other Debt in an aggregate amount not to
exceed $5,000,000 at any time outstanding,
(I) in the case of Foreign Subsidiaries,
Debt under bank overdraft facilities in an aggregate
amount not to exceed $10,000,000 at any time
outstanding,
(J) indorsement of negotiable instruments
for deposit or collection or similar transactions in
the ordinary course of business, and
(K) Debt consisting of repurchase
arrangements in connection with the financing of
bowling equipment sales by the Borrower and its
Subsidiaries.
(c) Lease Obligations. Create, incur, assume or suffer to
exist, or permit any of its Subsidiaries to create, incur, assume or
suffer to exist, any obligations as lessee for the rental or hire of
real or personal property of any kind under leases or agreements to
lease (including Capitalized Leases) having an original term of one
year or more that would cause the direct and contingent liabilities of
the Borrower and its Subsidiaries, on a Consolidated basis, in respect
of all such obligations to exceed an amount payable in any period of 12
consecutive months equal to the sum of (i) $25,000,000, (ii) an amount
equal to the product of (x) $200,000 and (y) the number of leased
bowling centers acquired by the Borrower or any of its Subsidiaries
after the First Closing Date and (iii) in each calendar year occurring
after 1996, an amount equal to 4% of the amount permitted under this
Section 5.02(c) in the immediately preceding calendar year, calculated
as at the end of such preceding calendar year.
(d) Mergers, Etc. Merge into or consolidate with any Person or
permit any Person to merge into it, or permit any of its Subsidiaries
to do so, except that (i) any Subsidiary of the Borrower may merge into
or consolidate with the
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Borrower (in the case of any merger or consolidation to which the
Borrower is a party), or any other Subsidiary of the Borrower; provided
that, in the case of any such merger or consolidation, the Person
surviving such merger or consolidation shall be the Borrower (in the
case of any merger or consolidation to which the Borrower is a party),
or a wholly owned Subsidiary of the Borrower, (ii) in connection with
any acquisition permitted under Section 5.02(f), any Subsidiary of the
Borrower may merge into or consolidate with any other Person or permit
any other Person to merge into or consolidate with it; provided that
the Person surviving such merger shall be a wholly owned Subsidiary of
the Borrower and (iii) in connection with any sale or other disposition
permitted under Section 5.02(e) (other than clause (ii) thereof), any
Subsidiary of the Borrower may merge into or consolidate with any other
Person or permit any other Person to merge into or consolidate with it;
provided, however, that in each case, immediately after giving effect
thereto, no event shall occur and be continuing that constitutes a
Default.
(e) Sales, Etc. of Assets. Sell, lease, transfer or otherwise
dispose of, or permit any of its Subsidiaries to sell, lease, transfer
or otherwise dispose of, any assets, or grant any option or other right
to purchase, lease or otherwise acquire any assets other than inventory
to be sold in the ordinary course of its business, except:
(i) sales of Inventory in the ordinary course of its
business,
(ii) in a transaction authorized by subsection (d)(i)
or (ii) of this Section 5.02,
(iii) the sale or other disposition of damaged, worn
out or obsolete property that is no longer necessary for the
proper conduct of the business of the Borrower and its
Subsidiaries in the ordinary course of business, provided that
the fair value of the assets so sold or otherwise disposed of
shall not exceed $1,000,000 in the aggregate in any Fiscal
Year,
(iv) the sale or other disposition of assets by any
Loan Party to any other Loan Party,
(v) the sale of assets or properties for fair value
in an aggregate amount for any one such transaction or series
of related transactions not to exceed $10,000,
(vi) sales or exchanges of assets by the Borrower or
any of its Subsidiaries for fair value and for cash or senior
promissory notes or equity of the seller thereof or like-kind
assets (including, without limitation, the stock of the Person
owning such assets) to be used in the business of the Borrower
and its Subsidiaries or any other assets, provided that the
fair value of the assets so sold or exchanged shall not exceed
$25,000,000 in the aggregate in any Fiscal Year, provided
further that any notes or equity or other non-cash assets
<PAGE> 118
112
received in connection with any sale or exchange of assets
pursuant to this clause (vi) shall be pledged as Collateral
securing the Obligations of the Borrower or such Subsidiary,
as the case may be, under the Loan Documents and the Secured
Parties' lien and security interest therein shall be perfected
(and the Borrower shall, and shall cause any such Subsidiary
to, take such action as the Collateral Agent may deem
necessary or desirable to effect such perfection) in
accordance with the terms of the Loan Documents,
(vii) sale of the Borrower's billiards equipment
manufacturing business for fair value, and
(viii) the lease by the Borrower and its
Subsidiaries, as lessors, in the ordinary course of their
respective business and on an arm's-length basis, of real
property consisting of space located in their respective
bowling centers, and other leasing arrangements entered into
by the Borrower and its Subsidiaries in the ordinary course of
business and without significant economic cost to the Borrower
and its Subsidiaries in order to permit the service of
alcoholic beverages and gaming operations pursuant to
applicable law,
provided that in the case of sales or exchanges of assets pursuant to
clauses (vi) and (vii) above, the Borrower shall, on the date of
receipt by any Loan Party or any of its Subsidiaries of any Net Cash
Proceeds from such sale, prepay the Advances pursuant to, and in the
amount and order of priority set forth in, Section 2.06(b)(ii), as
specified therein.
(f) Investments in Other Persons. Make or hold, or permit any
of its Subsidiaries to make or hold, any Investment in any Person other
than:
(i) (A) Investments by the Borrower and its
Subsidiaries in their Subsidiaries outstanding on the First
Closing Date, (B) additional Investments in their wholly owned
Subsidiaries that are Loan Parties and (C) additional
Investments in their wholly owned Subsidiaries that are not
Loan Parties and the China Joint Venture, in the case of this
clause (C), in an aggregate amount invested not to exceed an
amount in any Fiscal Year equal to the sum of (x) $10,000,000,
(y) the aggregate amount of capital contributions made after
the Fourth Closing Date by the Equity Investors and new third
party equity investors in Parent in any Fiscal Year to the
extent such amount was contributed to such Subsidiary as a
capital contribution in such Fiscal Year (without duplication
of amounts contributed pursuant to clause (ii) below) and (z)
any amount available for Investments pursuant to Section
5.02(f)(ii)(x) but not so invested, provided that, to the
extent that any amount permitted to be
<PAGE> 119
113
invested in any Fiscal Year pursuant to this clause (C) shall
not have been so invested, such amount may be invested
pursuant to this subsection (i) in the next succeeding Fiscal
Year and any amounts invested in the next succeeding Fiscal
Year shall be deemed to be applied first against the amount so
carried over from the preceding Fiscal Year;
(ii) Investments by the Borrower and its Subsidiaries
in their non-wholly owned Subsidiaries and in other Persons
that are not their Subsidiaries in an aggregate amount
invested from the Fourth Closing Date not to exceed the sum of
(x) $65,000,000 and (y) the aggregate amount of capital
contributions made after the Fourth Closing Date by the Equity
Investors and new third party equity investors in Parent in
any Fiscal Year to the extent such amount was contributed to
such Subsidiary as a capital contribution in such Fiscal Year
(without duplication of amounts contributed or invested
pursuant to clause (i) above);
(iii) Loans and advances to employees in the ordinary
course of business of the Borrower and its Subsidiaries as
presently conducted in an aggregate principal amount not to
exceed $7,500,000 for the purpose of purchasing common stock
of Parent and an additional $2,000,000 at any time
outstanding;
(iv) Investments by the Borrower and its Subsidiaries
in Cash Equivalents;
(v) Investments by the Borrower in Hedge Agreements
permitted under Section 5.02(b)(i)(B);
(vi) Investments consisting of intercompany Debt
permitted under Section 5.02(b)(i)(A);
(vii) Investments existing on the Fourth Closing Date
and described on Schedule 4.01(mm) hereto;
(viii) Investments consisting of notes and equity
received pursuant to Section 5.02(e)(vi) or (vii); and
(ix) other Investments made in connection with the
acquisition of all or any part of the assets or stock or other
equity interest of any Person or the acquisition or
construction of New Centers; provided that with respect to
Investments made under this clause (ix): (1) any newly
acquired or created Subsidiary of the Borrower or any of its
Subsidiaries shall be a wholly owned
<PAGE> 120
114
Subsidiary thereof and such Subsidiary (unless such Subsidiary
is a Foreign Subsidiary) shall become a Subsidiary Guarantor
and execute and deliver the documents referred to in Section
5.01(n); (2) immediately before and after giving effect
thereto, no Default shall have occurred and be continuing or
would result therefrom; (3) substantially all of any business
acquired or invested in pursuant to this clause (ix) shall be
in the same or a substantially related line of business as the
business of the Borrower or any of its Subsidiaries (after
giving effect to permitted expansion by the Borrower and its
Subsidiaries into golf-related business pursuant to Section
5.02(h)); and (4) immediately after giving effect to the
acquisition of a company or business pursuant to this clause
(ix), the Borrower shall be in pro forma compliance with the
covenants contained in Section 5.04, calculated based on the
relevant Financial Statements, as though such acquisition had
occurred at the beginning of the 12-month period covered
thereby, as evidenced by a certificate of a Designated
Financial Officer furnished to the Lender Parties,
demonstrating such compliance and reflecting the Adjusted
EBITDA of any bowling center so acquired for the immediately
preceding 12-month period.
(g) Dividends, Etc. Declare or pay any dividends, purchase,
redeem, retire, defease or otherwise acquire for value any of its
capital stock or any warrants, rights or options to acquire such
capital stock, now or hereafter outstanding, return any capital to its
stockholders as such, make any distribution of assets, capital stock,
warrants, rights, options, obligations or securities to its
stockholders as such or issue or sell any capital stock or any
warrants, rights or options to acquire such capital stock, or permit
any of its Subsidiaries to do any of the foregoing or permit any of its
Subsidiaries to purchase, redeem, retire, defease or otherwise acquire
for value any capital stock of the Borrower or any warrants, rights or
options to acquire such capital stock or to issue or sell any capital
stock or any warrants, rights or options to acquire such capital stock,
except that:
(i) so long as no Default shall have occurred and be
continuing or would result therefrom, the Borrower may (A)
declare and pay dividends and distributions payable only in
common stock of the Borrower and (B) declare and pay cash
dividends to Holdings solely to the extent necessary to (x)
make payments required under the non-competition agreements
listed on Schedule 5.02(g) hereto and (y) declare and pay cash
dividends to Parent to the extent permitted under, and in
accordance with the terms of, the Holdings Guaranty, and
(ii) so long as foreclosure proceedings shall not
have been commenced with respect to any stock or assets of any
Subsidiary of the Borrower, any such Subsidiary may (A)
declare and pay cash dividends to the
<PAGE> 121
115
Borrower and (B) declare and pay cash dividends to any other
wholly owned Subsidiary of the Borrower of which it is a
Subsidiary.
(h) Change in Nature of Business. Make, or permit any of its
Subsidiaries to make, any material change in the nature of its business
as carried on at the First Closing Date, except that the Borrower and
its Subsidiaries may own and operate golf driving ranges and engage in
other golf-related businesses to the extent that the aggregate amount
invested by the Borrower and its Subsidiaries in golf driving ranges
and other golf-related businesses does not exceed $50,000,000 at any
time outstanding.
(i) Charter Amendments. Amend, or permit any of its
Subsidiaries to amend, its certificate of incorporation or bylaws in
any material respect.
(j) Accounting Changes. Make or permit, or permit any of its
Subsidiaries to make or permit, any change in (i) accounting policies
or reporting practices, except as required by generally accepted
accounting principles or (ii) its Fiscal Year.
(k) Prepayments, Etc. of Debt. (i) Prepay, redeem, purchase,
defease or otherwise satisfy prior to the scheduled maturity thereof in
any manner, or make any payment in violation of any subordination terms
of, any Debt, other than (A) the prepayment of the Advances in
accordance with the terms of this Agreement, (B) regularly scheduled or
required repayments or redemptions of Surviving Debt, (C) in connection
with any acquisition of a company or business pursuant to Section
5.02(f)(ix), the prepayment, redemption, purchase, defeasance or other
satisfaction of existing Debt of such company or business to the extent
required by the terms of such Debt and (D) the prepayment of any
portion of the Subordinated Notes (including, without limitation, any
premium thereon and expenses incurred in connection therewith) with a
portion of the Net Cash Proceeds received by the Borrower from the IPO
to the extent such Net Cash Proceeds are not required to be used to
prepay Working Capital Advances in accordance with Section
2.06(b)(ii)(B) or (ii) amend, modify or change any term or condition of
any Surviving Debt or Subordinated Debt in any manner that would impair
in any material respect the value of the interests or rights of the
Borrower or any of its Subsidiaries thereunder or that would impair in
any material respect the rights or interests of any Agent or any Lender
Party, or permit any of its Subsidiaries to do any of the foregoing
other than to prepay any Debt payable to the Borrower or any other Loan
Party.
(l) Amendment, Etc. of Related Documents. Cancel or terminate
any Related Document or consent to or accept any cancellation or
termination thereof, amend, modify or change in any manner any term or
condition of any Related Document or give any consent, waiver or
approval thereunder, waive any default
<PAGE> 122
116
under or any breach of any term or condition of any Related Document,
agree in any manner to any other amendment, modification or change of
any term or condition of any Related Document or take any other action
in connection with any Related Document, in each case that would impair
in any material respect the value of the interests or rights of the
Borrower thereunder or that would impair in any material respect the
rights or interests of any Agent or any Lender Party, or permit any of
its Subsidiaries to do any of the foregoing.
(m) Ownership Change. Take, or permit any of its Subsidiaries
to take, any action that would result in an "ownership change" (as
defined in Section 382 of the Internal Revenue Code) with respect to
the Borrower or any of its Subsidiaries or the application of the
"separate return limitation year" or "consolidated return change of
ownership" limitations under the Federal income tax consolidated return
regulations with respect to the Borrower or any of its Subsidiaries
(other than as a direct result of the Acquisition and the acquisition
by AMF Bowling Centers of the companies set forth on Schedule 4.01(ff)
hereto) that could be reasonably likely to have a Material Adverse
Effect.
(n) Negative Pledge. Enter into or suffer to exist, or permit
any of its Subsidiaries to enter into or suffer to exist, any agreement
prohibiting or conditioning the creation or assumption of any Lien upon
any of its property or assets other than (i) in favor of the Secured
Parties, (ii) in connection with any Surviving Debt and any Debt
outstanding on the date such Subsidiary first becomes a Subsidiary (so
long as such agreement was not entered into solely in contemplation of
such Subsidiary becoming a Subsidiary) or (iii) in connection with any
lease permitted under Section 5.02(c) solely to the extent that such
lease prohibits a Lien on the lease or the property subject to such
lease.
(o) Partnerships, Etc. Become a general partner in any general
or limited partnership or joint venture, or permit any of its
Subsidiaries to do so, other than any such Subsidiary the sole assets
of which consist of its interest in such partnership or joint venture.
(p) Speculative Transactions. Engage, or permit any of its
Subsidiaries to engage, in any transaction involving commodity options
or futures contracts or any similar speculative transactions except for
Hedge Agreements permitted under Section 5.02(b)(i)(B).
(q) Capital Expenditures. Make, or permit any of its
Subsidiaries to make, any Capital Expenditures that would cause the
aggregate of all such Capital Expenditures made by the Borrower and its
Subsidiaries to exceed $60,000,000 during the Fiscal Year ending
December 31, 1997, $80,000,000 during the Fiscal
<PAGE> 123
117
Year ending December 31, 1998 and $100,000,000 during each Fiscal Year
thereafter, provided, that to the extent that any Capital Expenditures
permitted to be made in any Fiscal Year shall not have been so made,
such Capital Expenditures may be made in the immediately succeeding
Fiscal Year; and provided further, that for purposes of calculating the
aggregate amount of Capital Expenditures permitted in any Fiscal Year,
any amounts so carried over from the immediately preceding Fiscal Year
shall be deemed to be spent after amounts otherwise permitted to be
spent in such Fiscal Year.
(r) Payment Restrictions Affecting Subsidiaries. Directly or
indirectly, create or otherwise cause or suffer to exist or become
effective, or permit any of its Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become
effective, any encumbrance or restriction on the ability of any of its
Subsidiaries to pay dividends or make any other distributions to the
Borrower or any of its Subsidiaries on its capital stock or with
respect to any other interest or participation, or measured by its
profits, or pay any Debt owed to the Borrower or any of its
Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of the Loan Documents, Surviving Debt as in effect
on the First Closing Date and applicable law.
SECTION 5.03. Reporting Requirements. So long as any Advance
shall remain unpaid, any Letter of Credit shall be outstanding or any Lender
Party shall have any Commitment hereunder, the Borrower will furnish to the
Administrative Agent and the Lender Parties:
(a) Default Notice. As soon as possible and in any event
within two days after any officer of the Borrower or Holdings obtains
knowledge of any Default or any event, development or occurrence
reasonably likely to have a Material Adverse Effect continuing on the
date of such statement, a statement of a Designated Financial Officer
setting forth details of such Default, event, development or occurrence
and the action that the Borrower has taken and proposes to take with
respect thereto.
(b) Quarterly Financials. As soon as available and in any
event within 45 days after the end of each of the first three quarters
of each Fiscal Year, Consolidated and consolidating balance sheets of
the Borrower and its Subsidiaries as of the end of such quarter and
Consolidated and consolidating statements of income and a Consolidated
statement of cash flows of the Borrower and its Subsidiaries for the
period commencing at the end of the previous fiscal quarter and ending
with the end of such fiscal quarter and Consolidated and consolidating
statements of income and a Consolidated statement of cash flows of the
Borrower and its Subsidiaries for the period commencing at the end of
the previous Fiscal Year and ending with the end of such quarter,
setting forth in each case in comparative form the corresponding
figures
<PAGE> 124
118
for the corresponding date or period of the preceding Fiscal Year, all
in reasonable detail and duly certified (subject to normal year-end
audit adjustments) by a Designated Financial Officer as having been
prepared in accordance with GAAP, together with (i) a certificate of
said officer (A) stating that no Default has occurred and is continuing
or, if a Default has occurred and is continuing, a statement as to the
nature thereof and the action that the Borrower has taken and proposes
to take with respect thereto and (B) setting forth, for the Rolling
Period ending at the end of such fiscal quarter, the Adjusted EBITDA
(and the calculation thereof) of each New Center constructed within the
preceding 15 months, EBITDA of each bowling center acquired or
constructed by the Borrower or any of its Subsidiaries after the First
Closing Date and acquired or constructed at least 15 months prior to
the end of such Rolling Period and all Other Additions, if any, for
such Rolling Period and (ii) a schedule in form satisfactory to the
Administrative Agent of the computations used by the Borrower in
determining compliance with the covenants contained in Section 5.04,
provided that in the event of any change in GAAP used in the
preparation of such financial statements, the Borrower shall also
provide, if necessary for the determination of compliance with Section
5.04, a statement of reconciliation conforming such financial
statements to GAAP.
(c) Annual Financials. As soon as available and in any event
within 90 days after the end of each Fiscal Year, a copy of the annual
audit report for such year for the Borrower and its Subsidiaries,
including therein Consolidated and consolidating balance sheets of the
Borrower and its Subsidiaries as of the end of such Fiscal Year and
Consolidated and consolidating statements of income and a Consolidated
statement of cash flows of the Borrower and its Subsidiaries for such
Fiscal Year, in each case accompanied by an opinion not qualified as to
scope or going concern of Arthur Andersen, L.L.P. or other independent
public accountants of nationally recognized standing acceptable to the
Administrative Agent, together with (i) a certificate of such
accounting firm to the Lender Parties stating that in the course of the
regular audit of the business of the Borrower and its Subsidiaries,
which audit was conducted by such accounting firm in accordance with
generally accepted auditing standards, such accounting firm has
obtained no knowledge that a Default has occurred and is continuing, or
if, in the opinion of such accounting firm, a Default has occurred and
is continuing, a statement as to the nature thereof, (ii) a schedule in
form satisfactory to the Administrative Agent of the computations used
by such accountants in determining, as of the end of such Fiscal Year,
compliance with the covenants contained in Section 5.04, provided that
in the event of any change in GAAP used in the preparation of such
financial statements, the Borrower shall also provide, if necessary for
the determination of compliance with Section 5.04, a statement of
reconciliation conforming such financial statements to GAAP and (iii) a
certificate of a Designated Financial Officer (A) stating that no
Default has occurred and is continuing or, if a default has occurred
and is continuing, a statement as to the
<PAGE> 125
119
nature thereof and the action that the Borrower has taken and proposes
to take with respect thereto and (B) setting forth, for the Rolling
Period ending at the end of such Fiscal Year, the Adjusted EBITDA (and
the calculation thereof) of each New Center constructed within the
preceding 15 months, EBITDA of each bowling center acquired or
constructed by the Borrower or any of its Subsidiaries after the First
Closing Date and acquired or constructed at least 15 months prior to
the end of such Rolling Period and all Other Additions, if any, for
such Rolling Period.
(d) Annual Forecasts. As soon as available and in any event no
later than 15 days after the end of each Fiscal Year, forecasts
prepared by management of the Borrower, in form satisfactory to the
Administrative Agent, of balance sheets, income statements and cash
flow statements on a monthly basis for the Fiscal Year following such
Fiscal Year and on an annual basis for each Fiscal Year thereafter
until the Termination Date for the AXELs Series B Facility.
(e) ERISA Events and ERISA Reports. (i) Promptly and in any
event within 20 days after any Loan Party or any ERISA Affiliate knows
or has reason to know that any ERISA Event has occurred, a statement of
a Designated Financial Officer describing such ERISA Event and the
action, if any, that such Loan Party or such ERISA Affiliate has taken
and proposes to take with respect thereto and (ii) on the date any
records, documents or other information must be furnished to the PBGC
with respect to any Plan pursuant to Section 4010 of ERISA, a copy of
such records, documents and information.
(f) Plan Terminations. Promptly and in any event within 10
Business Days after receipt thereof by any Loan Party or any ERISA
Affiliate, copies of each notice from the PBGC stating its intention to
terminate any Plan or to have a trustee appointed to administer any
Plan.
(g) Actuarial Reports. Within 20 Business Days after receipt
thereof by any Loan Party or any ERISA Affiliate, a copy of the annual
actuarial valuation report for each Plan the funded current liability
percentage (as defined in Section 302(d)(8) of ERISA) of which is less
than 90% or the unfunded current liability of which exceeds $2,000,000.
(h) Plan Annual Reports. Within 30 days after the filing
thereof with the Internal Revenue Service, copies of each Schedule B
(Actuarial Information) to the annual report (Form 5500 Series) with
respect to each Plan.
(i) Multiemployer Plan Notices. Promptly and in any event
within 10 Business Days after receipt thereof by any Loan Party or any
ERISA Affiliate from the sponsor of a Multiemployer Plan, copies of
each notice concerning (i) the
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120
imposition of Withdrawal Liability by any such Multiemployer Plan, (ii)
the reorganization or termination, within the meaning of Title IV of
ERISA, of any such Multiemployer Plan or (iii) the amount of liability
incurred, or that may be incurred, by such Loan Party or any ERISA
Affiliate in connection with any event described in clause (i) or (ii).
(j) Litigation. Promptly after the commencement thereof,
notice of all actions, suits, investigations, litigation and
proceedings before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign,
affecting any Loan Party or any of its Subsidiaries of the type
required to be disclosed in Section 4.01(j).
(k) Securities Reports. Promptly after the sending or filing
thereof, copies of all proxy statements, financial statements and
reports that Parent or any Loan Party or any of its Subsidiaries sends
to all of its stockholders, and copies of all regular, periodic and
special reports, and all registration statements, that Parent or any
Loan Party or any of its Subsidiaries files with the Securities and
Exchange Commission or any governmental authority that may be
substituted therefor, or with any national securities exchange.
(l) Creditor Reports. Promptly after the furnishing thereof,
copies of any statement or report furnished to any other holder of the
securities of any Loan Party or of any of its Subsidiaries pursuant to
the terms of any indenture, loan or credit or similar agreement and not
otherwise required to be furnished to the Lender Parties pursuant to
any other clause of this Section 5.03.
(m) Agreement Notices. Promptly upon receipt thereof, copies
of all notices of any default or breach and all other material requests
and other documents received by any Loan Party or any of its
Subsidiaries under or pursuant to any Related Document or indenture,
loan or credit or similar agreement and, from time to time upon request
by the Administrative Agent, such information and reports regarding the
Related Documents as the Administrative Agent may reasonably request.
(n) Revenue Agent Reports. Within 10 days after receipt,
copies of all Revenue Agent Reports (Internal Revenue Service Form
886), or other written proposals of the Internal Revenue Service, that
propose, determine or otherwise set forth positive adjustments to the
Federal income tax liability of the affiliated group (within the
meaning of Section 1504(a)(1) of the Internal Revenue Code) of which
the Borrower is a member aggregating $2,000,000 or more.
<PAGE> 127
121
(o) Tax Certificates. Promptly, and in any event within five
Business Days after the due date (with extensions) for filing the final
Federal income tax return in respect of each taxable year, a
certificate (a "Tax Certificate"), signed by the President of the
Borrower or a Designated Financial Officer, stating that the common
parent of the affiliated group (within the meaning of Section
1504(a)(1) of the Internal Revenue Code) of which the Borrower is a
member has paid to the Internal Revenue Service or other taxing
authority, or to the Borrower, the full amount that such affiliated
group is required to pay in respect of Federal income tax for such year
and that the Borrower and its Subsidiaries have received any amounts
payable to them, and have not paid amounts in respect of taxes
(Federal, state, local or foreign) in excess of the amount they are
required to pay, under the Tax Agreements in respect of such taxable
year.
(p) Notification of Tax Adjustments. Promptly, and in any
event within five Business Days after receipt of notice thereof, notice
of any adjustment that has been proposed formally or informally by any
tax authority relating to any tax return (Federal, state, local and
foreign) filed by any Loan Party or any of its Subsidiaries and
Affiliates in excess of $1,000,000.
(q) Environmental Conditions. Notice of any Environmental
Action against, or of any noncompliance with any Environmental Law or
Environmental Permit by, any Loan Party or any of its Subsidiaries that
could (i) reasonably be expected to have a Material Adverse Effect or
(ii) reasonably be expected to cause any property described in the
Mortgages to be subject to any restrictions on ownership, occupancy,
use or transferability under any Environmental Law that could
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect, such notice to be furnished promptly after
such Environmental Action or noncompliance meets the criteria set forth
in either subsection (i) or subsection (ii) of this Section 5.03(q).
(r) Real Property. As soon as available and in any event
within 60 days after the end of each Fiscal Year, a report
supplementing Schedules 4.01(kk) and 4.01(ll) hereto, including an
identification of all real and leased property disposed of by the
Borrower or any of its Subsidiaries during such Fiscal Year, a list and
description (including the street address, county or other relevant
jurisdiction, state, record owner, book value thereof, and in the case
of leases of property, lessor, lessee, expiration date and annual
rental cost thereof) of all real property acquired or leased during
such Fiscal Year and a description of such other changes in the
information included in such Schedules as may be necessary for such
Schedules to be accurate and complete, provided that so long as no
Default shall have occurred and be continuing, updated asset appraisals
shall not be required pursuant to this subsection (r).
<PAGE> 128
122
(s) Insurance. As soon as available and in any event within 60
days after the end of each Fiscal Year, a report summarizing the
insurance coverage (specifying type, amount and carrier) in effect for
each Loan Party and its Subsidiaries and containing such additional
information as any Lender Party (through the Administrative Agent) may
reasonably specify.
(t) Guarantees of Overdraft Facilities of Foreign
Subsidiaries. On the first Business Day of each week, during such times
as the aggregate Unused Working Capital Commitments shall be less than
$15,000,000, a report specifying the amount of Debt of the Borrower
outstanding under Section 5.02(b)(i)(C) as of the last Business Day of
the prior week.
(u) Other Information. Such other information respecting the
business, condition (financial or otherwise), operations, performance,
properties or prospects of any Loan Party or any of its Subsidiaries as
any Lender Party (through the Administrative Agent) may from time to
time reasonably request.
SECTION 5.04. Financial Covenants. So long as any Advance
shall remain unpaid, any Letter of Credit shall be outstanding or any Lender
Party shall have any Commitment hereunder, the Borrower will:
(a) Minimum EBITDA. Maintain at all times (calculated at the
end of each fiscal quarter of the Borrower) Modified Consolidated
EBITDA of not less than the sum of (i) the amount set forth below for
each Rolling Period set forth below and (ii) the EBITDA Adjustment
Amount for such Rolling Period:
<TABLE>
<CAPTION>
ROLLING PERIOD ENDING AMOUNT
- --------------------- ------
<S> <C>
September 30, 1996 $140,000,000
December 31, 1996 $145,000,000
March 31, 1997 $150,000,000
June 30, 1997 $150,000,000
September 30, 1997 $150,000,000
December 31, 1997 $150,000,000
March 31, 1998 $150,000,000
June 30, 1998 $150,000,000
September 30, 1998 $155,000,000
December 31, 1998 $155,000,000
March 31, 1999 $155,000,000
June 30, 1999 $155,000,000
September 30, 1999 $165,000,000
</TABLE>
<PAGE> 129
123
<TABLE>
<CAPTION>
ROLLING PERIOD ENDING AMOUNT
- --------------------- ------
<S> <C>
December 31, 1999 $165,000,000
March 31, 2000 $165,000,000
June 30, 2000 $165,000,000
September 30, 2000 $175,000,000
December 31, 2000 $175,000,000
March 31, 2001 $175,000,000
June 30, 2001 $175,000,000
September 30, 2001 $185,000,000
December 31, 2001 $185,000,000
March 31, 2002 $185,000,000
June 30, 2002 $185,000,000
September 30, 2002 $195,000,000
December 31, 2002 $195,000,000
March 31, 2003 $195,000,000
June 30, 2003 $195,000,000
September 30, 2003 and thereafter $200,000,000
</TABLE>
(b) Cash Interest Coverage Ratio. Maintain at all times
(calculated at the end of each fiscal quarter of the Borrower) a ratio
of Modified Consolidated EBITDA to cash interest payable on all Debt of
the Borrower and its Subsidiaries on a Consolidated basis, in each case
for such Rolling Period of not less than the amount set forth below for
each Rolling Period set forth below:
<TABLE>
<CAPTION>
ROLLING PERIOD ENDING RATIO
- --------------------- -----
<S> <C>
September 30, 1996 2.00:1
December 31, 1996 2.00:1
March 31, 1997 2.00:1
June 30, 1997 2.00:1
September 30, 1997 2.25:1
December 31, 1997 2.25:1
March 31, 1998 2.25:1
June 30, 1998 2.25:1
September 30, 1998 2.25:1
December 31, 1998 2.25:1
March 31, 1999 2.35:1
June 30, 1999 2.35:1
September 30, 1999 2.35:1
</TABLE>
<PAGE> 130
124
<TABLE>
<CAPTION>
ROLLING PERIOD ENDING RATIO
- --------------------- -----
<S> <C>
December 31, 1999 2.35:1
March 31, 2000 2.75:1
June 30, 2000 2.75:1
September 30, 2000 2.75:1
December 31, 2000 2.75:1
March 31, 2001 2.75:1
June 30, 2001 2.75:1
September 30, 2001 2.50:1
December 31, 2001 2.50:1
March 31, 2002 2.50:1
June 30, 2002 2.50:1
September 30, 2002 and thereafter 2.75:1
</TABLE>
(c) Fixed Charge Coverage Ratio. Maintain at all times
(calculated at the end of each fiscal quarter of the Borrower) a ratio
of (A) Modified Consolidated EBITDA during such Rolling Period less the
sum of (I) cash taxes paid plus (II) Capital Expenditures made, in each
case, by the Borrower and its Subsidiaries during such Rolling Period
to (B) the sum of (i) cash interest payable on all Debt plus (ii)
principal amounts of all Debt under the Term Facilities payable by the
Borrower during such Rolling Period of not less than the amount set
forth below for each Rolling Period set forth below:
<TABLE>
<CAPTION>
ROLLING PERIOD ENDING RATIO
- --------------------- -----
<S> <C>
September 30, 1996 1.05:1
December 31, 1996 1.05:1
March 31, 1997 1.05:1
June 30, 1997 1.05:1
September 30, 1997 1.10:1
December 31, 1997 1.10:1
March 31, 1998 1.10:1
June 30, 1998 1.10:1
September 30, 1998 1.10:1
December 31, 1998 1.10:1
March 31, 1999 1.15:1
June 30, 1999 1.15:1
September 30, 1999 1.15:1
December 31, 1999 1.15:1
</TABLE>
<PAGE> 131
125
<TABLE>
<CAPTION>
ROLLING PERIOD ENDING RATIO
- --------------------- -----
<S> <C>
March 31, 2000 1.20:1
June 30, 2000 1.20:1
September 30, 2000 1.20:1
December 31, 2000 1.20:1
March 31, 2001 1.20:1
June 30, 2001 1.20:1
September 30, 2001 1.10:1
December 31, 2001 1.10:1
March 31, 2002 and thereafter 1.00:1
</TABLE>
(d) Senior Debt to EBITDA Ratio. Maintain at all times
(calculated at the end of each fiscal quarter of the Borrower) a ratio
of Consolidated Debt (other than Subordinated Debt and Hedge
Agreements) of the Borrower and its Subsidiaries to Modified
Consolidated EBITDA of not more than the amount set forth below for
each Rolling Period set forth below:
<TABLE>
<CAPTION>
ROLLING PERIOD ENDING RATIO
- --------------------- -----
<S> <C>
September 30, 1996 3.50:1
December 31, 1996 3.50:1
March 31, 1997 3.50:1
June 30, 1997 3.75:1
September 30, 1997 3.75:1
December 31, 1997 3.60:1
March 31, 1998 3.60:1
June 30, 1998 3.60:1
September 30, 1998 3.60:1
December 31, 1998 3.60:1
March 31, 1999 3.60:1
June 30, 1999 3.60:1
September 30, 1999 3.60:1
December 31, 1999 3.60:1
March 31, 2000 3.25:1
June 30, 2000 3.25:1
September 30, 2000 3.25:1
December 31, 2000 3.25:1
March 31, 2001 3.00:1
June 30, 2001 3.00:1
</TABLE>
<PAGE> 132
126
<TABLE>
<CAPTION>
ROLLING PERIOD ENDING RATIO
- --------------------- -----
<S> <C>
September 30, 2001 3.00:1
December 31, 2001 3.00:1
March 31, 2002 and thereafter 2.50:1
</TABLE>
(e) Total Debt/EBITDA Ratio. Maintain at all times (calculated
at the end of each fiscal quarter of the Borrower) a ratio of
Consolidated total Debt (other than Hedge Agreements) of the Borrower
and its Subsidiaries to Modified Consolidated EBITDA of not more than
the amount set forth below for each Rolling Period set forth below:
<TABLE>
<CAPTION>
ROLLING PERIOD ENDING RATIO
- --------------------- -----
<S> <C>
September 30, 1996 6.95:1
December 31, 1996 6.95:1
March 31, 1997 6.75:1
June 30, 1997 6.50:1
September 30, 1997 6.50:1
December 31, 1997 6.00:1
March 31, 1998 6.00:1
June 30, 1998 6.00:1
September 30, 1998 6.00:1
December 31, 1998 6.00:1
March 31, 1999 6.00:1
June 30, 1999 6.00:1
September 30, 1999 6.00:1
December 31, 1999 6.00:1
March 31, 2000 5.50:1
June 30, 2000 5.50:1
September 30, 2000 5.50:1
December 31, 2000 5.50:1
March 31, 2001 5.00:1
June 30, 2001 5.00:1
September 30, 2001 5.00:1
December 31, 2001 5.00:1
March 31, 2002 and thereafter 4.50:1
</TABLE>
<PAGE> 133
127
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following
events ("Events of Default") shall occur and be continuing:
(a) (i) the Borrower shall fail to pay any principal of any
Advance when the same shall become due and payable or (ii) the Borrower
shall fail to pay any interest on any Advance, or any Loan Party shall
fail to make any other payment under any Loan Document, in each case
under this clause (ii) within three days after the same becomes due and
payable; or
(b) any representation or warranty made by any Loan Party (or
any of its officers) under or in connection with any Loan Document
shall prove to have been incorrect in any material respect when made;
or
(c) the Borrower shall fail to perform or observe any term,
covenant or agreement contained in Section 2.14, 5.01(e), (f), (m),
(n)(i) or (n)(ii), (p), (q), (r), (s) (t) or (u), 5.02, 5.03(a) or
5.04; or
(d) any Loan Party shall fail to perform any other term,
covenant or agreement contained in any Loan Document on its part to be
performed or observed if such failure shall remain unremedied for 15
days after the earlier of the date on which (A) a Responsible Officer
becomes aware of such failure or (B) written notice thereof shall have
been given to the Borrower by the Administrative Agent or any Lender
Party; or
(e) any Loan Party or any of its Material Subsidiaries shall
fail to pay any principal of, premium or interest on or any other
amount payable in respect of any Debt that is outstanding in a
principal amount of at least $25,000,000 either individually or in the
aggregate (but excluding Debt outstanding hereunder) of such Loan Party
or such Material Subsidiary (as the case may be), when the same becomes
due and payable (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise), and such failure shall continue
after the applicable grace period, if any, specified in the agreement
or instrument relating to such Debt; or any other event shall occur or
condition shall exist under any agreement or instrument relating to any
such Debt and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such event
or condition is to accelerate, or to permit the acceleration of, the
maturity of such Debt or otherwise to cause, or to permit the holder
thereof to cause, such Debt to mature; or any such Debt shall be
declared to be due and payable or required to be prepaid or redeemed
<PAGE> 134
128
(other than by a regularly scheduled required prepayment or
redemption), purchased or defeased, or an offer to prepay, redeem,
purchase or defease such Debt shall be required to be made, in each
case prior to the stated maturity thereof; or
(f) any Loan Party or any of its Material Subsidiaries shall
generally not pay its debts as such debts become due, or shall admit in
writing its inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors; or any proceeding
shall be instituted by or against any Loan Party or any of its Material
Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its debts under
any law relating to bankruptcy, insolvency or reorganization or relief
of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, or other similar official for it or
for any substantial part of its property and, in the case of any such
proceeding instituted against it (but not instituted by it) that is
being diligently contested by it in good faith, either such proceeding
shall remain undismissed or unstayed for a period of 30 days or any of
the actions sought in such proceeding (including, without limitation,
the entry of an order for relief against, or the appointment of a
receiver, trustee, custodian or other similar official for, it or any
substantial part of its property) shall occur; or any Loan Party or any
of its Material Subsidiaries shall take any corporate action to
authorize any of the actions set forth above in this subsection (f); or
(g) any judgment or order for the payment of money in excess
of $25,000,000 shall be rendered against any Loan Party or any of its
Material Subsidiaries and either (i) enforcement proceedings shall have
been commenced by any creditor upon such judgment or order or (ii)
there shall be any period of 15 consecutive 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; provided, however, that any such
judgment or order shall not be an Event of Default under this Section
6.01(g) if and to the extent that the amount of such judgment or order
is covered by a valid and binding policy of insurance between the
defendant and the insurer covering payment thereof so long as such
insurer, which shall be rated at least "A" by A.M. Best Company, has
been notified of, and has not disputed the claim made for payment of,
the amount of such judgment or order; or
(h) any non-monetary judgment or order shall be rendered
against any Loan Party or any of its Material Subsidiaries that could
be reasonably likely to have a Material Adverse Effect, and there shall
be any period of 15 consecutive 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
<PAGE> 135
129
(i) any provision of any Loan Document after delivery thereof
pursuant to Section 3.01, 3.04, 3.05 or 5.01(n) shall for any reason
cease to be valid and binding on or enforceable against any Loan Party
party to it, or any such Loan Party shall so state in writing; or
(j) any provision relating to the subordination of any
Subordinated Debt to the Obligations of the Loan Parties under the Loan
Documents contained in any Subordinated Debt Document shall for any
reason cease to be valid and binding on or enforceable against any Loan
Party party to it or any holder of Subordinated Debt issued pursuant to
such Subordinated Debt Document, or any such Loan Party or holder shall
so state in writing; or
(k) any Collateral Document (excluding Mortgages covering
Collateral which, in the aggregate, is immaterial) after delivery
thereof pursuant to Section 3.01, 3.04, 3.05 or 5.01(n) shall for any
reason (other than pursuant to the terms thereof or as a result of
action taken or failure to take action by any Agent or Lender Party)
cease to create a valid and perfected first priority lien on and
security interest in the Collateral purported to be covered thereby; or
(l) Parent ceases to own and control legally and beneficially
all of the outstanding shares of the capital stock of Holdings; or
(m) Holdings ceases to own and control legally and
beneficially all of the outstanding shares of the capital stock of the
Borrower; or
(n) a Change of Control shall occur; or
(o) any ERISA Event shall have occurred with respect to a Plan
and the sum (determined as of the date of occurrence of such ERISA
Event) of the Insufficiency of such Plan and the Insufficiency of any
and all other Plans with respect to which an ERISA Event shall have
occurred and then exist (or the liability of the Loan Parties and the
ERISA Affiliates related to such ERISA Event) exceeds $25,000,000; or
(p) any Loan Party or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that it has incurred
Withdrawal Liability to such Multiemployer Plan in an amount that, when
aggregated with all other amounts required to be paid to Multiemployer
Plans by the Loan Parties and the ERISA Affiliates as Withdrawal
Liability (determined as of the date of such notification), exceeds
$25,000,000 or requires payments exceeding $7,500,000 per annum; or
<PAGE> 136
130
(q) any Loan Party or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that such Multiemployer
Plan is in reorganization or is being terminated, within the meaning of
Title IV of ERISA, and as a result of such reorganization or
termination the aggregate annual contributions of the Loan Parties and
the ERISA Affiliates to all Multiemployer Plans that are then in
reorganization or being terminated have been or will be increased over
the amounts contributed to such Multiemployer Plans for the plan years
of such Multiemployer Plans immediately preceding the plan year in
which such reorganization or termination occurs by an amount exceeding
$7,500,000;
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Required Lenders, by notice to the Borrower,
declare the Commitments of the Lender Parties and the obligation of each
Appropriate Lender to make Advances (other than Letter of Credit Advances by an
Issuing Bank or a Working Capital Lender pursuant to Section 2.03(c)) and of
each Issuing Bank to issue Letters of Credit to be terminated, whereupon the
same shall forthwith terminate, and (ii) shall at the request, or may with the
consent, of the Required Lenders, by notice to the Borrower, declare the Notes,
all interest thereon and all other amounts payable under this Agreement and the
other Loan Documents to be forthwith due and payable, whereupon the Notes, all
such interest and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Borrower; provided, however, that in
the event of an actual or deemed entry of an order for relief with respect to
any Loan Party or any of its Subsidiaries under the Federal Bankruptcy Code, (x)
the obligation of each Lender to make Advances (other than Letter of Credit
Advances by an Issuing Bank or a Working Capital Lender pursuant to Section
2.03(c)) and of each Issuing Bank to issue Letters of Credit shall automatically
be terminated and (y) the Notes, all such interest and all such amounts shall
automatically become and be due and payable, without presentment, demand,
protest or any notice of any kind, all of which are hereby expressly waived by
the Borrower.
SECTION 6.02. Actions in Respect of the Letters of Credit upon
Default. If any Event of Default shall have occurred and be continuing, the
Administrative Agent may, or shall at the request of the Required Lenders,
irrespective of whether it is taking any of the actions described in Section
6.01 or otherwise, make demand upon the Borrower to, and forthwith upon such
demand the Borrower will, pay to the Administrative Agent on behalf of the
Lender Parties in same day funds at the Administrative Agent's office designated
in such demand, for deposit in the L/C Cash Collateral Account, an amount equal
to the aggregate Available Amount of all Letters of Credit then outstanding. If
at any time the Administrative Agent determines that any funds held in the L/C
Cash Collateral Account are subject to any right or claim of any Person other
than the Administrative Agent and the Lender Parties or that the total amount of
such funds is less than the aggregate Available Amount of all Letters of Credit,
the Borrower will, forthwith upon demand by the Administrative Agent, pay to the
<PAGE> 137
131
Administrative Agent, as additional funds to be deposited and held in the L/C
Cash Collateral Account, an amount equal to the excess of (a) such aggregate
Available Amount over (b) the total amount of funds, if any, then held in the
L/C Cash Collateral Account that the Administrative Agent determines to be free
and clear of any such right and claim.
ARTICLE VII
THE AGENTS
SECTION 7.01. Authorization and Action. Each Lender Party (in
its capacities as a Lender, an Issuing Bank (if applicable) and a potential
Hedge Bank) hereby appoints and authorizes each Agent to take such action as
agent on its behalf and to exercise such powers and discretion under this
Agreement and the other Loan Documents as are delegated to such Agent by the
terms hereof and thereof, together with such powers and discretion as are
reasonably incidental thereto. As to any matters expressly provided for in the
Loan Documents as being subject to the discretion of any Agent, such matters
shall be subject to the sole discretion of such Agent, its directors, officers,
agents and employees. As to any matters not expressly provided for by the Loan
Documents (including, without limitation, enforcement or collection of the
Notes), no Agent shall be required to exercise any discretion or take any
action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Required Lenders, and such instructions shall be binding upon all Lender
Parties and all holders of Notes; provided, however, that no Agent shall be
required to take any action that exposes such Agent to personal liability or
that is contrary to this Agreement or applicable law. Each Agent agrees to give
to each Lender Party and each other Agent prompt notice of each notice given to
it by the Borrower pursuant to the terms of this Agreement.
SECTION 7.02. Agents' Reliance, Etc. Neither the Agents nor
any of their respective directors, officers, agents or employees shall be liable
for any action taken or omitted to be taken by it or them under or in connection
with the Loan Documents, except for its or their own gross negligence or willful
misconduct. Without limitation of the generality of the foregoing, each Agent:
(a) may treat the payee of any Note as the holder thereof until, in the case of
the Administrative Agent, the Administrative Agent receives and accepts an
Assignment and Acceptance entered into by the Lender that is the payee of such
Note, as assignor, and an Eligible Assignee, as assignee, or, in the case of any
other Agent, such Agent has received notice from the Administrative Agent that
it has received and accepted such Assignment and Acceptance, in each case as
provided in Section 8.07; (b) may consult with legal counsel (including counsel
for any Loan Party), independent public accountants and other experts selected
by it and shall not be liable for any action taken or omitted to be taken in
good faith by it in accordance with the advice of such counsel, accountants or
experts; (c) makes no warranty or representation to any Lender Party and
<PAGE> 138
132
shall not be responsible to any Lender Party for any statements, warranties or
representations (whether written or oral) made in or in connection with the Loan
Documents; (d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of any
Loan Document on the part of any Loan Party or to inspect the property
(including the books and records) of any Loan Party; (e) shall not be
responsible to any Lender Party for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of, or the perfection or
priority of any lien or security interest created or purported to be created
under or in connection with, any Loan Document or any other instrument or
document furnished pursuant thereto; and (f) shall incur no liability under or
in respect of any Loan Document by acting upon any notice, consent, certificate
or other instrument or writing (which may be by telegram, telecopy or telex)
believed by it to be genuine and signed or sent by the proper party or parties.
SECTION 7.03. Citibank, Citicorp, Goldman and Affiliates. With
respect to its Commitments, the Advances made by it and the Notes issued to it,
each of Citibank, Citicorp and Goldman shall have the same rights and powers
under the Loan Documents as any other Lender Party and may exercise the same as
though it were not an Agent; and the term "Lender Party" or "Lender Parties"
shall, unless otherwise expressly indicated, include each of Citibank, Citicorp
and Goldman in its individual capacity. Each of Citibank, Citicorp and Goldman
and its affiliates may accept deposits from, lend money to, act as trustee under
indentures of, accept investment banking engagements from and generally engage
in any kind of business with, any Loan Party, any of its Subsidiaries and any
Person who may do business with or own securities of any Loan Party or any such
Subsidiary, all as if Citibank, Citicorp or Goldman, as the case may be, were
not an Agent and without any duty to account therefor to the Lender Parties.
SECTION 7.04. Lender Party Credit Decision. Each Lender Party
acknowledges that it has, independently and without reliance upon the Agents or
any other Lender Party and based on the financial statements referred to in
Section 4.01 and such other documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Lender Party also acknowledges that it will, independently and
without reliance upon the Agents or any other Lender Party and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement.
SECTION 7.05. Indemnification. (a) Each Lender Party severally
agrees to indemnify each Agent (to the extent not promptly reimbursed by the
Borrower) from and against such Lender Party's ratable share (determined as
provided below) of any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever that may be imposed on, incurred by, or asserted
against such Agent in any way relating to or arising out of the Loan Documents
or any action taken or omitted by such Agent under the Loan Documents; provided,
however,
<PAGE> 139
133
that no Lender Party shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from such Agent's gross negligence or
willful misconduct. Without limitation of the foregoing, each Lender Party
agrees to reimburse such Agent promptly upon demand for its ratable share of any
costs and expenses (including, without limitation, reasonable fees and expenses
of counsel) payable by the Borrower under Section 8.04, to the extent that such
Agent is not promptly reimbursed for such costs and expenses by the Borrower.
For purposes of this Section 7.05(a), the Lender Parties' respective ratable
shares of any amount shall be determined, at any time, according to the sum of
(a) the aggregate principal amount of the Advances outstanding at such time and
owing to the respective Lender Parties, (b) their respective Pro Rata Shares of
the aggregate Available Amount of all Letters of Credit outstanding at such
time, (c) the aggregate unused portions of their respective Term Loan
Commitments, AXELs Series A Commitments and AXELs Series B Commitments at such
time and (d) their respective Unused Working Capital Commitments at such time;
provided that the aggregate principal amount of Letter of Credit Advances owing
to any Issuing Bank shall be considered to be owed to the Working Capital
Lenders ratably in accordance with their respective Working Capital Commitments.
In the event that any Defaulted Advance shall be owing by any Defaulting Lender
at any time, such Lender Party's Commitment with respect to the Facility under
which such Defaulted Advance was required to have been made shall be considered
to be unused for purposes of this Section 7.05(a) to the extent of the amount of
such Defaulted Advance. The failure of any Lender Party to reimburse an Agent
promptly upon demand for its ratable share of any amount required to be paid by
the Lender Party to such Agent as provided herein shall not relieve any other
Lender Party of its obligation hereunder to reimburse such Agent for its ratable
share of such amount, but no Lender Party shall be responsible for the failure
of any other Lender Party to reimburse such Agent for such other Lender Party's
ratable share of such amount. Without prejudice to the survival of any other
agreement of any Lender Party hereunder, the agreement and obligations of each
Lender Party contained in this Section 7.05(a) shall survive the payment in full
of principal, interest and all other amounts payable hereunder and under the
other Loan Documents.
(b) Each Working Capital Lender severally agrees to indemnify
each Issuing Bank (to the extent not promptly reimbursed by the Borrower) from
and against such Working Capital Lender's ratable share (determined as provided
below) of any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever that may be imposed on, incurred by, or asserted against such
Issuing Bank in any way relating to or arising out of the Loan Documents or any
action taken or omitted by such Issuing Bank under the Loan Documents; provided,
however, that no Working Capital Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from such Issuing Bank's gross
negligence or willful misconduct. Without limitation of the foregoing, each
Working Capital Lender agrees to reimburse such
<PAGE> 140
134
Issuing Bank promptly upon demand for its ratable share of any costs and
expenses (including, without limitation, reasonable fees and expenses of
counsel) payable by the Borrower under Section 8.04, to the extent that such
Issuing Bank is not promptly reimbursed for such costs and expenses by the
Borrower. For purposes of this Section 7.05(b), the Working Capital Lenders'
respective ratable shares of any amount shall be determined, at any time,
according to the sum of (a) the aggregate principal amount of the Advances
outstanding at such time and owing to the respective Working Capital Lenders,
(b) their respective Pro Rata Shares of the aggregate Available Amount of all
Letters of Credit outstanding at such time, and (c) their respective Unused
Working Capital Commitments at such time; provided that the aggregate principal
amount of Letter of Credit Advances owing to any Issuing Bank shall be
considered to be owed to the Working Capital Lenders ratably in accordance with
their respective Working Capital Commitments. In the event that any Defaulted
Advance shall be owing by any Defaulting Lender at any time, such Lender Party's
Commitment with respect to the Facility under which such Defaulted Advance was
required to have been made shall be considered to be unused for purposes of this
Section 7.05(b) to the extent of the amount of such Defaulted Advance. The
failure of any Working Capital Lender to reimburse such Issuing Bank promptly
upon demand for its ratable share of any amount required to be paid by the
Working Capital Lenders to such Issuing Bank as provided herein shall not
relieve any other Working Capital Lender of its obligation hereunder to
reimburse such Issuing Bank for its ratable share of such amount, but no Working
Capital Lender shall be responsible for the failure of any other Working Capital
Lender to reimburse such Issuing Bank for such other Working Capital Lender's
ratable share of such amount. Without prejudice to the survival of any other
agreement of any Working Capital Lender hereunder, the agreement and obligations
of each Working Capital Lender contained in this Section 7.05(b) shall survive
the payment in full of principal, interest and all other amounts payable
hereunder and under the other Loan Documents.
SECTION 7.06. Successor Agents. Any Agent may resign as to any
or all of the Facilities at any time by giving written notice thereof to the
Lender Parties and the Borrower and may be removed as to all of the Facilities
at any time with or without cause by the Required Lenders. Upon any such
resignation or removal, the Required Lenders shall have the right to appoint a
successor Agent as to such of the Facilities as to which such Agent has resigned
or been removed subject, so long as no Default shall have occurred and be
continuing, to the consent of the Borrower, such consent not to be unreasonably
withheld or delayed. If no successor Agent shall have been so appointed by the
Required Lenders, and shall have accepted such appointment, within 30 days after
such retiring Agent's giving of notice of resignation or the Required Lenders'
removal of such retiring Agent, then such retiring Agent may, on behalf of the
Lender Parties, appoint a successor Agent subject, so long as no Default shall
have occurred and be continuing, to the consent of the Borrower, such consent
not to be unreasonably withheld or delayed, which shall be a commercial bank
organized or licensed under the laws of the United States or of any State
thereof and having a combined capital and surplus of at least $250,000,000. Upon
the acceptance of any
<PAGE> 141
135
appointment as an Agent hereunder by a successor Agent as to all of the
Facilities and upon the execution and filing or recording of such financing
statements, or amendments thereto, and such amendments or supplements to the
Mortgages, and such other instruments or notices, as may be necessary or
desirable, or as the Required Lenders may request, in order to continue the
perfection of the Liens granted or purported to be granted by the Collateral
Documents, such successor Agent shall succeed to and become vested with all the
rights, powers, discretion, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations under the
Loan Documents. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent as to less than all of the Facilities and upon the execution and
filing or recording of such financing statements, or amendments thereto, and
such amendments or supplements to the Mortgages, and such other instruments or
notices, as may be necessary or desirable, or as the Required Lenders may
request, in order to continue the perfection of the Liens granted or purported
to be granted by the Collateral Documents, such successor Agent shall succeed to
and become vested with all the rights, powers, discretion, privileges and duties
of the retiring Agent as to such Facilities, other than with respect to funds
transfers and other similar aspects of the administration of Borrowings under
such Facilities, issuances of Letters of Credit (notwithstanding any resignation
as Agent with respect to the Letter of Credit Facility) and payments by the
Borrower in respect of such Facilities, and the retiring Agent shall be
discharged from its duties and obligations under this Agreement as to such
Facilities, other than as aforesaid. After any retiring Agent's resignation or
removal hereunder as Agent as to all of the Facilities, the provisions of this
Article VII shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent as to any Facilities under this Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any
provision of this Agreement or the Notes or any other Loan Document, nor consent
to any departure by the Borrower therefrom, shall in any event be effective
unless the same shall be in writing and signed (or, in the case of the
Collateral Documents, consented to) by the Required Lenders, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that (a) no amendment,
waiver or consent shall, unless in writing and signed by all of the Lender
Parties (other than any Lender Party that is, at such time, a Defaulting
Lender), do any of the following at any time: (i) waive any of the conditions
specified in Section 3.01 or, in the case of the Initial Extension of Credit,
Section 3.02, (ii) change the number of Lenders or the percentage of (x) the
Commitments, (y) the aggregate unpaid principal amount of the Advances or (z)
the aggregate Available Amount of outstanding Letters of Credit that, in
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each case, shall be required for the Lenders or any of them to take any action
hereunder, (iii) reduce or limit the obligations of any Guarantor under Section
1 of any Guaranty or release such Guarantor or otherwise limit such Guarantor's
liability with respect to the Obligations owing to the Administrative Agent and
the Lender Parties other than, in the case of any Subsidiary Guarantor, to the
extent permitted under the Subsidiary Guaranty, (iv) release any material
portion of the Collateral in any transaction or series of related transactions
(except to the extent permitted by Section 5.02(e)) or permit the creation,
incurrence, assumption or existence of any Lien (other than Liens permitted
under Section 5.02(a)) on any material portion of the Collateral in any
transaction or series of related transactions to secure any Obligations other
than Obligations owing to the Secured Parties under the Loan Documents and other
than Debt owing to any other Person, provided that, in the case of any Lien on
any material portion of the Collateral to secure Debt owing to any other Person
(other than Liens permitted under Section 5.02(a)), (A) the Borrower shall, on
the date such Debt shall be incurred or issued, prepay the Advances pursuant to,
and in the order of priority set forth in, Section 2.06(b)(ii) in an aggregate
principal amount equal to the amount of the Net Cash Proceeds thereof to the
extent required to do so under Section 2.06(b)(ii), (B) such Lien shall be
subordinated to the Liens created under the Loan Documents on terms acceptable
to the Required Lenders and (C) the Required Lenders shall otherwise permit the
creation, incurrence, assumption or existence of such Lien and, to the extent
not otherwise permitted under Section 5.02(b), of such Debt, (v) amend this
Section 8.01, or (vi) limit the liability of any Loan Party under any of the
Loan Documents, (b) no amendment, waiver or consent shall, unless in writing and
signed by the Required Lenders and each Lender that has a Commitment under the
Term Loan Facility, AXELs Series A Facility, AXELs Series B Facility or Working
Capital Facility if affected by such amendment, waiver or consent, (i) increase
the Commitments of such Lender or subject such Lender to any additional
obligations, (ii) reduce the principal of, or interest on, the Notes held by
such Lender or any fees or other amounts payable hereunder to such Lender, (iii)
postpone any date fixed for any payment of principal of, or interest on, the
Notes held by such Lender or any fees or other amounts payable hereunder to such
Lender or (iv) change the allocation or the order of application of any
prepayment set forth in Section 2.06 in any manner that materially affects such
Lender and (c) no amendment, waiver or consent shall, unless in writing and
signed by (i) the Required Lenders and each New AXELs Series B Lender, waive any
of the conditions specified in Section 3.04 or, in the case of the making of New
AXELs Series B Advances, Section 3.02 or (ii) the Required Lenders waive any of
the conditions specified in Section 3.05; provided further that no amendment,
waiver or consent shall, unless in writing and signed by each Issuing Bank in
addition to the Lenders required above to take such action, affect the rights or
obligations of the Issuing Banks under this Agreement; and provided further that
no amendment, waiver or consent shall, unless in writing and signed by an Agent
in addition to the Lenders required above to take such action, affect the rights
or duties of such Agent under this Agreement.
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SECTION 8.02. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing (including
telegraphic, telecopy or telex communication) and mailed, telegraphed,
telecopied, telexed or delivered, if to the Borrower, at its address at AMF
Bowling Worldwide, Inc., 8100 AMF Drive, Mechanicsville, Virginia 23111,
Attention: Stephen E. Hare, with a copy to Goldman, Sachs & Co., 85 Broad
Street, New York, New York 10004, Attention: David Greenwald, Esq.; if to any
Initial Lender or any Initial Issuing Bank, at its Domestic Lending Office
specified opposite its name on Schedule I hereto; if to any other Lender Party,
at its Domestic Lending Office specified in the Assignment and Acceptance
pursuant to which it became a Lender Party; if to the Collateral Agent, at its
address at 399 Park Avenue, New York, New York 10043, Attention: Charles Foster;
and if to the Administrative Agent, at its address at 399 Park Avenue, 6th
Floor, New York, New York 10043, Attention: Charles Foster; or, as to the
Borrower or the Administrative Agent, at such other address as shall be
designated by such party in a written notice to the other parties and, as to
each other party, at such other address as shall be designated by such party in
a written notice to the Borrower and the Administrative Agent. All such notices
and communications shall (a) when mailed, be effective three Business Days after
the same is deposited in the mails, (b) when mailed for next day delivery by a
reputable freight company or reputable overnight courier service, be effective
one Business Day thereafter, and (c) when sent by telegraph, telecopier or
telex, be effective when the same is confirmed by telephone, telecopier
confirmation or return telecopy or telex answerback, respectively, except that
notices and communications to the Administrative Agent pursuant to Article II,
III or VII shall not be effective until received by the Administrative Agent.
Delivery by telecopier of an executed counterpart of any amendment or waiver of
any provision of this Agreement or the Notes or of any Exhibit hereto to be
executed and delivered hereunder shall be effective as delivery of a manually
executed counterpart thereof.
SECTION 8.03. No Waiver; Remedies. No failure on the part of
any Lender Party or any Agent to exercise, and no delay in exercising, any right
hereunder or under any Note shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 8.04. Costs and Expenses. (a) The Borrower agrees to
pay on demand (i) all costs and expenses of the Arrangers and the Agents in
connection with the preparation, execution, delivery, administration,
modification and amendment of the Loan Documents (including, without limitation,
(A) all due diligence, collateral review, syndication, transportation, computer,
duplication, appraisal, audit, insurance, consultant, search, filing and
recording fees and expenses and (B) the reasonable fees and expenses of counsel
(including, without limitation, local or foreign counsel) for the Arrangers and
the Agents with respect thereto, with respect to advising each of the
Administrative Agent and the Collateral Agent as to its rights and
responsibilities, or the perfection, protection or
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preservation of rights or interests, under the Loan Documents, with respect to
negotiations with any Loan Party or with other creditors of any Loan Party or
any of its Subsidiaries arising out of any Default or any events or
circumstances that may give rise to a Default and with respect to presenting
claims in or otherwise participating in or monitoring any bankruptcy, insolvency
or other similar proceeding involving creditors' rights generally and any
proceeding ancillary thereto) and (ii) all costs and expenses of the Agents and
the Lender Parties in connection with the enforcement of the Loan Documents,
whether in any action, suit or litigation, any bankruptcy, insolvency or other
similar proceeding affecting creditors' rights generally (including, without
limitation, the reasonable fees and expenses of counsel (including, without
limitation, local or foreign counsel) for each Agent and each Lender Party with
respect thereto).
(b) The Borrower agrees to indemnify and hold harmless each Agent,
each Arranger, each Lender Party and each of their Affiliates and their
officers, trustees, directors, employees, agents and advisors (each, an
"Indemnified Party") from and against any and all claims, damages, losses,
liabilities and expenses (including, without limitation, reasonable fees and
expenses of counsel) that may be incurred by or asserted or awarded against any
Indemnified Party, in each case arising out of or in connection with or by
reason of, or in connection with the preparation for a defense of, any
investigation, litigation or proceeding arising out of, related to or in
connection with (i) the Facilities, the actual or proposed use of the proceeds
of the Advances or the Letters of Credit, the Loan Documents or any of the
transactions contemplated thereby, including, without limitation, any
acquisition or proposed acquisition (including, without limitation, the
Acquisition and any of the other transactions contemplated hereby) by the Equity
Investors or any of their Subsidiaries or Affiliates of all or any portion of
the stock or substantially all the assets of the Company or any of its
Subsidiaries or (ii) the actual or alleged presence of Hazardous Materials on
any property of any Loan Party or any of its Subsidiaries or any Environmental
Action relating in any way to any Loan Party or any of its Subsidiaries, in each
case whether or not such investigation, litigation or proceeding is brought by
any Loan Party, its directors, shareholders or creditors or an Indemnified Party
or any Indemnified Party is otherwise a party thereto and whether or not the
transactions contemplated hereby are consummated (but excluding any such claims,
damages, losses, liabilities and expenses (A) of any Indemnified Party to the
extent such claim, damage, loss, liability or expense is found in a final,
non-appealable judgment by a court of competent jurisdiction to have resulted
from such Indemnified Party's gross negligence or willful misconduct or (B)
arising from disputes among two or more Lender Parties (but not including any
such dispute that involves a Lender Party to the extent that such Lender Party
is acting in any different capacity (such as an Agent or Arranger) or to the
extent it involves syndication activities). The Borrower also agrees not to
assert any claim against any Agent, any Lender Party or any of their Affiliates,
or any of their respective officers, directors, trustees, employees, attorneys
and agents, on any theory of liability, for special, indirect, consequential or
punitive damages arising out of or otherwise relating to the Facilities, the
actual or proposed use of the proceeds of the
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Advances or the Letters of Credit, the Loan Documents or any of the transactions
contemplated thereby.
(c) If any payment of principal of, or Conversion of, any Eurodollar
Rate Advance is made by the Borrower to or for the account of a Lender Party
other than on the last day of the Interest Period for such Advance, as a result
of a payment or Conversion pursuant to Section 2.01(c), 2.06, 2.09(b)(i) or
2.10(d), acceleration of the maturity of the Notes pursuant to Section 6.01 or
for any other reason, or by an Eligible Assignee to a Lender Party other than on
the last day of the Interest Period for such Advance upon an assignment of
rights and obligations under this Agreement pursuant to Section 8.07 as a result
of a demand by the Borrower pursuant to Section 8.07(a), the Borrower shall,
upon demand by such Lender Party (with a copy of such demand to the
Administrative Agent), pay to the Administrative Agent for the account of such
Lender Party any amounts required to compensate such Lender Party for any
additional losses, costs or expenses that it may reasonably incur as a result of
such payment, including, without limitation, any loss (including loss of
anticipated profits), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by any Lender Party to fund or
maintain such Advance.
(d) If any Loan Party fails to pay when due any costs, expenses or
other amounts payable by it under any Loan Document, including, without
limitation, fees and expenses of counsel and indemnities, such amount may be
paid on behalf of such Loan Party by the Administrative Agent or any Lender
Party, in its sole discretion.
(e) Without prejudice to the survival of any other agreement of any
Loan Party hereunder or under any other Loan Document, the agreements and
obligations of the Borrower contained in Sections 2.10 and 2.12 and this Section
8.04 shall survive the payment in full of principal, interest and all other
amounts payable hereunder and under any of the other Loan Documents.
SECTION 8.05. Right of Set-off. Upon (a) the occurrence and during
the continuance of any Event of Default and (b) the making of the request or the
granting of the consent specified by Section 6.01 to authorize the
Administrative Agent to declare the Notes due and payable pursuant to the
provisions of Section 6.01, each Lender Party and each of its respective
Affiliates is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and otherwise apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by such Lender Party or such
Affiliate to or for the credit or the account of the Borrower against any and
all of the Obligations of the Borrower now or hereafter existing under this
Agreement and the Note or Notes (if any) held by such Lender Party, irrespective
of whether such Lender Party shall have made any demand under this Agreement or
such Note or Notes and although such obligations may be unmatured. Each Lender
Party agrees
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promptly to notify the Borrower after any such set-off and application;
provided, however, that the failure to give such notice shall not affect the
validity of such set-off and application. The rights of each Lender Party and
its respective Affiliates under this Section are in addition to other rights and
remedies (including, without limitation, other rights of set-off) that such
Lender Party and its respective Affiliates may have.
SECTION 8.06. Binding Effect. This Agreement shall become effective
when the Third Amendment shall have been executed by the Borrower and the Agents
and when the Administrative Agent shall have been notified by the Required
Lenders that such Lender Parties have executed the Third Amendment and the
conditions precedent set forth in the Third Amendment and in Section 3.05 have
been satisfied in full, and thereafter shall be binding upon and inure to the
benefit of the Borrower, each Agent and each Lender Party and their respective
successors and assigns, except that the Borrower shall not have the right to
assign its rights hereunder or any interest herein without the prior written
consent of the Lender Parties.
SECTION 8.07. Assignments and Participations. (a) Each Lender may
(and, so long as no Default shall have occurred and be continuing, if demanded
by the Borrower (following a demand by such Lender pursuant to Section 2.10 or
2.12 or if such Lender shall be a Defaulting Lender) upon at least 5 Business
Days' notice to such Lender and the Administrative Agent, will) assign to one or
more Eligible Assignees all or a portion of its rights and obligations under
this Agreement and the other Loan Documents (including, without limitation, all
or a portion of its Commitment or Commitments, the Advances owing to it and the
Note or Notes held by it); provided, however, that (i) each such assignment
shall be of a uniform, and not a varying, percentage of all rights and
obligations under and in respect of one or more Facilities, (ii) except in the
case of an assignment to a Person that, immediately prior to such assignment,
was a Lender or an assignment of all of a Lender's rights and obligations under
this Agreement, the amount of the Commitment or Commitments of the assigning
Lender being assigned pursuant to each such assignment (determined as of the
date of the Assignment and Acceptance with respect to such assignment) shall in
no event be less than $5,000,000, (iii) each such assignment shall be to an
Eligible Assignee, (iv) each such assignment made as a result of a demand by the
Borrower pursuant to this Section 8.07(a) shall be arranged by the Borrower
after consultation with the Administrative Agent and shall be either an
assignment of all of the rights and obligations of the assigning Lender under
this Agreement and the other Loan Documents or an assignment of a portion of
such rights and obligations made concurrently with another such assignment or
other such assignments that together cover all of the rights and obligations of
the assigning Lender under this Agreement and the other Loan Documents, (v) no
Lender shall be obligated to make any such assignment as a result of a demand by
the Borrower pursuant to this Section 8.07(a) unless and until such Lender shall
have received one or more payments from either the Borrower or one or more
Eligible Assignees in an aggregate amount at least equal to the aggregate
outstanding principal amount of the Advances owing to such Lender,
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together with accrued interest thereon to the date of payment of such principal
amount and all other amounts payable to such Lender under this Agreement, and
(vi) the parties to each such assignment shall execute and deliver to the
Administrative Agent, for its acceptance and recording in the Register, an
Assignment and Acceptance, together with any Note or Notes subject to such
assignment and a processing and recordation fee of $1,500 for each Assignment
and Acceptance between a Lender and one of its Affiliates or another Lender or
$3,000 for each other Assignment and Acceptance, provided, however, that for
each such assignment made as a result of a demand by the Borrower pursuant to
this Section 8.07(a), the Borrower shall pay to the Administrative Agent the
applicable processing and recordation fee.
(b) Upon such execution, delivery, acceptance and recording, from
and after the effective date specified in such Assignment and Acceptance, (x)
the assignee thereunder shall be a party hereto and, to the extent that rights
and obligations hereunder have been assigned to it pursuant to such Assignment
and Acceptance, have the rights and obligations of a Lender or Issuing Bank, as
the case may be, hereunder and (y) the Lender or Issuing Bank assignor
thereunder shall, to the extent that rights and obligations hereunder have been
assigned by it pursuant to such Assignment and Acceptance, relinquish its rights
(other than its rights under Sections 2.10, 2.12 and 8.04 to the extent any
claim thereunder relates to an event arising prior to such assignment) and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's or Issuing Bank's rights and obligations under this Agreement, such
Lender or Issuing Bank shall cease to be a party hereto).
(c) By executing and delivering an Assignment and Acceptance, the
Lender Party assignor thereunder and the assignee thereunder confirm to and
agree with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such assigning Lender Party makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or any other Loan Document or any other instrument or document
furnished pursuant hereto or thereto or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of, or the perfection or
priority of any lien or security interest created or purported to be created
under or in connection with, this Agreement or any other Loan Document or any
other instrument or document furnished pursuant hereto or thereto; (ii) such
assigning Lender Party makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or any
other Loan Party or the performance or observance by any Loan Party of any of
its obligations under any Loan Document or any other instrument or document
furnished pursuant thereto; (iii) such assignee confirms that it has received a
copy of this Agreement, together with copies of the financial statements
referred to in Section 4.01 and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
such Assignment and Acceptance; (iv) such assignee will,
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independently and without reliance upon any Agent, such assigning Lender Party
or any other Lender Party and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (v) such assignee confirms
that it is an Eligible Assignee; (vi) such assignee appoints and authorizes each
Agent to take such action as agent on its behalf and to exercise such powers and
discretion under the Loan Documents as are delegated to such Agent by the terms
hereof, together with such powers and discretion as are reasonably incidental
thereto; and (vii) such assignee agrees that it will perform in accordance with
their terms all of the obligations which by the terms of this Agreement are
required to be performed by it as a Lender or Issuing Bank, as the case may be.
(d) The Administrative Agent, acting for this purpose (but only for
this purpose) as the agent of the Borrower, shall maintain at its address
referred to in Section 8.02 a copy of each Assignment and Acceptance delivered
to and accepted by it and a register for the recordation of the names and
addresses of the Lender Parties and the Commitment under each Facility of, and
principal amount of the Advances owing under each Facility to, each Lender Party
from time to time (the "Register"). The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Agents and the Lender Parties shall treat each Person whose name
is recorded in the Register as a Lender Party hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower or any
Lender Party at any reasonable time and from time to time upon reasonable prior
notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender Party and an assignee, together with any Note or Notes subject
to such assignment, the Administrative Agent shall, if such Assignment and
Acceptance has been completed and is in substantially the form of Exhibit C
hereto, (i) accept such Assignment and Acceptance, (ii) record the information
contained therein in the Register and (iii) give prompt notice thereof to the
Borrower and the other Agents. In the case of any assignment by a Lender, within
five Business Days after its receipt of such notice, the Borrower, at its own
expense, shall execute and deliver to the Administrative Agent in exchange for
the surrendered Note or Notes a new Note to the order of such Eligible Assignee
in an amount equal to the Commitment assumed by it under a Facility pursuant to
such Assignment and Acceptance and, if the assigning Lender has retained a
Commitment hereunder under such Facility, a new Note to the order of the
assigning Lender in an amount equal to the Commitment retained by it hereunder.
Such new Note or Notes shall be in an aggregate principal amount equal to the
aggregate principal amount of such surrendered Note or Notes, shall be dated the
effective date of such Assignment and Acceptance and shall otherwise be in
substantially the form of Exhibit A-1, A-2, A-3 or A-4 hereto, as the case may
be.
(f) Each Issuing Bank may assign to one or more Eligible Assignees
all or a portion of its rights and obligations under the undrawn portion of its
Letter of Credit
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Commitment at any time; provided, however, that (i) except in the case of an
assignment to a Person that immediately prior to such assignment was an Issuing
Bank or an assignment of all of an Issuing Bank's rights and obligations under
this Agreement, the amount of the Letter of Credit Commitment of the assigning
Issuing Bank being assigned pursuant to each such assignment (determined as of
the date of the Assignment and Acceptance with respect to such assignment) shall
in no event be less than $5,000,000 and shall be in an integral multiple of
$1,000,000 in excess thereof, (ii) each such assignment shall be to an Eligible
Assignee and (iii) the parties to each such assignment shall execute and deliver
to the Administrative Agent, for its acceptance and recording in the Register,
an Assignment and Acceptance, together with a processing and recordation fee of
$3,000.
(g) Each Lender Party may sell participations to one or more Persons
(other than any Loan Party or any of its Affiliates) in or to all or a portion
of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitments, the Advances owing to it and
the Note or Notes (if any) held by it); provided, however, that (i) such Lender
Party's obligations under this Agreement (including, without limitation, its
Commitments) shall remain unchanged, (ii) such Lender Party shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Lender Party shall remain the holder of any such Note for all
purposes of this Agreement, (iv) the Borrower, the Administrative Agent and the
other Lender Parties shall continue to deal solely and directly with such Lender
Party in connection with such Lender Party's rights and obligations under this
Agreement and (v) no participant under any such participation shall have any
right to approve any amendment or waiver of any provision of any Loan Document,
or any consent to any departure by any Loan Party therefrom, except to the
extent that such amendment, waiver or consent would reduce the principal of, or
interest on, the Notes or any fees or other amounts payable hereunder, in each
case to the extent subject to such participation, postpone any date fixed for
any payment of principal of, or interest on, the Notes or any fees or other
amounts payable hereunder, in each case to the extent subject to such
participation, release any Guarantor or Guarantors to the extent that such
release would have the effect of releasing all or substantially all of the
Collateral, or release all or substantially all of the Collateral.
(h) Any Lender Party may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
8.07, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrower furnished to such Lender
Party by or on behalf of the Borrower; provided, however, that, prior to any
such disclosure, the assignee or participant or proposed assignee or participant
shall agree to preserve the confidentiality of any Confidential Information
received by it from such Lender Party.
(i) Notwithstanding any other provision set forth in this Agreement,
any Lender Party may at any time create a security interest in all or any
portion of its rights
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under this Agreement (including, without limitation, the Advances owing to it
and the Note or Notes held by it) in favor of any Federal Reserve Bank in
accordance with Regulation A of the Board of Governors of the Federal Reserve
System.
SECTION 8.08. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 8.09. No Liability of the Issuing Banks. The Borrower
assumes all risks of the acts or omissions of any beneficiary or transferee of
any Letter of Credit with respect to its use of such Letter of Credit. Neither
any Issuing Bank nor any other Lender Party nor any of their respective officers
or directors shall be liable or responsible for: (a) the use that may be made of
any Letter of Credit or any acts or omissions of any beneficiary or transferee
in connection therewith; (b) the validity, sufficiency or genuineness of
documents, or of any endorsement thereon, even if such documents should prove to
be in any or all respects invalid, insufficient, fraudulent or forged; (c)
payment by such Issuing Bank against presentation of documents that do not
comply with the terms of a Letter of Credit, including failure of any documents
to bear any reference or adequate reference to the Letter of Credit; or (d) any
other circumstances whatsoever in making or failing to make payment under any
Letter of Credit, except that the Borrower shall have a claim against such
Issuing Bank, and such Issuing Bank shall be liable to the Borrower, to the
extent of any direct, but not consequential, damages suffered by the Borrower
that the Borrower proves were caused by (i) such Issuing Bank's willful
misconduct or gross negligence in determining whether documents presented under
any Letter of Credit comply with the terms of such Letter of Credit or (ii) such
Issuing Bank's willful failure to make lawful payment under a Letter of Credit
after the presentation to it of a draft and certificates strictly complying with
the terms and conditions of the Letter of Credit. In furtherance and not in
limitation of the foregoing, such Issuing Bank may accept documents that appear
on their face to be in order, without responsibility for further investigation,
regardless of any notice or information to the contrary.
SECTION 8.10. Confidentiality. Neither any Agent nor any Lender
Party shall disclose any Confidential Information to any Person without the
consent of the Borrower, other than (a) to such Agent's or such Lender Party's
Affiliates and their officers, directors, partners, employees, agents and
advisors and to actual or prospective Eligible Assignees and participants, and
then only on a confidential basis, (b) as required by any law, rule or
regulation or judicial process, provided that, other than with respect to
Confidential Information otherwise permitted to be disclosed pursuant to clause
(d) below, such Agent or Lender Party shall, unless prohibited by applicable law
or regulation or court order, give
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145
notice to the Borrower of any such requirement to disclose such Confidential
Information, and, if practicable, such notice shall be given prior to such
disclosure, provided, however, that the failure to give such notice shall not
prohibit such disclosure, (c) to any rating agency when required by it, provided
that, prior to any such disclosure, such rating agency shall undertake to
preserve the confidentiality of any Confidential Information relating to the
Borrower received by it from such Lender Party and (d) as requested or required
by any state, federal or foreign authority or examiner or the National
Association of Insurance Commissioners or any state or federal authority
regulating such Lender Party.
SECTION 8.11. Jurisdiction, Etc. (a) Each of the parties hereto
hereby irrevocably and unconditionally submits, for itself and its property, to
the nonexclusive jurisdiction of any New York State court or federal court of
the United States of America sitting in New York City, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement or any of the other Loan Documents to which it is a party, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in any such New York State
court or, to the extent permitted by law, in such federal court. Each of the
parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement shall
affect any right that any party may otherwise have to bring any action or
proceeding relating to this Agreement or any of the other Loan Documents in the
courts of any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or any of the
other Loan Documents to which it is a party in any New York State or federal
court. Each of the parties hereto hereby irrevocably waives, to the fullest
extent permitted by law, the defense of an inconvenient forum to the maintenance
of such action or proceeding in any such court.
SECTION 8.12. Release of Collateral. Upon the sale, lease, transfer
or other disposition of any item of Collateral of any Loan Party (including,
without limitation, as a result of the sale, in accordance with the terms of the
Loan Documents, of the Loan Party that owns such Collateral) in accordance with
the terms of the Loan Documents, the Collateral Agent will, at the Borrower's
expense, execute and deliver to such Loan Party such documents as such Loan
Party may reasonably request to evidence the release of such item of Collateral
from the assignment and security interest granted under the Collateral Documents
in accordance with the terms of the Loan Documents.
<PAGE> 152
146
SECTION 8.13. Governing Law; Waiver of Jury Trial. This Agreement
and the Notes shall be governed by, and construed in accordance with, the laws
of the State of New York. Each of the Borrower, the Agents and the Lender
Parties irrevocably waives all right to trial by jury in any action, proceeding
or counterclaim (whether based on contract, tort or otherwise) arising out of or
relating to any of the Loan Documents, the Advances or the actions of any Agent
or any Lender Party in the negotiation, administration, performance or
enforcement thereof.
<PAGE> 153
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
AMF BOWLING WORLDWIDE INC.
(f/k/a AMF Group Inc.)
By____________________________________
Title:
GOLDMAN SACHS CREDIT
PARTNERS L.P.,
as Syndication Agent
By____________________________________
Title:
CITIBANK, N.A.,
as Administrative Agent
By____________________________________
Title:
CITICORP USA, INC.,
as Collateral Agent
By____________________________________
Title:
<PAGE> 154
AMSOUTH BANK
By____________________________________
Title:
<PAGE> 155
ABN AMRO BANK N.V.
By____________________________________
Title:
By____________________________________
Title:
<PAGE> 156
AERIES FINANCE LTD.
By____________________________________
Title:
ABN AMRO BANK N.V.
By____________________________________
Title:
By____________________________________
Title:
<PAGE> 157
ALLSTATE LIFE INSURANCE
COMPANY
By____________________________________
Title:
By____________________________________
Title:
<PAGE> 158
AMARA - 2 FINANCE LTD.
By____________________________________
Title:
<PAGE> 159
BANK OF HAWAII
By____________________________________
Title:
<PAGE> 160
COMPAGNIE FINANCIERE DE CIC ET
DE L'UNION EUROPEENNE
By____________________________________
Title:
By____________________________________
Title:
<PAGE> 161
DRESDNER BANK AG, NEW YORK
AND GRAND CAYMAN
BRANCHES
By____________________________________
Title:
By____________________________________
Title:
<PAGE> 162
THE INDUSTRIAL BANK OF JAPAN,
LIMITED
By____________________________________
Title:
<PAGE> 163
KEYPORT LIFE INSURANCE
COMPANY
By Chancellor LGT Senior Secured
Management, Inc., as
Portfolio Advisor
By____________________________________
Title:
<PAGE> 164
CREDITANSTALT BANKVEREIN
By____________________________________
Title:
By____________________________________
Title:
<PAGE> 165
COMERICA BANK
By____________________________________
Title:
<PAGE> 166
CAISSE NATIONALE DE CREDIT
AGRICOLE
By____________________________________
Title:
<PAGE> 167
BANKBOSTON, N.A.
By____________________________________
Title:
<PAGE> 168
BANKAMERICA BUSINESS CREDIT,
INC.
By____________________________________
Title:
<PAGE> 169
LENDERS
GOLDMAN SACHS CREDIT
PARTNERS L.P.
By____________________________________
Title:
<PAGE> 170
CITICORP USA, INC.
By____________________________________
Title:
<PAGE> 171
THE BANK OF NOVA SCOTIA
By____________________________________
Title:
<PAGE> 172
BANK OF SCOTLAND
By____________________________________
Title:
<PAGE> 173
BANKERS TRUST
By____________________________________
Title:
<PAGE> 174
NATEXIS BANQUE BFCE
By____________________________________
Title:
By____________________________________
Title:
<PAGE> 175
CAPTIVA II FINANCE LTD.
By____________________________________
Title:
<PAGE> 176
CIBC INC.
By____________________________________
Title:
<PAGE> 177
COMMERCIAL LOAN FUNDING
TRUST I
By Lehman CP Inc. not in its
individual capacity but solely as
Administrative Agent
By____________________________________
Title:
<PAGE> 178
CORESTATES BANK N.A.
By____________________________________
Title:
<PAGE> 179
CRESTAR BANK
By____________________________________
Title:
<PAGE> 180
FIRST SOURCE FINANCIAL LLP
By First Source Financial, Inc.,
its agent/manager
By____________________________________
Title:
<PAGE> 181
GENERAL ELECTRIC CAPITAL
CORPORATION
By____________________________________
Title:
<PAGE> 182
MARINE MIDLAND BANK
By____________________________________
Title:
<PAGE> 183
MEDICAL LIABILITY MUTUAL
INSURANCE CO.
By Chancellor LGT Senior Secured
Management, Inc. as
Investment Manager
By____________________________________
Title:
<PAGE> 184
MELLON BANK, N.A.
By____________________________________
Title:
<PAGE> 185
MERITA BANK LTD, NEW YORK
BRANCH
By____________________________________
Title:
By____________________________________
Title:
<PAGE> 186
MERRILL LYNCH PRIME RATE
PORTFOLIO
By Merrill Lynch Asset
Management, L.P., as
Investment Advisor
By____________________________________
Title:
<PAGE> 187
MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.
By____________________________________
Title:
<PAGE> 188
MERRILL LYNCH DEBT STRATEGIES
FUND, INC.
By____________________________________
Title:
<PAGE> 189
SENIOR HIGH INCOME PORTFOLIO
By____________________________________
Title:
<PAGE> 190
METROPOLITAN LIFE INSURANCE
COMPANY
By____________________________________
Title:
<PAGE> 191
THE MITSUBISHI TRUST AND
BANKING CORPORATION
By____________________________________
Title:
<PAGE> 192
ML CBO IV (CAYMAN) LTD.
By Protective Asset Management
L.L.C., as Collateral Agent
By____________________________________
Title:
<PAGE> 193
MORGAN STANLEY SENIOR
FUNDING, INC.
By____________________________________
Title:
<PAGE> 194
OCTAGON CREDIT INVESTORS
LOAN PORTFOLIO
(a unit of Chase Manhattan Bank)
By____________________________________
Title:
<PAGE> 195
PILGRIM AMERICA PRIME RATE
TRUST
By____________________________________
Title:
<PAGE> 196
PNC BANK, NATIONAL
ASSOCIATION
By____________________________________
Title:
<PAGE> 197
JACKSON NATIONAL LIFE
INSURANCE COMPANY
By PPM AMERICA, INC.,
as attorney in fact
By____________________________________
Title:
<PAGE> 198
PAMCO CAYMAN LTD.
By Protective Asset Management,
L.L.C, as Collateral Agent
By____________________________________
Title:
<PAGE> 199
ROYALTON
By PACIFIC INV. MGT. CO., its
Investment Advisor
By____________________________________
Title:
<PAGE> 200
THE SAKURA BANK, LIMITED
By____________________________________
Title:
<PAGE> 201
SENIOR DEBT PORTFOLIO
By Boston Management and Research
as Investment Advisor
By____________________________________
Title:
<PAGE> 202
SIGNET BANK
By____________________________________
Title:
<PAGE> 203
SOCIETE GENERALE
By____________________________________
Title:
<PAGE> 204
THE TRAVELERS INSURANCE
COMPANY
By____________________________________
Title:
<PAGE> 205
UNITED STATES NATIONAL BANK
OF OREGON
By____________________________________
Title:
<PAGE> 206
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By____________________________________
Title:
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in this Pre-Effective
Amendment No. 2 to the Form S-1 Registration Statement.
ARTHUR ANDERSEN LLP
Richmond, Virginia
October 27, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF PRICE WATERHOUSE LLP
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of AMF Bowling, Inc. of our report dated June
28, 1996, relating to the combined financial statements of AMF Bowling Group and
our report dated January 23, 1996, relating to the consolidated financial
statements of Fair Lanes, Inc. which appear in such Prospectus. We also consent
to the application of such report dated June 28, 1996 to the Financial Statement
Schedules for the four months ended April 30, 1996 and the two years ended
December 31, 1995, listed under Item 16(b) of this Registration Statement when
such schedules are read in conjunction with the financial statements referred to
in our report. The audits referred to in such report also included these
schedules. We also consent to the references to us under the heading "Experts"
in such Prospectus.
PRICE WATERHOUSE LLP
Norfolk, Virginia
October 27, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated December 5, 1996 with respect to
the financial statements of BCA & Affiliates included in this Pre-Effective
Amendment No. 2 to the Form S-1 Registration Statement of AMF Bowling, Inc.
/s/ TODRES & SHEIFFER
--------------------------------------
Todres & Sheiffer
October 27, 1997
